Is Ignorance Bliss? Use of Alternative Financial Services, Financial Knowledge, and Financial Anxiety

While there is growing empirical attention to the factors affecting the use of Alternative Financial Services (AFS), outcomes of use of AFS are not fully understood. We examined the relationship between AFS use and financial anxiety, with a role of financial knowledge on the association. Using the 2018 National Financial Capability Study, AFS use was measured in three different ways as follows: (1) A binary indicator whether respondents had used at least one of AFS products, (2) the number of different AFS types used, and (3) binary indicators of uses of five different types of AFS. Financial anxiety measure was constructed based on three questions regarding worry, anxious and stressed about personal finance. Regression results demonstrated that AFS use was associated with higher level of financial anxiety while financial knowledge was negatively associated with financial anxiety. Further, results indicated positive interactions between financial knowledge and AFS use, which implies that financial knowledge may increase financial anxiety among AFS users. Considering the interaction and direct effects of financial knowledge on financial anxiety, financial knowledge has a negative effect on anxiety for non-AFS users but little to no effect on anxiety for AFS users. Findings of this study have implications for consumer professionals who work with AFS users.