Sustainable Finance in the Age of Digitalisation: The Foundational Role of Digital Financial Literacy in the UK

This chapter examines the relationship between digital financial literacy (DFL), financial literacy (FL), and financial well-being (FWB) in an increasingly digitalised financial system. Utilising nationally representative microdata from the 2018 UK Financial Capability Survey, the analysis examines the influence of digital financial capability on four specific dimensions of financial well-being: subjective financial satisfaction, short-term financial vulnerability, perceived debt burden, and participation in long-term retirement savings. The results provide robust evidence that DFL is significantly and meaningfully associated with financial outcomes, above and beyond financial literacy, consistent with a casual interpretation but subject to the identification assumption discussed in the chapter. Individuals with higher digital financial capability are more likely to achieve financial stability and plan for the future, although greater digital proficiency is also associated with higher engagement with credit markets, reflecting the dual potential of digitalisation to enable both opportunity and risk, underscoring the importance of targeted educational interventions to improve digital financial competencies and to promote inclusive financial participation. Our analysis emphasises the value of digital financial literacy as an essential demand-side factor for inclusive and resilient financial systems within the framework of sustainable finance. The findings suggest that strategies focused solely on supply-side mechanisms, such as ESG-labelled instruments, disclosure regimes, and regulatory taxonomies, are insufficient to achieve broad-based financial inclusion. Effective inclusion necessitates not only access to digital financial services but also the skills to utilise them safely, purposefully, and in manners that promote long-term financial well-being. Better financial products are necessary but not sufficient: inclusive sustainable finance ultimately rests on better-equipped people.