The paper analyses the links between financial technology, investors' financial literacy and the composition and returns of their portfolios, as part of the debate on the effects of technological innovation on inequality. For our study, we develop a simple portfolio choice model under asymmetric information. The hypotheses of the model are then empirically tested using data from surveys on Italian households and banks over the period 2004-20.
The main result suggests that improvements in financial technology may lead to an increase in capital income inequality among investors when the gap in their financial literacy is also great. Capital income inequality can thus only be reduced if financial technology is made accessible to everyone, for instance, by means of dissemination campaigns designed to bridge the gap in the capacity to use financial technology between different types of investor.
