Evolving Role of Financial Literacy in AI-Mediated Financial Ecosystems: A Human-Centric Theory of Contextual Financial Judgment

Abstract

Conventional financial literacy agendas are based on the assumption of information paucity, where consumers actively seek out data and are completely dependent on human cognitive processing for their financial decision making. However, the rapid proliferation of Artificial Intelligence (AI), Financial Technology (FinTech) and algorithmic recommendation systems has fundamentally transformed personal finance. Consumers no longer are passive information seekers; but are constantly exposed to algorithmically curated financial content, personalized product and investment recommendations and behavioural nudges. Thus, the central challenge in financial literacy has pivoted from merely accessing financial data to critically appraising AI-mediated financial content and outputs.
Addressing this gap, the paper advances a human-centric re-interpretation of financial literacy, by demonstrating that although the foundational developmental architecture of financial literacy remains intact across its six core dimensions (Financial Exposure, Importance, Awareness, Knowledge, Attitude and Behaviour), its operational role advances in an AI-mediated environment. Synthesizing Dual-Process Theory, Extended Unified Theory of Acceptance and Use of Technology (UTAUT2), Behavioural Finance, Human Agency Theory, Explainable AI (XAI) and Adaptive Decision-Making Theory; the study establishes Contextual Financial Judgment (CFJ) - an emergent, integrative human capability arising from the convergence of Financial Awareness, In-depth Financial Knowledge and Financial Attitude. The CFJ acts as a System 2 (second-order) integrative capability - a cognitive circuit breaker through which individuals evaluate AI-generated recommendations by considering personal circumstances, financial goals and long-term targets prior to decision making.
Additionally, the paper outlines a broad conceptual framework illustrating the way in which the CFJ preserves human agency and redefines the professional financial planner as a Contextual Judgment Facilitator who supports reflective human-AI collaboration. Finally, the study provides a preliminary operational measurement matrix to guide empirical scale development and policy interventions.