Analysis of financial literacy and its effects on financial inclusion in Uganda

Authors

  • Jason Kasozi Academic
  • Daniel Makina Academic

DOI:

https://doi.org/10.20525/ijfbs.v10i3.1294

Keywords:

financial literacy, financial inclusion, principal component analysis, logistic regressions, Uganda

Abstract

The paper investigates whether financial literacy influences financial inclusion in Uganda on the premise that there are currently few to no studies that investigate this causality and the general lack of consensus on an appropriate measure for financial literacy. It uses data from the FinScope (2018) consumer survey on Uganda and applies Principal Component Analysis (PCA) to construct a composite financial literacy index of the adult bankable population (16 years and older). The index is then regressed - alongside other demand-side control variables, against a measure of financial inclusion using logistic models. Our measure of financial literacy significantly and positively affects financial inclusion in Uganda even in the presence of variables like age, gender, income, and education. Individuals who make financial ends meet, plan for their financial future welfare, seek financial advice, and are receptive towards technology, are 'ceteris paribus', more likely to be financially included than not. Technology and mobile money adoption enhance financial inclusion while more men are financially included than women. While the dataset is limited to demand-side variables of Uganda and cannot be generalised, comparative cross-country studies with robust datasets are needed to provide further insights. The paper advances a novel approach for measuring financial literacy for developing economies while contributing to efforts to standardize an international measure. It also provides empirical insights to support the notion that financial literacy should be addressed more holistically and recommends this approach for improving financial inclusion in Uganda and globally.

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Published

2021-08-28

How to Cite

Kasozi, J., & Makina, D. (2021). Analysis of financial literacy and its effects on financial inclusion in Uganda. International Journal of Finance & Banking Studies (2147-4486), 10(3), 67–83. https://doi.org/10.20525/ijfbs.v10i3.1294

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