Inequalities in the Financial Inclusion in Sri Lanka: An Assessment of the Functional Financial Literacy

Heenkkenda, Shirantha (2014): Inequalities in the Financial Inclusion in Sri Lanka: An Assessment of the Functional Financial Literacy. Published in: Ilorin Journal of Economic Policy , Vol. 1, No. 1 (2014): pp. 1-30.

Abstract

This paper explores the existing pattern and the levels of disparity of the functional financial literacy in the Sri Lankan context. The study, mainly using quantitative data, selected the sample representing the three main settlement types: urban, rural and estate sector using multi-stage sampling technique related to cluster sampling. The analysis generated five ‘domains’ of financial literacy scores that capture respondent’s relative skills using factor analysis. Tobit regression analysis and cluster analysis were used for testing the determinants and disparity of financial literacy among the respondents. Moreover, descriptive statistics and other statistical techniques such as key driver analysis and correlation analysis were also appropriately applied. The study found that the socio-economic-demographic characteristics have a very strong association with the financial literacy of individuals. The results of the study highlights that the majority of the respondents demonstrate a modest financial knowledge and can be categorized as a literate (bankable) group. The functional financial literacy was quite diverse across respondents depending on the levels of education, income, gender, age, etc. Moreover, the study unveils the characteristics of the individuals with different levels of financial literacy for those who need it for policy actions. Furthermore, the study identified the target group for emphasizing in the provision of financial education to minimize inequalities with an increase in the financial inclusion of the country.

• Item Type: MPRA Paper
• Language: English
• Keywords: Financial literacy, financial inclusion, financial inequality
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

References

Arora, R.U. (2010). Measuring Financial Access. Discussion Paper Economics, 2010-7, Griffith University. ISSN1837–ISSN7750.

Atkinson, A., McKay, S., Kempson E., & Collard, S. (2007). Levels of Financial Capability in the UK: Results of a Baseline Survey. Public Money & Management, 27(1): 29-36, February.

Atkinson, A., & Messy, F-A. (2012). Measuring Financial Literacy: Results of the OECD INFE Pilot Study, OECD Working Papers on Finance, Insurance and Private Pensions, No. 15. OECD Publishing.

Behrman, J., Olivia, M. S., Soo, C., & Bravo, D. (2010). Financial Literacy, Schooling, and Wealth Accumulation. NBER WP 16452.

Cole, S., & Fernando, N. (2008). Assessing the Importance of Financial Literacy, ADB Finance for the Poor, Volume 9 (2). Colombage, S.S. (2010). The Potential of Using Mobile Money Systems for Enhancing Financial Inclusion in Sri Lanka. Sri Lanka Journal of Advanced Social Studies, Vol. 1 - No. 2, pp.3-24

Central Bank of Sri Lanka. (2013). Annual Report. Colombo. Central Bank of Sri Lanka.

Hung, A. A., Parker, A. M., & Yoong, J. K., (2009). Defining and measuring financial literacy. RAND working paper. Retrieved January 15, 2014, from http://www.prgs.edu/content/dam/rand/pubs/working_papers/2009/RAND_WR708.pdf

Kim, J., Garman, E. T., & Sorhaindo, B. (2003). Relation- ships among credit counseling, clients’ financial well-being, financial behaviors, financial stressor events, and health. Financial Counseling and Planning, 14(2), 75-87.

Lusardi, A., & Olivia, M. S. (2013). The Economic Importance of Financial Literacy: Theory and Evidence, GFLEC Working Paper Series No. 2014-001. http://dx.doi.org/10.2139/ssrn.2260193

Mason, C., & Wilson, R. (2000). Conceptualizing financial literacy. Business School Research Paper 2000:7, Loughborough University. Retrieved January 21, 2014, from https://dspace.lboro.ac.uk/2134/2016

Murray, T. S. (2010). Financial Literacy: A Conceptual Review. Report submitted to Task Force on Financial Literacy. Data Angel Policy Research. Retrieved January 21, 2014, from http://publications.gc.ca/collections/collection_2011/fin/F2-205-2011-eng.pdf

OECD INFE (2011). Measuring Financial Literacy: Core Questionnaire in Measuring Financial Literacy: Questionnaire and Guidance Notes for conducting Internationally Comparable Survey of Financial literacy. Paris: OECD.

Orton, L. (2007). Financial Literacy: Lessons from International Experience. Working paper, Canadian Policy Research Networks. Retrieved January 15, 2014, from http://rcrpp.ca/documents/48647_EN.pdf

Schwartz, S. (2010). Can financial education improve financial literacy and retirement planning? Discussion paper 12, Institute for Research on Public Policy. Retrieved January 15, 2014, from http://www.irpp.org/assets/research/faces-of-aging/can-financial-education-improve-financial-literacy-and-retirement-planning/IRPP-Study-no12.pdf

Xiao, J. J., Tang, C., & Shim, S. (2008). Acting for happiness: Financial behavior and life satisfaction of college students. Social Indicator Research. DOI 10.1007/s11205-008-9288-6.

Xu, L., & Zia, B. (2012). Financial literacy around the world: An overview of the evidence with practical suggestions for the way forward, policy research working paper No. 6107, World Bank, Washington, DC.