Financial literacy and its determinants: the case of rural farm households in Ghana

Abstract

PurposeThis paper aims to examine the determinants of rural dwellers financial literacy in Ghana.Design/methodology/approachA cross-sectional primary data set was used to estimate the factors influencing rural farm households' financial literacy using the IV-Tobit model.FindingsThe findings reveal that most rural residents are financially illiterate. The econometrics model results depicted that respondents' socioeconomic and demographic characteristics such as gender, income, age and education significantly affect financial literacy. Again, respondents who are risk seekers and listen or watch education programs are more likely to be financially literate.Research limitations/implicationsThe paper examined the determinants of rural dwellers financial literacy in four regions in Ghana. Future research should consider all or many regions for an informed generalization of findings.Practical implicationsThis paper provides evidence that rural dwellers are financially illiterate and it would require the policymakers or non-governmental organizations (NGOs) to establish a village or community group that comprises a wide range of bankers and government officials to help rural dwellers acquire some financial skills. Also, the positive relationship between media (whether respondent watches or listens to educational programs) and financial literacy implies that policymakers should focus on improving individuals' financial knowledge through training programs and utilize the media as a channel to propagate financial education to the public.Originality/valueAlthough previous studies have examined the determinants of financial literacy, little is known in developing countries and, in particular, rural communities. The authors fill this gap by contributing to the scanty existing literature in developing countries in several ways. First, this is the first study to examine the financial literacy level of rural dwellers in Ghana. Second, to not undermine the credibility of the estimation results, this study addresses the potential endogeneity issue, which other researchers have not adequately recognized. Finally, the study expands the scant literature on the subject and provides critical policy implications that will help policymakers formulate financial market policies that will contribute to rural dwellers financial literacy enhancement.

Farmer's financial literacy and its determinants: evidence from South Asia

“…The numbers of studies on the issue of FL amongst farmers are scanty in the scholarship. Akoto et al (2017) and Twumasi et al (2021) observed the prevalence of poor FL (affected by age, economic status, educational attainment, gender, risk tolerance and viewership of FL television programmes) amongst Ghanaian farmers. On the other hand, Widhiyanto et al (2018), Santoso et al (2020) and Safitri (2021) noticed that the moderate FL amongst the Indonesian farmers geting affected by age, educational attainment, level of income, financial inclusion (FI) and FL training.…”

The effect of information technology (IT) on household income among farmers in Ghana: How does access to financial services serve as a mediator

“…The third path shows that IT can enhance financial skills and knowledge. As people acquire financial information and managerial skills through financial education, they become confident to participate in the financial market to create wealth (Ankrah Twumasi et al, 2021a;Riebe, 2021;Khan and Surisetti, 2021). Finally, the study showed that IT provides business/market information.…”

“…Wages/salaries, rent, remittances, pensions, and dividends are all examples of off-farm income. Other variables (e.g., age, gender, education, farming experience, distance from farmers' residence to the nearest financial institution, financial literacy, and household size) were added as control variables after following other literature (e.g., Ankrah Twumasi et al, 2021a;Siaw et al, 2020) and our available data (see Table 8.1 for the definition of the other control variables). Also, see Table A1 in the Appendix to see how financial literacy was measured.…”

The Mediating Role of Access to Financial Services in the Effect of Financial Literacy on Household Income: The Case of Rural Ghana

“…This study explores the effect of FL on household income using AFS and social networks as a mediator and moderator, respectively. This study’s financial literacy measurement was calculated using seven quiz-like questions employed by many scholars (Andoh et al, 2015; Ankrah Twumasi et al, 2021; Lusardi & Mitchell, 2007; Niu & Zhou, 2018). We assigned the value of 1 to a correct answer and 0 to an incorrect answer, suggesting that the FL score will range from 0 to 7.…”

“…Finally, from the theory of social networking, the author tries to test social networks (whether a household has a link with a FI official) as a moderator for the financial literacy-AFS relationship. It is believed that individuals take precautional measures when dealing in the financial market to be successful in their financial decision (Ankrah Twumasi et al, 2021; Bucher-Koenen et al, 2017). Therefore, knowing an expert or relating to someone already an official in the financial market becomes a plus for the individual willing to participate in the market.…”