The Impact of Financial Literacy on Financial Inclusion and Household Welfare in Ghana

Abstract

<p>Enhancing household welfare remains a major challenge in the developing world, and especially in sub-Saharan African (SSA). The provision of financial literacy and women’s empowerment training and improvements in financial inclusion have been widely acknowledged as key welfare-enhancing tools. The fundamental question is whether these tools are effective in achieving the welfare-specific components of the Sustainable Development Goals (SDGs). The main objective of this thesis is to examine the impact of financial literacy and women’s empowerment training on financial inclusion and household welfare in Ghana. We use household consumption expenditure, value of accumulated assets, poverty, and vulnerability to poverty as welfare indicators.</p> <p>Using primary data collected through a randomised controlled trial (RCT) and secondary data extracted from the Ghana Living Standards Surveys (GLSS), this thesis employs various micro-econometric approaches to: (i) examine the impact of financial literacy training on financial inclusion and its intensity from a gendered perspective; (ii) ascertain the joint impact of financial literacy and women’s empowerment training on household consumption; (iii) study the joint impact of financial literacy and women’s empowerment training on rural household welfare; (iv) determine the role of financial literacy in the process of asset accumulation in households; (v) estimate the effect of financial inclusion on the growth of non-farm enterprises, and; (vi) analyse the effect of financial inclusion on poverty, and vulnerability to poverty. Household-level data from RCT experiments in 2015 and 2016 are used to address the first four objectives, while data extracted from GLSS6 (2012/13) and GLSS7 (2016/17) are used to accomplish the last two objectives. This thesis is organised in a journal paper-based structure composed of six interrelated papers with each paper presenting the empirical findings for each objective.</p> <p>The focus of papers 1 to 4 is on the impact of financial literacy and women’s empowerment training on financial inclusion and selected welfare indicators. In general, the findings show that beneficiaries of financial literacy training are more likely to be financially included and that intensity of financial inclusion is higher for male and young beneficiary households. Our findings suggest important implications on the design of the training programs and its impact on selected welfare indicators. We find that solely offering financial literacy training has a weaker impact on household consumption than does training which incorporates a women’s empowerment module. Moreover, joint provision of financial literacy and women’s empowerment training increases impact on rural households compared to separate delivery of these training modules. The results indicate that financial literacy training plays a significant role in the asset accumulation process, especially in the accumulation of productive durable assets. Papers 5 and 6 centre on the effect of financial inclusion on the growth of family businesses and upon poverty. The evidence presented in Paper 5 suggests that improvement in the level of financial inclusion of non-farm entrepreneurs is growth enhancing, with higher probability in the urban relative to rural areas. Finally, the results in Paper 6 show that an increase in financial inclusion decreases a household’s likelihood of being poor and prevents households’ exposure to future poverty. Female-headed households stand a greater chance of experiencing a larger reduction in poverty and vulnerability to poverty through enhanced financial inclusion than do male-headed households. Furthermore, financial inclusion reduces poverty and vulnerability to poverty more in rural than in urban areas. </p> <p>This thesis provides significant contributions to the literature and offers important policy implications. This is the first comprehensive analysis using empirical evidence on the relevance of financial literacy, women’s empowerment and financial inclusion, as welfare enhancing development tools in Ghana. This study also highlights the importance and practical significance of the use of experimental (RCT) and quasi-experimental designs in impact evaluation. </p> <p>The results provide useful insights to policy makers and stakeholders. First, financial literacy training can be used to bridge existing gender gaps in financial inclusion and asset accumulation and enhance household welfare in sustainable ways. Second, we advocate for the inclusion of women’s empowerment modules into financial literacy training programmes to accelerate the achievement of their desired welfare-enhancing goals. Third, we envisage that strategies targeted at boosting financial inclusion will not only spur the growth of firms, but will also expand these enterprises and hence improve tax revenue for the economy as a whole. Fourth, we conclude that financial literacy, financial inclusion and women’s empowerment can be used as tools to achieve the welfare-specific components of the SDGs. Fifth, it will be prudent to improve on levels of FI by committing more resources to enhancing the regulatory and institutional frameworks that promote access to the financial system. Finally, there is a need to design policies that provide the business environment necessary for private banks to operate and expand services to more distant areas.</p>