Examining the Link Between Financial Inclusion and Mental Distress: Empirical Evidence from Rural South Africa

Abstract

<p>Considering the worsening prevalence of anxiety and depression globally and the many forms of socioeconomic deprivations faced by rural folks, it has become necessary to explore the financial inclusion–mental distress nexus from a rural perspective. This chapter contributes to the body of knowledge by examining the effect of financial inclusion on mental distress in rural South Africa using data extracted from five waves of the National Income Dynamics Survey (NIDS). We employ a multidimensional index of financial inclusion and measure mental distress using the 10-item Centre for Epidemiological Studies Depression Scale (CES-D-10). Endogeneity is addressed using the Lewbel instrumental variable method. Our findings show that financial inclusion is associated with a decrease in mental distress in rural South Africa, with rural men experiencing greater reductions in mental distress from being financially included compared to women. The findings remain consistent when analysed using different quasi-experimental estimation methods and alternative measures of financial inclusion. The findings further reveal that increased incomes and enhanced energy transition among rural households are reliable pathways via which financial inclusion reduces mental distress in rural areas of South Africa.</p>