Financial Literacy and Its Impact on Household Investment Decisions in Developing Economies

Abstract

Financial literacy is rather important in the determination of household investment behavior especially in the developing economies where the access to the formal financial systems is not so high. This paper analyses the impact of financial literacy enhancement on saving behavior, entrepreneurship and involvement in organized financial markets. The study is done using a mixed-method research design as it incorporates both panel data collected through national financial inclusion survey, and structured household interviews in a sample of developing countries. The results show that there is a high positive correlation between financial literacy and household investment choices. Homes that have greater financial literacy exhibit higher rates of savings, more willingness to participate in entrepreneurial activities and more probable to use formal banking and investment products. Besides, with the help of financial literacy, information asymmetry is greatly minimized, and that way, the financial planning and accumulation of wealth is enhanced in the long term. The paper presents the significance of incorporating financial education in the national development policies as a driver to economic growth and poverty alleviation. The findings are useful to policymakers, financial institutions and development partners who would want to improve financial inclusion and encourage productive investment in the emerging markets.