The effect of language on financial inclusion

This study explores whether cross-country differences in financial inclusion can partly be attributed to language heterogeneity. We examine if the future time reference (FTR) component of a language affects intertemporal decision making of individuals when it comes to financial inclusion. We analyze this premise in the backdrop of the extant literature which demonstrates that speakers of languages that demonstrate weak-FTR tend to give relatively more importance to the future. Based on a sample of 78 countries and employing OLS, probit, and instrumental variable methods, we demonstrate that countries where the dominant language exhibits weak-FTR, the percentage of population making use of various financial services, is relatively higher. Further, we identify patience, educational attainment, and tax morale, as potential channels through which the weak-FTR component of language might impact financial inclusion. Our results are robust to controlling for cross-country and individual-level characteristics, language evolution, and alternate future marking behavioral indicators.