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Does financial literacy improve financial inclusion? Cross country evidence

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  • Grohmann, Antonia
  • Klühs, Theres
  • Menkhoff, Lukas

Abstract

While financial inclusion is typically addressed by improving the financial infrastructure, we show that a higher degree of financial literacy also has a clear beneficial effect. We study this effect at the cross-country level, which allows us to consider institutional variation. Regarding “access to finance”, financial infrastructure and financial literacy are mainly substitutes. However, regarding the “use of financial services”, the effect of higher financial literacy strengthens the effect of more financial depth. The causal interpretation of these results is supported by IV-regressions. Moreover, the positive impact of financial literacy holds across income levels and several subgroups within countries.

Suggested Citation

  • Grohmann, Antonia & Klühs, Theres & Menkhoff, Lukas, 2018. "Does financial literacy improve financial inclusion? Cross country evidence," World Development, Elsevier, vol. 111(C), pages 84-96.
    • Handle: RePEc:eee:wdevel:v:111:y:2018:i:c:p:84-96
    DOI: 10.1016/j.worlddev.2018.06.020
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    Keywords

    Financial inclusion; Financial literacy; Financial institutions; Financial development;
    All these keywords.

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • G2 - Financial Economics - - Financial Institutions and Services

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