Inequalities In The Financial Inclusion In Sri Lanka: An Assessment Of The Functional Financial Literacy

This paper explores the existing pattern and the levels of disparity of the functional financial literacy in the Sri Lankan context. Based mainly on quantitative data the study selected a sample representing the three main settlement types: urban, rural and estate sector, using the multi-stage sampling technique related to cluster sampling. The analysis generated five ‘domains’ of financial literacy scores that capture the household head’s relative skills using factor analysis. Tobit regression analysis and cluster analysis were used for testing the determinants and disparity of financial literacy among the household heads. Moreover, descriptive statistics, key driver analysis and correlation analysis were also applied. The study found that the socio-economic-demographic characteristics have a very strong association with the financial literacy of individuals. The results of the study highlights that the majority of the household heads demonstrate a modest financial knowledge and can be categorised as a literate (bankable) group. Functional financial literacy was quite diverse across households depending on the levels of education, income, gender, age, etc. Moreover, the study unveils the characteristics of the individuals with different levels of financial literacy for those who need the fundings for policy actions. The study also identifies the target group for affirmative action in the provision of financial education to minimise inequalities with an increase in the financial inclusion of the country.