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An Inquiry into the Financial Literacy and Cognitive Ability of Farmers: Evidence from Rural India

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  • Sarthak Gaurav
  • Ashish Singh

Abstract

Poor understanding of financial products and an inability to process financial information prevent millions of rural households in the developing world from making informed financial decisions. This article assesses the financial literacy and cognitive ability of farmers using data from a unique field experiment in the Indian state of Gujarat. Using ordered response models, the effect of farmers' education on cognitive ability and financial literacy is estimated on the one hand, and the relationship between cognitive ability and financial literacy is analysed on the other. Farmers' education and financial experience are shown to be significantly correlated with achievements in customized tests for ability in mathematics and probability, which are taken as the two components of cognitive ability. Cognitive ability, in turn, predicts financial aptitude and debt literacy, the two components of financial literacy. By focusing on farmers in a developing country, the findings contribute to an improved understanding of financial literacy in such settings and can inform the design of inclusive financial systems that are sensitive to the cognitive and informational limitations of rural households.

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  • Sarthak Gaurav & Ashish Singh, 2012. "An Inquiry into the Financial Literacy and Cognitive Ability of Farmers: Evidence from Rural India," Oxford Development Studies, Taylor & Francis Journals, vol. 40(3), pages 358-380, September.
    • Handle: RePEc:taf:oxdevs:v:40:y:2012:i:3:p:358-380
    DOI: 10.1080/13600818.2012.703319
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    1. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-135, January.
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    5. Cunha, Flavio & Heckman, James J. & Lochner, Lance, 2006. "Interpreting the Evidence on Life Cycle Skill Formation," Handbook of the Economics of Education, in: Erik Hanushek & F. Welch (ed.), Handbook of the Economics of Education, edition 1, volume 1, chapter 12, pages 697-812, Elsevier.
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    Cited by:

    1. Lin, Chien-An & Bates, Timothy C., 2022. "Smart people know how the economy works: Cognitive ability, economic knowledge and financial literacy," Intelligence, Elsevier, vol. 93(C).
    2. Ojo, T.O. & Ogundeji, A.A. & Belle, J.A., 2021. "Climate change perception and impact of on-farm demonstration on intensity of adoption of adaptation strategies among smallholder farmers in South Africa," Technological Forecasting and Social Change, Elsevier, vol. 172(C).
    3. Ojo, Temitope & Ogundeji, Abiodun A. & Belle, Johannes A. & Demont, Matty, 2021. "A Three-Stage Approach of Understanding Climate Change Perception and Adaptation Strategies Among Smallholder Farmers in South Africa," 2021 Conference, August 17-31, 2021, Virtual 315854, International Association of Agricultural Economists.
    4. Thiagu Ranganathan & Sarthak Gaurav & Ashish Singh, 2014. "Anomaly in Decision Making Under Risk:Violation of Stochastic Dominance Among Farmers in Gujarat, India," IEG Working Papers 343, Institute of Economic Growth.
    5. Sundar, B. & Virmani, Vineet, 2013. "Numeracy and Financial Literacy of Forest Dependent Communities Evidence from Andhra Pradesh," IIMA Working Papers WP2013-09-02, Indian Institute of Management Ahmedabad, Research and Publication Department.
    6. Eliana Wulandari & Miranda P M Meuwissen & Maman H Karmana & Alfons G J M Oude Lansink, 2017. "Access to finance from different finance provider types: Farmer knowledge of the requirements," PLOS ONE, Public Library of Science, vol. 12(9), pages 1-15, September.
    7. Kiliyanni, Abdul Latheef & Sivaraman, Sunitha, 2016. "The perception-reality gap in financial literacy: Evidence from the most literate state in India," International Review of Economics Education, Elsevier, vol. 23(C), pages 47-64.
    8. Müller, Anna K. & Theuvsen, Ludwig, 2015. "Food safety standards in the Guatemalan fresh pea sector: The role of financial literacy in technology adoption," GlobalFood Discussion Papers 205289, Georg-August-Universitaet Goettingen, GlobalFood, Department of Agricultural Economics and Rural Development.
    9. Remya Tressa Jacob & Rudra Sensarma, 2022. "Does knowledge empower? A story of debt literacy and credit usage in rural consumer finance," Working papers 529, Indian Institute of Management Kozhikode.
    10. Patil, Vikram & Veettil, Prakashan Chellattan & Yashodha, Yashodha, 2021. "Understanding Farmers’ Low Uptake of Crop Insurance in India: A Discrete Choice Experiment Approach," 2021 Conference, August 17-31, 2021, Virtual 315232, International Association of Agricultural Economists.
    11. Francisco Palací & Irene Jiménez & Gabriela Topa, 2018. "Too soon to worry? Longitudinal examination of financial planning for retirement among Spanish aged workers," PLOS ONE, Public Library of Science, vol. 13(12), pages 1-17, December.
    12. Tanmoyee Banerjee & Malabika Roy, 2020. "Financial Literacy: An Intra-Household Case Study from West Bengal, India," Studies in Microeconomics, , vol. 8(2), pages 170-193, December.
    13. Sundar Balakrishna & Vineet Virmani, 2019. "Numeracy and Financial Literacy of Forest-dependent Communities," Vikalpa: The Journal for Decision Makers, , vol. 44(2), pages 59-74, June.

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