Financial literacy and its determinants : the case of rural farm households in Ghana

Purpose: This paper aims to examine the determinants of rural dwellers financial literacy in Ghana. Design/methodology/approach: A cross-sectional primary data set was used to estimate the factors influencing rural farm households' financial literacy using the IV-Tobit model. Findings: The findings reveal that most rural residents are financially illiterate. The econometrics model results depicted that respondents' socioeconomic and demographic characteristics such as gender, income, age and education significantly affect financial literacy. Again, respondents who are risk seekers and listen or watch education programs are more likely to be financially literate. Research limitations/implications: The paper examined the determinants of rural dwellers financial literacy in four regions in Ghana. Future research should consider all or many regions for an informed generalization of findings. Practical implications: This paper provides evidence that rural dwellers are financially illiterate and it would require the policymakers or non-governmental organizations (NGOs) to establish a village or community group that comprises a wide range of bankers and government officials to help rural dwellers acquire some financial skills. Also, the positive relationship between media (whether respondent watches or listens to educational programs) and financial literacy implies that policymakers should focus on improving individuals' financial knowledge through training programs and utilize the media as a channel to propagate financial education to the public. Originality/value: Although previous studies have examined the determinants of financial literacy, little is known in developing countries and, in particular, rural communities. The authors fill this gap by contributing to the scanty existing literature in developing countries in several ways. First, this is the first study to examine the financial literacy level of rural dwellers in Ghana. Second, to not undermine the credibility of the estimation results, this study addresses the potential endogeneity issue, which other researchers have not adequately recognized. Finally, the study expands the scant literature on the subject and provides critical policy implications that will help policymakers formulate financial market policies that will contribute to rural dwellers financial literacy enhancement.