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. The study, mainly using quantitative data, selected the sample representing the three main settlement types: urban, rural and estate sector using multi-stage sampling technique related to cluster sampling. The analysis generated five ‘domains’ of financial literacy scores that capture respondent’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 respondents. Moreover, descriptive statistics and other statistical techniques such as key driver analysis and correlation analysis were also appropriately 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 respondents demonstrate a modest financial knowledge and can be categorized as a literate (bankable) group. The functional financial literacy was quite diverse across respondents 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 it for policy actions. Furthermore, the study identified the target group for emphasizing in the provision of financial education to minimize inequalities with an increase in the financial inclusion of the country.