Financial Literacy,Access To Finance Services And Rural Households’ Income In Ghana

In developing countries,including Ghana,NGOs and national governments are implementing various interventions to eradicate extreme poverty and improve citizens’ livelihood,especially those living in rural areas.The country Ghana has a population of approximately 28.4 million,with more people likely to live in urban areas(14.3 million)than rural areas(14.1 million).About 44.1 percent of the Ghanaian households are farm operators or owners.The rural areas proportion of involved in farming activities(74.4)are profound compared to urban areas(20.4%).The Ghanaian economy is broadly categorized into agriculture(including Forestry and Fishing),Industry,and Service.In Ghana,compared with urban dwellers,the income level of rural residents is low,even though each household’s income level keeps increasing.For example,the report of the Ghana Living Standard Survey(GLSS)7,conducted in the year 2016/17,showed that there exists a substantial mean annual household income difference between rural dwellers(17.83 in1000 Ghana cedis)and urban households(46.9 in 1000 Ghana cedis).This scenario is mirrored in the mean households per capital income,suggesting that income is unevenly distributed.For the past two decades,the trend has remained this way.However,the role of household income in a household standard of living cannot be overlooked.This urban-rural income inequalities can be attributed to inequality in the access to market,employment opportunity and the economic reform measures.In addition,inequality in capital market such as inadequate access to financial services and poor financial management skills and knowledge are major factors to this menace.Access to financial services such as savings,insurance,and credit may not only provide farm households opportunities to strengthen their farm operational income,but also enhance the income from the property.However,financial literacy,which can broaden the financial skills,knowledge,and understanding,is very low among these rural households,predominately farmers.Therefore,financial inclusion and financial literacy have been identified as significant determinants of household income growth.Upon all the benefits derived from access to financial services and the developmental reforms put in place by the government and policymakers to promote rural development,rural dwellers are still deprived from financial inclusion.Thus,it is essential to understand the nexus between financial literacy(FL),access to financial services(AFS),and household income for effective management and responsive policy decisions.This dissertation is based on both macro-economic statistic data and micro-economic survey data.Macroeconomic statistics data derived from world renowned database and Ghana Living standard Survey(GLSS)data(wave 4 to 7)from the Ghana Statistical Services(GSS),micro-economic survey data was collected from a 572 household survey in four regions of Ghana,The household survey used multi-stage sampling techniques to capture the sample size.Interview schedules and questionnaires were used for the collection of data from rural farm households in Ghana.An in-depth interview was conducted because of the complex nature of the questionnaire.There was a pre-test of the questionnaire to clear all uncertainty.The field survey questionnaires covered information on socioeconomic characteristics,including household income level,financial literacy,financial services products(e.g.,access to credit,insurance,and savings accounts),and other various variables that contribute to the study’s aim.The study has four specific objectives.The first objective of the study is to examine the determinants of financial literacy.Secondly,it is to analyze the effect of financial literacy on rural households’ access to financial services.The third objective is to examine the effect of access to financial services on household income.Lastly,it is to explore the mediating role of access to financial services in the effect of financial literacy on household income.Thus,this dissertation has been organized with four empirical chapters that address the nexus among financial literacy,access to financial services,and household income.Based on the findings and conclusions of the empirical research,some policy implications have been made to enhance farm household income and rural development.The main findings and conclusions are as follows.First,the study examined the determinants of financial literacy among rural households and compared it with other developing countries by.employing the IV-Tobit model.The main findings are as follows:(1)The results revealed that the key determining factors,including household income and education has a profound impact on the householders’ financial literacy level.(2)Other household head and household characteristics play a significant role in improving rural households’ financial literacy levels.Thus,household socioeconomic and demographic characteristics(e.g.,Internet use,gender,and age),risklover and those who listen or watch education programs are also more likely to be financially literate.(3)The results show that respondents who could answer all the seven questions correctly are very low,i.e.,9%.In conclusion,the survey indicates that financial literacy is not widespread among these rural dwellers.Secondly,the study analyzes the impact of financial literacy on access to financial services.This study’s main aim was to know whether financial literacy inevitably leads to access to financial services.The two-stage residual inclusion(2SRI)model was employed to deal with endogeneity problems.The main findings and conclusions are as follows: ○1The study’s findings revealed that financial literacy is significantly and positively related to access to financial services,but its square is inversely related to access to financial services.This indicates that there is a non-linear relationship between financial literacy and access to financial services.This result is an indication that FL in developing countries like Ghana does not inevitably lead to access to financial services.○2 Financial literacy has a larger impact on the AFS of male household heads compared with their female counterparts.In conclusion,the study indicates that financial literacy has a non-linear relationship with access to financial services.Third,the author sought to investigate the determinants of access to financial services and its impact on household income using the endogenous treatment regression(ETR)model to address the selection bias issue.The main findings and conclusions are as follows: ○1 The results reveal that access to financial services is affected by household heads’ age,gender,education,off-farm work participation,and possession of non-fixed assets.○2 Access to financial services exerts a positive and statistically significant impact on farm income,offfarm income,and other income.○3 The study finds that access to financial services has a larger income impact for male-headed households relative to their counterparts.In conclusion,the study indicates that access to financial services can promote rural households’ incomes.The last study examines the mediating role of access to financial services(AFS)in the effect of financial literacy(FL)on household income using a mediation effect model.The PROCESS MACRO model is used for the analysis of this objective.The main findings and conclusions are as follows: ○1 The findings of this study reveal that financial literacy has a robust,increasing effect on household incomes.○2 Again,the results depict that AFS mediates the positive effect of FL on household incomes.○3 The study shows that the positive mediating role of AFS in the positive effect of FL on household incomes is moderated by social networks.In conclusion,the study found that mediating role of AFS in the positive effect of FL on household incomes is profound compared to the direct effect of FL on household incomes.The study has four novel findings or marginal contributions.First,the research finds that business(farm)capability,which had been neglected in previous researches,is an important determinant to access to financial services.The current research paid attention to this factor initially.Based on data gathering and conceptual framework construction the research analyzed the interrelationship and disclose the mechanism between the two variables.The empirical analysis showed that farming experience,a proxy of business capability,improves access to financial services.This implies that enhancing business capability by financial education and skill training may enhance business owners’ access to financial services.Second,this study offers a novel perspective by focusing on rural households in an African developing country.Most of the literatures related to financial literacy focuses less on developing countries,and even if they did,they focused on urban households,students,entrepreneurs,and teachers.However,this study addresses the gap that others have failed to consider in rural households,predominately farmers,whose contribution to the agriculture sector cannot be obscured.The findings of this research showed that financial literacy s widespread among rural dwellers in Ghana.The study’s result can help policymakers improve financial literacy campaigns through proper policy design to enhance rural development.Third,this study analyzed the diverse effect of access to financial services on household income by classifying the total income into farm and off-farm income,which is usually neglected by previous researches.The results revealed a heterogeneous effect of access to financial services on farm income,off-farm income,and total household income exist.In addition,the study did not treat household income as a whole as previous researchers do.Correspondingly,the author investigated how rural household heads and households’ characteristics and other factors influence each of these income components.These research findings showed that access to financial services is associated quite differently with the various income components.The fourth novel finding is an inverted U-shape relationship between financial literacy and access to financial services.The study analyzes how financial literacy influences access to financial services.Most studies have concluded that financial literacy increases the individual probability of accessing financial services.However,no previous research,to my best knowledge,has disclosed the action mechanism between financial literacy and access to financial services.The study tried to fill in the knowledge gap and examined whether financial literacy inevitably leads to access to financial services,more precisely,whether a non-linear relationship exists between financial literacy and access to financial services.The empirical results confirmed the inverted U-shape relationship as expectation.