Financial literacy, financial inclusion, and savings behavior in Laos

This study examines the effects of financial literacy on financial inclusion and savings behavior in Laos. Compared to previous literature, we use a broader definition of financial literacy which covers not only financial knowledge but also financial behavior and financial attitudes. We also use a new definition of financial inclusion which goes beyond the supply-side perspective to consider the consumer’s perspective. To do so, we use the survey instrument designed by the Organisation for Economic Cooperation and Development International Network on Financial Education. We also used more reliable instrumental variables to investigate the effects of financial literacy on financial inclusion (and its components) and savings behavior. We find that financial literacy has statistically positive effects on both financial inclusion and savings. Moreover, the effects of financial literacy on different measures of financial inclusion vary. Our results further show that individuals with higher financial literacy scores are more likely to hold savings in both formal and informal forms than those who have lower financial literacy scores, even when we control for income and education.