The Nexus Between Financial Literacy and Saving Performance: Implications for Creating Self‐Financing Society

Making informed and effective savings decisions requires adequate knowledge and skills about saving products. This knowledge and skills are acquired through financial literacy (FL) training. Despite the existence of various local financial institutions and their efforts to encourage saving mobilization, domestic savings in many developing countries remain low due to low levels of FL. Using a nonrandomized, quasi‐experimental design method, with a sample of 328 saving and credit cooperatives (SACCOs) from Ethiopia, we investigated whether SACCOs providing FL for their education and Savings Committee members report improved saving performance than their counterparts not offering FL. We used administrative data and conducted our analysis at the institutional level. Our result from a combination of difference‐in‐difference and propensity score matching (DiD‐PSM) estimations reveals that FL training plays a decisive role in boosting SACCOs' saving performance. The DiD‐PSM result further shows, compared to controlled SACCOs, treated SACCOs have been successful in acquiring new net saver members and encouraging current members to increase their deposits. Besides, the implications of our findings for financial self‐reliance are discussed. To improve saving performance, policy initiatives promoting FL training in SACCOs are required.