Financial Literacy in Developing Countries

Abstract

Focusing on different facades of financial well-being such as wealth accumulation and retirement planning, various determinants of financial well-being have been unearthed, and financial literacy has emerged as a crucial factor that increases financial well-being. Hence, financial literacy has been an important policy instrument to increase the financial well-being of individuals, particularly given that it is relatively easy to implement. This paper is an attempt to pave the way for such policies in a group of middle income countries, namely Mexico, Lebanon, Uruguay, Colombia and Turkey. After establishing financial literacy levels, we identify the least financially literate groups in each country to facilitate targeting of public policy. We find that women, younger adults and individuals who cannot read or write in the official language of their country of residence have lower financial literacy scores. In line with the previous findings in the literature on the developed countries, our results indicate that financial literacy increases with education. We also show that it is not only the years of education, but also the quality. In Mexico and Turkey, there are large regional differences that must be addressed. We also find that differences in financial literacy across countries persist even when differences in structural characteristics are taken into account. A partial explanation may be provided by differences in financial inclusion.