Unaware of Being Unaware and Financial Non-Participation

Abstract

Unawareness of the existence of financial products is a significant reason for non-participation in financial products and services in emerging economies. We propose a theoretical framework where households can acquire awareness, thereby enabling them to make an informed choice of whether to own a particular financial product. Using India's national benchmark survey for financial literacy and inclusion, we examine the awareness levels and ownership for 28 different financial products. We find that households with weaker demographic characteristics possess low levels of awareness of financial products. Performing a thought experiment that treats unaware households with awareness, we predict their ownership choices. Interestingly, although the probability distribution of the financial participation of the aware households stochastically dominates that of the unaware households, there is a sizeable cross-section of unaware households who might own products if they were to be made aware of the existence of the products. The empirical design allows policy makers to undertake targeted awareness programs to increase the uptake of financial products and services.