Understanding the Determinants of Aspirations in Rural Tanzania: Does Financial Literacy Matter?

Abstract

Aspirations have recently received increased attention in the analysis of poverty and its dynamics. The argument is that aspirations provide reference points for individuals’ forward-looking decisions and behaviours. Understanding of what determines aspirations is vitally important to design development interventions that can raise aspirations. In this paper, we analyse whether financial literacy is associated with individuals’ aspirations. Using data from more than 2000 Tanzanian households, we find a robust positive correlation between financial literacy and aspirations. Our results are robust to using alternative financial literacy measure, controlling for extensive covariates and non-cognitive traits, and sensitivity analyses to omitted variables. Overall, our findings suggest that aspirations could be influenced to improve poor individuals’ future investments and forward-looking behaviour.