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Financial Literacy and Saving Decisions: A Cross-Sectional Analysis Using GSEM Approach

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  • Eduardo de Sá Fortes Leitão Rodrigues

Abstract

Savings play a critical role in both individual financial well-being and economic development. This article examines the impact of financial literacy, income, educational level, and age on saving decisions across 136 countries, using data from the Global Financial Inclusion Database (2021). Financial literacy is conceptualized as a latent variable, constructed from five indicators related to financial knowledge, financial behaviour, and financial attitudes, aligned with the Organisation for Economic Co-operation and Development (OECD) pillars. Employing Generalised Structural Equation Modelling (GSEM), the analysis demonstrates that financial literacy is a fundamental driver for the decision to save in the short and long term. Education level and income are consistent predictors of savings, while age exhibits distinct effects depending on the savings objective. Regional differences emerge, with Latin American countries showing the strongest link between financial literacy and savings, whereas in high-income economies, its influence is less pronounced. These findings underscore the multifaceted role of financial literacy in shaping saving decisions and highlight its implications for tailored public policies promoting financial literacy.

Suggested Citation

  • Eduardo de Sá Fortes Leitão Rodrigues, 2025. "Financial Literacy and Saving Decisions: A Cross-Sectional Analysis Using GSEM Approach," Working Papers REM 2025/0362, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp03622025
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    More about this item

    Keywords

    financial literacy; savings; GSEM approach.;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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