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Financial literacy theory of financial inclusion

Author

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  • Ozili, Peterson K

Abstract

This article proposes a financial literacy theory of financial inclusion. It also presents the different possible scenarios of the relationship between financial literacy, financial illiteracy, financial inclusion and financial exclusion using a grid. The theory argues that financial literacy can influence the level of financial inclusion, and it projects low level of financial literacy as a potential cause of low level of financial inclusion. It showed that people who are financially illiterate and are financially included may not be able to maximise their welfare in the formal financial system because they lack financial literacy. By providing financial literacy programs and other incentives to join the formal financial system, many financially illiterate people will be willing to join the formal financial system and use existing formal financial services to meet their needs. The theory is significant because it explains a major reason why the level of financial inclusion in low in some countries.

Suggested Citation

  • Ozili, Peterson K, 2025. "Financial literacy theory of financial inclusion," MPRA Paper 123588, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123588
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    File URL: https://mpra.ub.uni-muenchen.de/123588/1/MPRA_paper_123588.pdf
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    More about this item

    Keywords

    theory; financial literacy; financial inclusion; financial education; access to finance; financial literacy theory of financial inclusion;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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