This research work is on the
impact of financial literacy on economic development in Nigeria. The main
objective of this study is to empirically examine the impact of financial
literacy on economic development in Nigeria. This research work made use of
secondary data which were obtained from the Central bank of Nigeria Statistical
Bulletin (2013). The data were collected for a period of thirty three years
(i.e. 1981-2013). The Ordinary Least Square Regression Technique was employed
in the analysis of the data.
It was found among other things
on the empirical analysis, it is concluded that financial literacy has
significant impact on economic development Nigeria. This is due to the fact
financial literacy skills will build the capacity to better understand and
manage financial risk, and take advantage of increased competition and choice
in financial sectors and thereby bring about increased income vis a vis
economic development. It is recommended that, Government
should incorporate financial literacy education across persons, subject matter
and levels. This could be done for primary, secondary and tertiary levels of
education or basic adult education. Within organisations, this could also be
done for different decision making levels – strategic, tactical or operational.
BACKGROUND TO THE STUDY
literacy remains an interesting issue in both developed and developing
economies, and has elicited much interest in the recent past with the rapid
change in the finance landscape. OECD (2005), defines financial literacy as the
combination of consumers’/investors’ understanding of financial products and
concepts and their ability and confidence to appreciate financial risks and
opportunities, to make informed choices, to know where to go for help, and to
take other effective actions to improve their financial well-being (Miller et al., 2009). Financial literacy helps
in empowering and educating consumers so that they are knowledgeable about
finance in a way that is relevant to their lives and enables them to use this
knowledge to evaluate products and make informed decisions. It is widely
expected that greater financial knowledge would help overcome recent
difficulties in advanced credit markets.
literacy prepares consumers for tough financial times, through strategies that mitigate
risk such as accumulating savings, diversifying assets, and purchasing
insurance. Financial literacy facilitates the decision making processes such as
payment of bills on time, proper debt management which improve the credit
worthiness of potential borrowers to support livelihoods, economic growth, sound
financial systems, and poverty reduction. It also provides greater control of
one’s financial future, more effective use of financial products and services,
and reduced vulnerability to overzealous retailers or fraudulent schemes.
Facing an educated lot, financial regulators are forced to improve the
efficiency and quality of financial services. This is because financially
literate consumers create competitive pressures on financial institutions to offer
more appropriately priced and transparent services, by comparing options,
asking the right questions, and negotiating more effectively. Consumers on
their part are able to evaluate and compare financial products, such as bank
accounts, saving products, credit and loan options, payment instruments,
investments, insurance coverage, so as to make optimal decisions. Financial
literacy as the name implies occupies a centre-stage in the quest to achieve an
overall degree of success in an organization, (Bernheim, 2008). It also
enhances to a reasonable degree, a business goal of financial profit. Thus,
financial literacy (or lake thereof) has played a key role in the success and
failure of our nation’s business for the past centuries. Greenspan
(2002) argues that financial literacy helps to inculcate individuals with the
financial knowledge necessary to create household budgets, initiate savings
plans, and make strategic investment decisions. Proper application of that
knowledge helps households to meet their financial obligations through wise
planning, and resource allocation so as to derive maximum uitility. (Hilgert,
Hogarth, & Beverly, 2003) asserts that financial knowledge appears to be
directly correlated with self-beneficial financial behavior. However, Sceptics
(Lyons, Palmer, Jayaratne, & Scherpf, 2006) question the effectiveness of
financial education in improving financial literacy. Van Rooij, Lusardi, and
Alessie, 2007) in a study of Dutch adults, established that households with low
levels of financial literacy are more likely than others to base their behavior
on financial advice from friends and are less likely to invest in stocks.
Mounting evidence shows that those who are less financially literate are likely
to face more challenges with regard to debt management, savings and credit, and
are less likely to plan for the future. Regulators of financial services, have
a responsibility to help consumers of financial services in making informed
financial decisions so as to promote consumer protection, public awareness, and
maintainance of market confidence. On the other hand, information assymetry
between financial service providers (FSPs) and potential users leads to
weakened financial markets. It also denies consumers an opportunity to fully
appreciate their rights and responsibilities, the financial risks they may be
exposed to, and any other information related to the financial products.
Financial literacy not only benefits consumers but also FSPs. Finacially
literate consumers pose less risk to the financial system due to their
responsible use of financial services which help to underpin financial market
stability, and contribute to increased savings, wider economic growth and
STATEMENT OF THE PROBLEM
problem addressed in this article relates to the complexity of the financial
literacy phenomenon to act as a mechanism in economic development. This
phenomenon can be conceptualised in the following dimensions: firstly, it
the haphazard use of the term ‘financial literacy’; secondly, it relates to the
perception that financial literacy involves two separate systems (the
information system and the human behaviour system), which means that it is not
regarded as a single encompassing process; and thirdly, the gap between complex
financial and economic information, on the one hand, and the decision-makers’
mental processes, on the other. The research problem focuses specifically on
the complexity of the financial literacy construct with regard to its role in
economic development. The problem is further exacerbated by the fact that the
majority of existing financial literacy programmes focus on financial literacy
at consumer level rather than in relation to the economy.
it is acknowledged that decision-makers in organisations are also consumers in
their personal capacity, it should also be recognised that financial decision
making in an economy requires an industry-specific kind of financial literacy.
Hence, before financial literacy education for decision-makers in an economy
can be contemplated, it is necessary to determine the decision-makers’
perception of the financial literacy construct.
who study financial literacy generally agree that many, if not most, consumers
lack the financial literacy necessary to make important financial decisions in
their own best interests (Perry, 2008). Experts also generally agree that,
financial knowledge appears to be directly correlated with selfbeneficial
financial behaviour (Hilgert et al., 2003). However, questions exist concerning
the effectiveness of financial education in improving financial literacy (Lyons
et al., 2006). Thus, a paradox exists between the efficacy of education in
improving financial literacy and the impact of education on short-and long-term
financial behaviour. How can education which is correlated to financial
literacy improve financial behaviour without first improving financial
OBJECTIVES OF THE STUDY
The main objective of this study is to empirically examine the impact of financial
literacy on economic development in Nigeria economy. The specific objectives of
the study are as follows:
To evaluate the contribution of financial literacy in
To examine factors that as hinder financial literacy in
To make policy conclusions and recommendations based on the
results of the study.
The research questions, which would guide this study are as follows:
Is there is significant
relationship between financial literacy and economic development?
Has financial literacy increased
economic development over time?
the factors that hinder appropriate financial literacy programmes?
The hypothesis that will guide through this research is:
literacy has no significant relationship with economic development in Nigeria.
Financial literacy has significant
relationship with economic development in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The quality of research work lies on the relevance to the society being
studied. The importance is the ability
to draw a relationship between financial literacy and economic development in
Nigerian economy, whether financial literacy has significant impact on Nigeria
Again, this research will be of immense value to the different sectors of
the economy (both public and private) most especially individuals.
In conclusion, the study would be of immense help to the government,
monetary authority, individuals, economists, students, planners, financial
analysts, stock brokers and others who might be interested in researching into
the field in the future, by shedding more light into the widely held view about
the relationship between financial development and economic development.
1.7 RESEARCH METHODOLOGY
analysis that will be made in this study shall be based on macroeconomic data
in Nigeria economy. Due to the linearity nature of the model formulation,
Ordinary Least Square (OLS) estimation method would be employed in obtaining
the numerical estimates of the coefficients in the model using Eviews.
multiple regression models shall be used in the estimation. The model shall
seek to investigate the effect of financial literacy on economic development in
Nigeria economy. This is a follow up on the objectives of study stated earlier.
The economy is a large component with lot of diverse and sometimes
complex parts; this research work will only look at a particular part of the
economy (the education sector). This work cannot cover all the facets that make
up the education sector, but will look at the financial literacy as being used
by the government for the stabilization and attaining economic development.
The empirical analysis and estimation covers the period between 1980 and
2013. This restriction is unavoidable because of the
non-availability of some data.
The main limitation of this study is time constraint. The time allotted
for the completion of this research is not adequate based on recent and
contemporary happening with respect to the impact of financial literacy on the
development of Nigeria economy.
data for this study would be obtained mainly from secondary sources;
particularly from Central Bank of Nigeria (CBN) publications such as the CBN
Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National
Bureau of Statistics publications.
ORGANISATION OF THE STUDY
study shall be divided into five chapters. The first chapter provides the
background of the subject matter justifying the need for the study. Chapter two
presents related literature concerning financial literacy and economic
development. The research methodology, which includes the theoretical framework,
sources of data, model formulation, estimation techniques etc, are stated in
chapter three while data presentation, analysis and interpretation of regression result were made in chapter
four. Concluding comments in chapter five reflects on the summary, conclusion,
recommendations and suggestion for further studies based on the findings of the
1.10 DEFINITION OF TERMS
Literacy: Financial literacy is the ability to understand basic
accounting and finance concepts as well as its application,
the ability to use such knowledge and skills to manage financial resources effectively for a lifetime of
Economic Growth: This refers to the increased
over time of an economy’s capacity to produce those goods and services needed
to improve the well-being of the citizens in increasing number and diversity.
It is the study of the process by which productive capacity of the economy is
increased over time to bring about rising level in national income.
Economic Development: This is a multi dimensional
process involving the provision of basic needs, acceleration of economic
growth, reduction of inequality and unemployment, eradication of poverty as
well as changes in attitude, constitution and structure in the economy.