Financial literacy and household investment choices in Uganda

Abstract

This study, aims at investigating the relationship between financial literacy and household investment choices. Specifically, the study establishes whether households with high financial literacy levels are more likely to choose to invest; through a bank investment account, with an informal group, in a personal business or invest in Agriculture. Financial literacy is measured using three questions that capture an understanding of the basic financial concepts of interest rate, discounting and borrowing. Both univariate and multivariate analysis techniques and a Probit model are used to tease out the levels of financial literacy, its determinants and its relationship with household investment choices. The study results reveal low levels of financial literacy in Uganda. Also, the study reveals that financial literacy is significantly associated with household socio-demographic factors. The study finds that, financial literacy is positively and significantly associated with household investment choices. The study establishes a key investment venture of Agriculture which requires to be revamped since it is neglected yet it is still very essential to the country’s economy. The results also contribute to the government’s National Financial Literacy Strategy by establishing the population segments that is most/least financially literate hence such initiatives should be directed towards such population groups with low financial literacy levels.