Financial Literacy and Household Savings in Kenya

Abstract

Kenya has made significant progress towards access of financial services with the hope that increase in financial access would certainly raise household savings. Despite the Significant progress made by the Kenyan government towards improvement in financial access and becoming highly inclusive compared to most Sub-Saharan African countries, the gross domestic savings as a percentage of Gross domestic product (GDP) has declined continuously from 8.231% in 2016 to 4.4451% in 2019 according to 2016 and 2019 World bank indicators. Given current financial markets situations in Kenya and across the world, serious concerns have been raised concerning household’s financial literacy. The development and widespread of financial service providers have certainly left households with a confusing wide range of investment and financial choices that ought to be selected. This therefore implies that more focus should be directed on how well-equipped individuals are in making financial decisions relating to savings and other investments. The study aimed to investigate the effects that financial literacy has on Kenya’s household’s savings, establish the level of financial literacy of Kenyan households and lastly, explore other factors that affect savings among households in Kenya. Employing probit regression analysis the study used secondary data from the 2019 Kenya Finaccess national household survey. The study points out that Kenyan households possess very low scores in relation to financial literacy with approximately 49.25% of individuals using their savings to repay available loan. Females, individuals aged 60 years and individuals with no education are less financially informed. Moreover, households earning high monthly income and those located in urban areas are highly financially informed compared to those that earn low monthly income and located in rural settings. The estimates showed that households financial literacy positively and significantly correlates with households savings. Other significant factors determining savings of households include; individual’s age, education, Occupation, household size, use of mobile money, gender and income level.