Examining the Impact of Financial Literacy and Financial Inclusion on Investment Decision in the Context of Developing Economies

Abstract

In the current complex economic landscape, financial literacy and financial inclusion have become essential factors shaping individual savings and investment habits. This paper examines how financial literacy, as measured by adult literacy rates, and financial inclusion, proxied by bank account ownership, affect gross savings, which can be viewed as a proxy for personal investment decisions. The study uses secondary panel data from 90 countries between 2014 and 2023, including essential macroeconomic variables such as GDP growth, inflation, and interest rates, to provide more nuanced insight into how saving behavior is shaped. Descriptive statistics show significant differences in literacy rates, access to financial services, and savings rates across countries, reflecting the diversity of economic and social conditions that influence financial choices. Correlation analysis also indicates positive relationships between gross savings and literacy levels and bank account ownership, implying that populations that are better educated and financially included are more likely to save. Regression analysis using Ordinary Least Squares (OLS) and Fixed Effects models confirms that higher financial literacy and broader access to banking services significantly improve savings, whereas GDP growth and inflation adversely affect savings behavior. Interest rates were found to be statistically nonsignificant in affecting savings. These results emphasize the importance of enhancing financial literacy and expanding formal access to financial services to promote responsible saving, more responsible investment behavior, and sustainable economic growth among countries.