Measuring and profiling financial literacy in South Africa

Abstract

Microeconomic theories of financial behaviour tend to assume that consumers possess financial skills necessary to undertake related financial decisions. We investigate this assumption by exploring the distribution of financial literacy among South Africans. In the absence of a standard measure, a financial literacy index is constructed for the country using data collected on attitudes (towards), access to and use of financial services over the period 2005 – 2009. We use the index to examine the extent to which differences in financial literacy correlate with demographic and economic characteristics. The Index reveals substantial variation in financial literacy by age, education, province and race. Overall, demographic characteristics contribute up to 10% of the financial literacy differences among individuals in South Africa. These results can be used to guide policy makers where to place more emphasis in terms of financial education for South Africans.