Measuring and profiling financial literacy in South Africa

Abstract

Background: Microeconomic theories of financial behaviour tend to assume that consumers possess financial skills necessary to undertake related financial decisions.

Aim and setting: We investigated this assumption by exploring the distribution of financial literacy among South Africans.

Method: In the absence of a standard measure, a financial literacy index was constructed for the country using data collected on attitudes (towards), access to and use of financial services over the period 2005–2009. In a multivariate regression analysis, we used the index to examine the extent to which differences in financial literacy correlate with demographic and economic characteristics.

Results: The index revealed substantial variation in financial literacy by age, education, province and race. Overall, demographic characteristics contributed up to 10% of the financial literacy differences among individuals in South Africa.

Conclusion: These results can be used to guide policy makers where to place more emphasis in terms of financial education for South Africans.