Askar, Media Wahyudi; Ouattara, Bazoumana; Zhang, Yin-Fang
This paper examines the impact of financial literacy on poverty reduction in Indonesia using data from the Financial Inclusion Insights (FII) survey. Employing a Polychoric Principal Component Analysis (PPCA) to build a composite financial literacy index, the authors find that financial literacy significantly reduces poverty levels even after addressing endogeneity issues through instrumental variable (IV) techniques. The study highlights that higher financial literacy helps individuals make more informed financial decisions, leading to improved welfare and household economic stability.
The authors emphasize that limited financial knowledge remains a structural barrier to inclusive growth in developing economies. Unlike prior research focusing mainly on developed countries, this study contributes new evidence from an emerging economy. Policy implications point to the need for comprehensive financial education programs and community-based literacy initiatives to expand access to formal financial services and promote sustainable poverty alleviation.
Reference:
Askar, M. W., Ouattara, B., & Zhang, Y.-F. (2020). Financial literacy and poverty reduction: The case of Indonesia (ADBI Working Paper No. 1097). Asian Development Bank Institute. https://www.adb.org/publications/financial-literacy-poverty-reduction-case-indonesia
Link:
https://www.adb.org/publications/financial-literacy-poverty-reduction-case-indonesia