A STUDY ON FINANCIAL LITERACY LEVEL AMONG

UNIVERSITY STUDENTS IN ETHIOPIA

(With Reference to Selected Universities)

A Thesis submitted in the partial fulfillment of the requirement

for the award of the degree of

DOCTOR OF PHILOSOPHY
IN
COMMERCE AND MANAGEMENT STUDIES

By

KINFE YOWHANNES ARAYA

Under the guidance of

Prof. J. RAVI, M.Com, M.B.A., Ph.D.
Department of Commerce and Management Studies
Andhra University
Visakhapatnam -530003

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY, VISAKHAPATNAM – 530 003
ANDHRA PRADISH, INDIA
2019
 A STUDY ON FINANCIAL LITERACY LEVEL AMONG
UNIVERSITY STUDENTS IN ETHIOPIA

(With Reference to Selected Universities)

A Thesis submitted in the partial fulfillment of the requirement

for the award of the degree of

DOCTOR OF PHILOSOPHY
IN
COMMERCE AND MANAGEMENT STUDIES

By

KINFE YOWHANNES ARAYA

Under the guidance of

Prof. J. RAVI, M.Com, M.B.A., Ph.D.
Department of Commerce and Management Studies
Andhra University
Visakhapatnam -530003

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY, VISAKHAPATNAM – 530 003
ANDHRA PRADISH, INDIA
2019
 DECLARATION

I hereby declare that this thesis entitled “A study on Financial Literacy Level Among

University Students in Ethiopia (with reference to selected universities)” is submitted

by me for the award of the degree of doctor of philosophy in commerce and management

studies, Andhra university, Visakhapatnam, is original study done by me under the

guidance of Professor J.RAVI and it has not been submitted previously in part or full to

any other university or institutions for award of any degree, diploma or other similar title.

Place: Visakhapatnam, 530003, (A.P), India

Date: __________________________

_________________________

KINFE YOWHANNES ARAYA

(Research Scholar)

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Prof. JALADI RAVI
M.Com, M.B.A., Ph.D.
Professor, Dept. of Commerce and Management Studies
Andhra University, Visakhapatnam
Andhra Pradesh, India

CERTIFICATE

This is to certify that the thesis entitled “A study on Financial Literacy Level Among

University Students in Ethiopia (with reference to selected universities)” submitted

by Kinfe Yowhannes Araya for the award of the degree of doctor of Philosophy to the

department of Commerce and Management Studies, college of Arts and Commerce,

Andhra university, Visakhapatnam, India, is a piece of bona-fide research work done by

him under my guidance and close supervision and it has not been submitted previously to

this and any other university for the award of any other degree, diploma, or any other

similar titles. Hence, in my capacity as supervisor of the candidate‟s thesis, I certify that

the above statements are true to the best of my knowledge.

Date: ________________________ __________________

Research Guide

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 ACKNOWLEDGEMENTS

First and for most, I owe special thanks to the Almighty God for His forgiveness,

kindness and blessings that made all my journey successful.

This study has seen the light of the day due to the encouraging and

valuable advice of my advisor Prof. Jaladi Ravi. I am greatly indebted and eternally

grateful for his guidance in completing this study, Thank you sir.

The study could not have reached its fruition point without the financial

assistance of Wollo University and the Ministry of Education in Ethiopia. I am,

therefore, very much grateful for these institutions.

The completion of this study would not have been possible without the support of

the Department of Commerce and Management Studies, Andhra University. In this

regard, I would, therefore, like to extend my thanks for the Department.

I also wish to extend my gratitude to all my friends and colleagues for their collaboration

and valuable suggestion.

Last, but not least, my deepest indebtedness goes to my beloved wife, Feven Mulugeta

my daughter Nuhamin Kinfe, my son Hannibal Kinfe, my father Yohannes Araya, My

mother Lemlem Wores, all my brothers and sisters for their moral support, patience and

encouragement throughout my study.

Thank you very much

Kinfe yowhannes

Vizag, india, March 2019

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 TABLE OF CONTENT
Declaration i
Certificate ii
Acknowledgement iii
Table of Contents iv
List of Tables
List of Figures
Acronyms
Abstract
CHAPTER ONE INTRODUCTION 1-17
1.1. Back ground of the study 1
1.2. Statement of the problem 6
1.3. Research questions 9
1.4. Objectives of the study 9
1.4.1. General objective 9
1.4.2. Specific objective 10
1.5. Research hypothesis 10
1.6. Need for the study 12
1.7. Scope and limitation of the study 13
1.8. Structure of the study 14
1.9. Research Design, methods and methodology 15
1.9.1. Research design 15
1.9.2. Types and sources of data 16
1.9.3. Methods of data collection 16
1.9.4. Method of data analysis 16
1.9.5. Population and sample size of the study 17
1.9.6. Sample size and sampling method 17
CHAPTER TWO LITERATURE REVIEW 18-74
2.1. Introduction 18
2.1.1. Literacy 18
2.1.2. The Definition of Financial Literacy 19

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2.2. Related terms to financial literacy 23
2.2.1. Financial education 23
2.2.3. Financial knowledge 25
2.2.4. Financial behavior 25
2.2.5. Financial capability 25
2.2.6. Personal finance 26
2.3. The need for financial literacy 26
2.3.1. Retirement preparation 27
2.3.2. Better Investment decision 28
2.3.3. Risk management 29
2.3.4. Confidence in the stock market 29
2.3.5. Financial inclusion 30
2.3.6. Improved financial behavior 31
2.4. Consequences of financial illiteracy 31
2.4.1. Spending more than their income 31
2.4.2. Inability to keep financial record 32
2.4.3. Not planning and implementing a regular investment programme 32
2.4.4. Making incorrect financial decisions 32
2.5. Scope of financial literacy 33
2.6. The scope of term “Financial Literacy” for the present study 34
2.7. Studies on Financial literacy 35
2.7.1. Schagen and Lines (1996) 35
2.7.2. Chen and Volpe (1998) 36
2.7.3. UK Adult Financial Literacy Advisory Group (2000) 37
2.7.4. Beal and Delpachitra (2003) 38
2.7.5. Roy Morgan Research (2003) 39
2.7.6. Commonwealth Bank Foundation (2004) 39
2.7.7.Chen and Volpe (2005) 41
2.7.8.US National Council on Economic Education (2005) 41
2.7.9.OECD (2005) 42
2.7.10.Mandell (2005) 44

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 2.7.11. Lusardi and Mitchell (2006) 45
2.7.12. j. Maarten van Rooji, Anna-Maria Lusardi and Rob Alessie (2007) 47
2.7.13.Hussain et al. (2009) 47
2.7.14. Seth, P., Patel, G., and Krishnan, K. K. (2010) 48
2.7.15 Shaari, N. A., Hasan, N. A., Mohamed, R. K. M. H., & Sabri, M. 49
A. J. M. (2013)
2.8 Empirical evidence on personal financial knowledge 50
2.8.1. General financial knowledge 50
2.8.2. Knowledge in Savings and borrowing 51
2.8.3. Knowledge in Investment 55
2.8.4. Knowledge in Insurance 56
2.9 Financial literacy and personal financial opinions, decisions and practices 57
2.10 Measurement of financial literacy level 59
2.11 Determinants of financial literacy level 60
2.11.1 Gender 61
2.11.2 Education (field of study and year of study) 62
2.11.3 Family characteristics ( education level and occupation) 63
2.11.4 Income 63
2.11.5 Experience (age and work ) 64
2.12 Research Gap 65
2.13 Theoretical frame work 66
2.13.1 Human Ecological Model 66
2.13.2 Life Cycle Hypothesis of Savings 67
2.13.3 Discounted Utility Model 67
2.13.4 Family Resource Management Model 68
2.13.5 Maslow‟s Need Hierarchy Theory and understanding the 69
Financial Needs
2.14 Conceptual framework of the study 70

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CHAPTER THREE 75-88
RECENT DEVELOPMENTS IN THE FINANCIAL SECTOR OF
ETHIOPIA
3.1. Introduction 75
3.2. Back ground of the financial sector 75
3.2.1. Formal financial sectors 76
3.2.1.1. Banks 76
3.2.1.2. Insurance companies 77
3.2.1.3. Microfinance institutions 79
3.2.2. Semiformal saving and credit cooperatives 80
3.2.3 Informal finance 80
3.2.3.1. Iddirs 81
3.2.3.2. Iqqubs 81
3.2.3.3. Mehabers 82
3.3. Monetary and financial developments 82
3.3.1. Monetary developments 82
3.3.1.1. Developments in monetary aggregates 82
3.3.1.2. Developments in reserve money and monetary ratios 82
3.3.1.3. Developments in interest rate 83
3.3.2. Developments in the financial sector 83
3.3.2.1. Development in the banking sector 84
3.3.2.2. Development in the insurance sector 85
3.3.2.3. Development in the insurance micro finance institutions 86
3.3.3. Developments in financial markets 87
3.3.3.1. Treasury bills 87
3.3.3.2. National bank of Ethiopia bill market 87
3.3.3.3. Bond market 88
CHAPTER FOUR 89-108
RESEARCH METHODOLOGY
4.1. Introduction 89
4.2. Research design 90
4.3. Research strategy 92

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 4.4. Population of the study 93
4.5. Sample size 94
4.6. Sampling technique 98
4.7. Data sources and collection method 100
4.8. Reliability and validity of data 102
4.9. Data analysis 102
4.9.1. Univariate analysis 103
4.9.2. Multivariate analysis 103
4.10. Ethical considerations 107
CHAPTER FIVE 109-163
RESULTS AND DISCUSSIONS
5.1. Introduction 109
5.2. Univariate analysis 109
5.3. Descriptive statistics 110
5.3.1. Background of respondents 110
5.3.1.1.Gender of the respondents 111
5.3.1.2.Education of the respondents 112
5.3.1.3.Age and experience of the respondents 112
5.3.1.4.Personal income of the respondents 113
5.3.1.5.Family Educational Level and Occupation 114
5.3.1.6. Area lived by respondents or residence 116
5.3.2. Type of financial account of the respondents 116
5.4. Financial Knowledge of the Respondents 117
5.4.1. General financial knowledge 118
5.4.2. Knowledge of Savings and Borrowing 119
5.4.3. Investment Knowledge 121
5.4.4. Insurance Knowledge 122
5.4.5. Overall Financial Literacy measure 123
5.5. Financial Literacy Grading 125
5.5.1. Scores of the respondents in general financial knowledge 125
5.5.2. Scores of the respondents in saving and borrowing 126

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 5.4.3. Scores of the respondents in investment knowledge 127
5.4.4. Scores of the respondents in insurance knowledge 128
5.4.5. over all financial literacy score 129
5.6. Financial literacy and students characteristics 131
5.6.1. Financial Literacy and Gender 132
5.6.2. Financial Literacy and field of study 133
5.6.3. Financial Literacy and specialization 133
5.6.4. Financial literacy and year of study 134
5.6.5. Financial Literacy and Income 135
5.6.6. Financial Literacy and Experience 136
5.7. Financial literacy and exposure to finance issues 138
5.7.1. Financial literacy and family education 138
5.7.2. Financial literacy and Family occupation 139
5.7.3. Financial literacy and residence of the respondents 141
5.7.4. Financial literacy and personal financial account 143
5.8. Means to learn or improve financial knowledge 143
5.9. Statistical tests 144
5.9.1. Analysis of Mean differences using independent t-test 144
5.9.2. Analysis of Mean differences using one way ANOVA 145
5.9.3. Financial literacy level difference based on gender 148
5.9.4. Difference in financial literacy level based on field of study 148
5.9.5. Difference in financial literacy level based on year of study 149
5.9.6. Difference in financial literacy level based on personal income of 150
respondents
5.9.7. Difference in financial literacy level based on work experience 151
5.9.8. Difference in financial literacy level based on family education 154
level
5.9.9. Difference in financial literacy level based on family education 154
level
5.9.10. Difference in financial literacy level based on financial account 155
5.10. Multivariate analysis 156
5.10.1. Introduction 156

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 5.10.2. Multicollinearity test 156
5.10.3. Gender 157
5.10.4. Field of study 158
5.10.5. Year of study 159
5.10.6. Experience 160
5.10.7. Income 160
5.10.8. Family characteristics 161
5.10.8.1. Family education 161
5.10.8.2. Family occupation 161
5.10.9. Residence 162
5.10.10.Personal account 162
CHAPTER SIX 164-187
RELATIONSHIP BETWEEN FINANCIAL LITERACY LEVEL AND
PERSONAL FINANCIAL OPINIONS, DECISIONS AND PRACTICES
6.1 Introduction 164
6.2. Financial opinions 164
6.3. Financial decisions 166
6.4. Personal financial management practices 168
6.5. Relationship between financial literacy level and respondents personal 169
opinion
6.5.1. Financial literacy and maintaining adequate financial record 170
6.5.2. Financial literacy and spending and income 171
6.5.3. Financial literacy and maintaining life insurance 172
6.5.4. Financial literacy and maintaining life insurance 173
6.5.5. Financial literacy and planning and implementing investment 174
program
6.6. Relationship of Respondents' Financial Knowledge on their decisions 176
6.6.1. Relationship of financial literacy choosing safe place to keep 176
money
6.6.2. Relationship of financial literacy level and decision on setting 177
money for emergency
6.6.3. Relationship of financial literacy level and how to improve 178
financial wealth

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 6.7. Relationship between financial literacy level and personal financial 180
management practice
6.7.1. Financial literacy level and saving practice 181
6.7.2. Financial literacy level and setting money for future needs 182
6.7.3. Financial literacy level and setting money for future needs 183
6.7.4. Financial literacy and using a spending plan 184
6.7.5. Financial literacy and record keeping 185
CHAPTER SEVEN 188-195
SUMMARY, CONCLUSSION AND RECOMMENDATIONS
7.1. Introduction 188
7.2. Summary of the findings 188
7.3. Conclusion 192
7.4.Recommendations 193
7.4.1.Recommendations for policy makers and universities 193
7.4.2.Recommendations for future studies 195
References 196-215
APPENDIX – I 216-228
APPENDIX – II 229

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 LIST OF TALBES

Table No. Title Page No.

2.1 Summery of the Researches Reviewed 71

3.1 Branch expansion and percentage share of the banks 85

3.2 Branch expansion of insurance companies 86

4.1 Population and sample of the study 94

4.2 Sample size for ±3%, ±5%, ±7% and ±10% Precision Levels Where 97
Confidence Level is 95% and P=.5.

5.1 Demographic Characteristics of the Respondents 110

5.2 Family characteristics of the respondents 113

5.3 Residence of the respondents 115

5.4 Type of financial account of the respondents 116

5.5 Financial literacy score of the respondents 117

5.6 Overall measure of financial literacy 124

5.7 Scores of the respondents‟ General financial knowledge 126

5.8 Scores of the respondents in saving and borrowing 127

5.9 Scores of the respondents in Investment 128

5.10 Scores of the respondents in insurance 129

5.11 Overall financial literacy score 129

5.12 Grade of the respondents 130

5.13 Mean % of Correct Responses by Characteristics 131

5.14 Mean % of Correct Responses by family characteristics 137

5.15 Mean % of Correct Responses by residence region 141

5.16 Mean % of Correct Responses by residence region 143

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5.17 Means to improve financial knowledge 144

5.18 Results of independent t- test to show Difference in Means 145

5.19 Results of ANOVA to show Difference in Means 147

5.20 ANOVA test of Financial Literacy Level and the 148

Respondent‟s Gender

5.21 ANOVA test of Financial Literacy Level and the 149

Respondents‟ field of study

5.22 ANOVA test of Financial Literacy Level and 150

the Respondents‟ year of study

5.23 ANOVA test of Financial Literacy Level and the 151

Respondents‟ personal income in year

5.24 ANOVA test on Financial Literacy Level and the 151

Respondents‟ work related experience

5.25 Results of ANOVA test to show Difference in Means based 152

on exposure to finance issues

5.26 Results independent t test to show Difference in Means 153

based on exposure to finance issues

5.27 ANOVA test of Financial Literacy Level and the 154

Respondents‟ father‟s education level

5.28 ANOVA test of Financial Literacy Level and the 154

Respondents‟ mother‟s education level

5.29 ANOVA test of Financial Literacy Level and the 155

Respondents‟ residence in capital town or not

5.30 ANOVA test of Financial Literacy Level and the 156

Respondents‟ residence in financial account

5.31 Logistic regression analysis result for financial literacy 163

6.1 Percentage score of respondents‟ personal financial opinion 165

6.2 Decision making abilities of the respondents 167

6.3 Personal financial management practices 168

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 6.4 Financial literacy level and maintaining adequate financial 171
record

6.5 Spending less than your income 172

6.6 Maintaining adequate life insurance 173

6.7 Maintaining adequate non life insurance 174

6.8 Planning and implementing regular investment program 175

6.9 Relationship of financial literacy level and personal financial 176

opinions

6.10 Financial literacy level and safest place to keep money 177

6.11 Financial literacy level and keeping money for emergency 178

6.12 Financial literacy level and how to improve financial wealth 179

6.13 Relationship between financial literacy level and personal 180

decision

6.14 Financial literacy level and Setting money each month for 181
savings

6.15 Financial literacy level and setting money for future needs 182

6.16 Financial literacy levels and compare prices before purchase 183

6.17 Financial literacy level and spending budget 184

6.18 Financial literacy level and record keeping 185

6.19 Relationship between financial literacy level and personal 187

financial management practice

LIST OF FIGURES

Table No. Title Page No.

2.1 Family resource management model 69

2.2 Determinants of financial literacy and impact of financial 70

literacy on personal opinions, decisions and practices model

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 ACRONYM

1. GTPI--- growth and transformation plan one

2. OECD-- organization for economic and cultural development

3. UAE--- united Arab emirates

4. MFIs---- micro finance institutions

5. SNNPR----southern nations and nationals peoples region

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 ABSTRACT
Financial literacy is the ability of understanding, analyzing, interpreting and using
financial matters for daily life. The need for financial literacy is increasing from time to
time due to its importance in financial decision making. Ethiopia is a young country, so it
is important to study if the younger generation especially students who are the future
working generation have the basic financial knowledge. This study examines financial
literacy level among university students in Ethiopia. A total of 382 students from four
universities in Ethiopia participated in this study. The study used Purposive sampling
technique to select the four universities and stratified random sampling technique to
select the students for this study. The data were generated and analyzed employing the
descriptive and exploratory research design. This study is the first study on the financial
literacy among university students in Ethiopia. The study used four areas of financial
literacy, which are general financial knowledge, saving and borrowing, investments and
insurance. This study examines the financial literacy level of the students, the
determinants of financial literacy, the meanness to improve financial knowledge and
examines how a student's level of financial literacy influences their financial opinions,
decisions and practices. The study finds the financial literacy level of the students is in
Ethiopia is low. The study also finds that gender, work experience, Education, income
and family characteristics, residence, are determinants of financial literacy among the
students. The results further shows that students with high financial literacy are more
likely to have good opinions in financial issues make the better decision among
alternatives and also have sound financial management practices. Based on the findings
of this study, the ministry of education in Ethiopia should introduce basic finance courses
even for non-business students and short and long term training programs about basic
finance issues should be designed in Ethiopia.

Key words: financial literacy, saving and borrowing, investments, insurance, financial
opinions, decisions and practices.

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 CHAPTER ONE

INTRODUCTION

In this part of the study, the background of the study, statement of the problem, research

objectives, significance, scope and limitations and organization of the study are

discussed.

1.1. Back ground of the study

Financial literacy is the capability of understanding, analyzing, interpreting and using

financial matters for daily life. It is the knowledge of individuals to read, analyze and use

about financial matters that affect the life of every day. It may include the ability of

consumers to ascertain the choices, bargain in prices of items, understand terms of

finance, and apply the skill in making the day to day decisions without any difficulty.

Financial literacy is closely connected to an individual‟s emotional, personal, social,

economic, and employment success. The knowledge in finance issues helps individuals to

respond and make easy decisions to life events that are crucial even for accumulation of

wealth. According to Vitt et al. (2000) Today‟s financial world is highly complex when

compared with that of a generation ago. 40 years ago, a simple understanding of how to

maintain a current and savings account at local banks and savings institutions may have

been sufficient.

The President‟s Advisory Council on Financial Literacy in the US (PACFL, 2008),

defined financial literacy as the ability to use knowledge and skills to manage financial

resources effectively for a lifetime for one‟s financial well-being. It is the knowledge of

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basic economic and financial concepts, as well as the ability to use that knowledge and

other financial skills to manage financial resources effectively for lifetime of financial

well-being. Financial literacy skills enable individuals to navigate the financial world,

make informed decisions about their money and minimize their chances of being misled

on financial matters (Beal and Delpachitra, 2003).

It is not only at personal level that individuals should understand the basic financial

issues and use it for appropriate functioning of financial resources but also, at business,

community and economy level. Very importantly, students need to identify and discuss

significant economic issues, important to society and to the world. They should practice

examining the consequences of change in economic conditions and public policies (The

enGauge 21st Century Skills, 2003).

According to Greenspan (2003), increasingly, everyone is responsible for his/her own

financial stability and is even with more complex financial instruments with full of

dilemmas in making appropriate choice. But, according to Lusardi (2008), individuals are

not capable of making appropriate financial decisions because of low financial

knowledge. Studies in Australian university a student suggests that the students have a

satisfactory level of general financial literacy, there are particular areas where they scored

low which needs to be addressed (Sonia bird 2008). The importance of being financially

literate includes retirement preparedness, able to make better investment decision,

increase the capability of risk management, be confident in financial market activities etc.

To be financially literate is to mean financially knowledgeable to know how to use

financial resources efficiently. This means learning how to pay your expenses, how to

borrow and save money knowingly, how and why to invest and plan for retirement and

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how and when to insurance to minimize risks. To be free from financial stress individuals

should be financially literate by learning the basics of money management and upgrading

in to a complex finance issues. Considering financial development improves financial

decision making ability. Managing money is a personal ability which benefits throughout

the life for consumers. Financially illiterate individuals may be in doubt with their

income and expense, with charges and fees for invoices and bills not paid on time and

other financial decisions about saving, purchasing and investment activities.

The need for financial literacy would continue to grow because individuals are expected

to become more self-reliant (The Adult Financial Literacy Advisory Group, 2008). That

is why financial literacy has become an increasingly significant research topic in

developed and developing countries around the world. In recent years, countries in the

world including developed and emerging countries and economies are very concerned

about the financial knowledge of their citizens. This has stemmed in particular from

shrinking public and private support systems, shifting demographic profiles including the

ageing of the population, and wide-ranging developments in the financial marketplace.

Concern was also heightened by the challenging economic and financial context with the

recognition that lack of financial literacy was one of the factors contributing to ill-

informed financial decisions and that these decisions could, in turn, have tremendous

negative spill-over‟s (OECD, 2009a; A series of tangible trends underpin the rising

global interest in financial literacy as a key life skill which includes risk shift, Increased

individual responsibility, increased supply of a wide range of financial products and

services and increased demand for financial products and services.

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It is important to know that personal finance is not the same with business finance.

Personal finance maximizes the individual or family utility. That is, families want their

members to be happy and they use money a source towards making their family members

happy and fulfill their needs. . Most often this means that families may not even save or

participate in investing activities. Businesses, on the other side maximize profits or

wealth of the shareholders (Deborah Haynes, Personal communication, 2009). Every

government in the world should work to make citizen to be financially knowledgeable so

as the economic growth and development can be improved. In order to improve the

financial well-being of citizen‟s government of many nations accepted financial literacy

as one of the national strategies and for the same many initiatives educating on financial

literacy are taken from time to time.

Various researches conducted on the capability of individuals to make informed financial

decisions tries to recommend financial literacy as a core element for educating about

personal financial issues. Financial literacy is identified as one of the primary means for

many countries throughout the world because of liberalization, new improvement in

technologies and globalization. Many policy makers as well as the decision makers

identify the need of increasing the financial literacy level as a very important strategy to

achieve stated economic objectives. In Ethiopia implementation of the growth and

transformational plan required huge investment. One major implementation challenge

was therefore related to mobilizing adequate resources to the plan. The strategy devised

focused on increasing domestic savings so as to provide the required finances to deliver

GTP I. To realize the objective of boosting domestic saving, a host of reform measures

were undertaken during the GTP I period. The measures include: awareness creation and

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community mobilization activities, expanding financial institutions (banks) and services,

raising the minimum deposit rate, strengthening existing and introducing new saving

mobilization instruments such as saving for housing program, Renaissance Dam Bond,

introducing private social security schemes, strengthening government employees social

security scheme, etc.(FDRE GTP II 2015/16). The measures were related the financial

system. So, even to achieve the growth and transformational plan individuals are required

to have the required financial knowledge to run the financial system smoothly.

In Ethiopia, the number of students in universities is increasing from time to time. The

ministry of education assigns the students to the universities across the country. Most of

the students enjoy their first experience of financial independence during their university

life and this means that they are responsible in their own financial decision making. Their

principal source of income may be family and the government. Using their income they

are expected to purchase items among so many different alternatives which differs in

price and quality, since they have expanded purchasing power, this had made the

university students one of the important customer market segments. Since most of the

Universities students live apart from their parents, therefore, using their financial

knowledge they make financial decisions. So, by examining the financial literacy level of

the students, it is possible to understand as well as give feedback about the financial

knowledge, financial opinions, financial practices and financial decision.

Learning about finance issues at the young age is very important to make sound financial

decisions throughout the life of any individual. The individual benefits not his/her self but

also, contributes to the community and assumes responsibility for preparing the next

generation to manage their financial issues.

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Financial literacy cannot only be viewed as an ability to read finance and accounting.

Financial literacy does not automatically affect people‟s financial practices. Financial

literacy, and those that apply to it, vary with time and place. Financial literacy is a

concept that needs to be situated and studied in practice. Financial literacy is important to

make informed financial decisions. Financially literate consumers can create pressures on

corporations and government to do the right market and improve their service and quality

on their products. Financially literate individuals can decide wisely on financial issues

and can reinforce market players for fair market. The need for financial literacy has

become increasingly significant with the deregulation of financial markets and the easier

access to credit, the rapid growth in marketing financial products. This study aims at

examining the level financial literacy among university students in Ethiopia.

1.2. Statement of the problem

Financially knowledgeable individuals knows how to manage activities related to money,

how to save and invest, how financial institutions do their business and owns analytical

abilities to make informed decisions (N.S. Mahdzan, S. Tabiani, 2011). Furthermore, they

would know how they should handle their financial affairs and how to be responsible

financially for their self and family. Financially literate persons are able to prepare

financial budget, understand the importance of saving and protect their savings, when

they spend they do it wisely, when they make big purchase they do it for items that are

worthwhile. Financial knowledge helps in differentiating the advantages and

disadvantages of debt, pay attention to portfolio, income, expense, saving and investment.

The importance of financial literacy has been increasing because of deregulation of

financial markets in the financial system, the access to credit since the financial

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institutions compute each other to own a good market share, the fast development and

making available of new financial products and encouragement by governments for

individuals think and plan for their retirement (Beal & Delpachitra, 2003; Abraham &

Marcolin, 2006). In order to have a good life one should be free from financial

discomforts and avoid the economic uncertainties in one‟s life, sound financial

knowledge, very good insights regarding saving and investment is a must.

Financial decision making is a means of choosing the best financial products for

investment, saving and other finance related matters. It is to mean by choosing the best

alternative among so many alternatives related to financial matters. Due to lack of

financial knowledge many individuals are not capable of personal financial planning,

saving, investing and other finance related decisions. The wrong decisions made by

individuals will have long term effect on the financial wealth of individuals. In order to

secure future financial wealth, planning and implementing good strategies on money

management, investment, saving and borrowing, insurance and other important financial

matters should be started at an early stage. Future is uncertain which is impossible to

predict what exactly is going to happen and for that reason it necessary to engage on

saving, investment and retirement plans so, that can contribute financial security of the

individuals. Personal financial management and improving wealth is not only important

for the current period but also to improve living standard overtime and have a financially

stress free life. That is why it is important to study financial literacy. In order to achieve

favorable results in business and to have a prosperous life, one should have sound

financial literacy, with this one should have deep rooted insights towards savings and

7|Page
investments which will lower down all sorts of economical difficulty in one‟s life. So it

is important to study financial literacy on the students.

There have been several financial literacy studies on university students conducted in the

world most of them in developed countries like USA, UK, Australia. Even though,

students in the developed countries have access to financial institutions and other

financial issues, there is evidence that student‟s financial knowledge is inadequate to

make informed decisions. For example, Studies in the United States of America have

shown that people have inadequate knowledge of personal finances (Haiyang Chen and

Ronald P. Volpe, 1998). Enhancing financial literacy is even essential in developing

countries with low levels of formal education. A search through literature suggests that

there has been little research on this topic in developing countries and even there is no

any study of financial literacy among university students in Ethiopia. One of the main

purposes of this research is to fill some gap in the topic and to add literature to Ethiopia.

Ethiopia is one of the developing countries undertaking a lot of programs to be in the

middle income in the year 2025 and how Ethiopian university students understand

financial literacy may help the country to achieve the target. Since the students are going

to engage in different institutions in the near future, students understanding on the

financial literacy is important so that the need for the study.

Ethiopia is a young country, with 45 percent of the population under age 15 and 71

percent under age 30. Investing in young people (ages 10 to 29) now will lay the

groundwork for Ethiopia‟s future. Strategies to continue progress toward a fertility

decline and harness the potential of its youth will help Ethiopia attain a demographic

8|Page
dividend and foster sustainable development. One of the areas of investment by the

government is Expanding Educational Opportunity (ECA).as one key area of investment

of the government Ethiopia. Studying the financial literacy level of the students is crucial

since the students are young and can help the country to achieve its target.

1.3. Research questions

Based on the above research problems or gaps identified the study is carried out to

answer the following questions;

1. How do students understand general finance issues, savings and borrowing,

investment and insurance?

2. What is the financial literacy level of the students?

3. What are the determinants of financial literacy among students?

4. What are the ways students expect to learn or improve their financial knowledge?

5. How does a students‟ personal financial knowledge influence their personal

financial opinions, decisions and financial management practices?

1.4. Objectives of the study

The objectives of the study are explained under its general and specific as

follows.

1.4.1. General objective

The general objective of this study is to examine financial literacy among university

students in Ethiopian.

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1.4.2. Specific objective

The specific objectives of the study are the following.

1. To examine students knowledge in general financial matters, savings and

borrowing, investment and insurance.

2. To measure the financial literacy level of university students in Ethiopia.

3. To examine whether some group of students are relatively more financially

literate than other students.

4. To determine the ways through which students expect to learn or improve their

financial knowledge.

5. To examine the relationship between financial literacy level and personal

financial opinions, personal financial decisions and financial practices.

1.5. Research hypothesis

The study examined finance literacy among university students in Ethiopian. The

hypothesis of the study was:

H1: There is significant difference in the levels of financial literacy based on their

gender.

H2: There is a significant difference in the levels of financial literacy among students

based on their field of study.

H3: There are significant differences in the levels of financial literacy of students based

on their year of study.

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 a. Third year students are more financially literate than first year and second year

students.

b. Second year students are more financially literate than first year students.

H4: There is a significant difference in the level of financial literacy of students based on

their income.

H5: There is a significant difference in the level of financial literacy of students based on

their work related experience.

H6: There are significant differences in the level of financial literacy of students based on

their exposure to financial matters.

a. Students whose family has high education level are more financially literate than

those students whose family are illiterate or with low education level.

b. Students whose families are employed are more financially literate than those

students whose families are unemployed.

c. Students who have any account are more financially literate than those who do

not have any account.

d. Students who lived most of their life in capital towns are more financially literate

than those who do not live most of their life in capital towns.

H7: There is a positive significant relationship between financial literacy and financial

opinions.

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H8: There is a positive significant relationship between financial literacy and personal

financial decisions.

H9: There is a positive significant relationship between financial literacy and personal

financial practices.

1.6. Need for the study

Making thoughtful and informed decisions about your finances is more important than

ever. The importance of financial literacy cannot be undermined because of the burden of

making sound financial decisions are coming to rest on the shoulders of individuals.

Individuals must have accumulated more funds before retirement to cover living expense

over a longer time and the financial environment seems like it is changing faster. There

are more financial options and there are more choices of financial services and Costs and

wages have generally continued to rise to the point where having an income or retirement

nest egg that several years ago would have seemed luxurious, now just seems barely

adequate. So this study will provide the financial literacy evidence about the university

students in Ethiopia and recommend the gaps to the government and incorporate it to

develop a curriculum which can best develop the financial literacy level of the students.

Once the students have high financial literacy level since they are the future generations

that will have the power to lead the country they will improve the economic

development.

Financial literacy plays important role in access to financial services by consumers and

consumer protection on financial products. A financially literate consumer is aware of

financial issues. Financial inclusion or access to financial service is important for a

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country like Ethiopia. These arises a need that individuals should have access to banking

facilities and should be aware of finance related issues. Financial literacy enables

individuals to know about risk and return related to financial activities and help them in

making informed financial decisions.

Financial literacy is a tool for consumer protection that knowledge on financial matters

leads to consumers‟ awareness of their rights and asks in case any misuse is there. This

specific topic is the first study to be conducted in Ethiopia, so it will also add to the

literature in the field and will help to create the necessary atmosphere for future studies in

Ethiopia as well as other developing countries.

This research could also be a source of useful information for curriculum development on

personal finance by Universities in Ethiopia. The useful recommendations provided after

from the study can be adopted to improve students' personal finance capabilities of which

in the long-run will affect the economy at large.

1.7. Scope and limitation of the study

The study covers four public universities in Ethiopia. A sample size of 397 first degree

students was selected using probabilistic and non probabilistic approach and used for this

particular study. The study is limited by the inability to cover all universities in Ethiopia.

However, this limitation would not have significant impacts on the validity, purpose and

findings of the study because the sample size is sufficient and the students which join to

the universities are from all over the country.

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1.8. Structure of the study

This study is organized into seven chapters as follows.

Chapter I: Introduction

This chapter introduces the back ground of the study, objectives of the study, hypothesis

of the study, the need for the study, scope and limitation of the study, organization of the

study and research methodology of the study.

Chapter II: Review of literature

The chapter presents the detail review of literature on financial literacy, studies done on

financial literacy, determinants of financial literacy, measurement of financial literacy

level and gaps from the literature.

Chapter III: overview of financial sector in Ethiopia

This chapter presents the overview of financial sector in Ethiopia. This chapter discusses

history and the developments of the financial sector and current developments in the

financial sector in Ethiopia.

Chapter IV: Research designs, methods and methodology

This chapter presents research design, methods and the detailed methodology which is

used to conduct and achieve the thesis.

Chapter V: Results and Discussion

The findings and results of the analysis of the data gathered is presented and discussed in

Chapters five. The results were analyzed and interpreted using univariate and multivariate

analysis.

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Chapter VI: The relationship between financial literacy and personal financial
opinions, decisions and practices

This chapter is about the relationship between financial literacy on financial opinion,

decisions and practices.

Chapter VII: summery, conclusion and recommendations

Finally, this chapter presents the summary, conclusion and recommendations based on

the findings.

1.9. Research Design, methods and methodology

The research Materials and Methods section is a very important part of any study. This

section of the research study provides the procedure that is followed in completing the

research. This is very important, not only so that the reader has a clear understanding, but

a well written Materials and Methods section also serves as a set of instructions for

anyone desiring to study further research in the future.

1.9.1. Research design

To study the personal financial literacy among university students in Ethiopia, this study

used methodologies that are adopted and used from prior research works which are

conducted in the financial literacy studies. Most studies conducted in the topic adopted

descriptive and explanatory research designs to analyze the data collected from primary

sources. Therefore, Descriptive and explanatory research designs are used to achieve the

objectives of the study.

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1.9.2. Types and sources of data

In this research the researcher used primary data source that is collected from Ethiopian

public university first degree students. The data is collected from four government

universities in the year 2017 and 2018.

1.9.3. Methods of data collection

For this research purpose data is collected from primary source using survey method.

Survey method is the most effective strategy since the researcher gathers a large amount

of data from students about knowledge in personal finance, their financial decisions,

opinions, practice and demographic data. The survey strategy is employed using

questionnaire to gather the necessary data for the research to achieve the objectives of the

study.

1.9.4. Method of data analysis

To analyze the data collected from field work, first the findings are mainly presented in

the form of Tables. The mean percentage of correct scores for each question, section and

the entire survey is used to measure the level of financial literacy of the students. This

study provides further evidence of the differences using Cross-tabulations, independent t

test, analysis of variance (ANOVA) and logistics regression.

Cross-tabulations and Chi-square tests are used to examine whether the impact of

financial literacy on personal opinions, decisions and practices is statistically significant.

SPSS and Microsoft Excel are used to run the data.

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1.9.5. Population and sample size of the study

The population for this study consists of public university students in Ethiopia. The

students in four universities in different regional states in Ethiopia are the target

population of the study. The universities are Adigrat university located in Tigray regional

state, Semera university located in Afar regional state, Wollo university located in

Amhara regional state and Wolkita University located in Southern Nations, Nationalities,

and Peoples' regional state.

1.9.6. Sample size and sampling method

It is often impossible and generally accepted that the entire population for the study

cannot be studied. This is normally due to the difficulty on the part of the researcher in

getting access to the whole target population normally due to the size of the population,

time constraints and the cost involved. To address the challenge of access to the complete

population, representative samples are thus prescribed in any scientific study (Saunders et

al., 2007). Due to this reason it is recommended to use sampling. Purposive sampling

technique used to select the four public universities. Stratified random sampling

technique is used to select the students for this study.

The population was first divided into two strata based on their field of study of the

students. The students was grouped under business and economics and other than

business and economics after the first stratification; the population is regrouped based on

the level of study of the students, namely first year, second year and third year. Then

from each stratum the representative samples were used.

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 CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction

This chapter presents a review of relevant related literature on financial literacy. In this

direction, the chapter provides broad discussion and review of the meaning of various

terminologies relating to literacy, financial literacy and empirical evidence by prior

researchers regarding the objectives of the study.

2.1.1. Literacy

According to Burnet (1965) literacy is not simply about reading and writing (although

there is nothing simplistic about the acquisition of these skills), but it also includes:

 Learning

 Achieving status

 Achieving human rights

 Knowing

 Making choices

 Improving occupational status

 Improving leisure status

 Making comparisons

 Creating and confirming conclusions

The Workforce Investment Act (1998), National Institute for Literacy defined literacy as

an individual's ability to read, write, speak in English, compute and solve problems at the

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levels of proficiency necessary to function on the job, in the family of the individual and

in society. Literacy offers us access to information, ideas, and opinions and by creating

the potential for reflecting, provides opportunities for making and communicating

meaning, and for learning. It enables individuals to make meaning and to learn (Margaret

Jackson 1993).

According to Oxford English Dictionary literacy is the quality or state of being literate,

knowledge of letters and condition in respect to education, ability to read and write.

Literacy is a topic of interest to individuals from a variety of backgrounds and is of

interest for a variety of reasons. Literacy is examined, researched, discussed, interpreted,

communicated and written by individuals including educators, psychologists, socio-

anthropologists, civil servants, government ministers, researchers, policy makers and

those in the media. Literacy is subjected to a phenomenal level of enquiry, however the

perspectives of these interested parties are inevitably varied, each drawing its own

conclusions according to its area of specialization.

2.1.2. The Definition of Financial Literacy

Through a number of studies, researchers and policy makers tried to offer a conceptual

definition of financial literacy. The common basis of conceptual definition for these

definitions is financial knowledge or understanding personal finance issues.

Financial literacy as a construct was first introduced by the Jump$tart Coalition for

Personal Financial Literacy in its inaugural 1997 study Jumpstart Survey of Financial

Literacy among High School Students. In this study, Jump$tart defines financial literacy

as “the ability to use knowledge and skills to manage one's financial resources effectively

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for lifetime financial security (Hastings, et al.: 2012). However, the term financial

literacy is defined differently in many research areas, by different researchers and

organizations. Among the definitions given for financial literacy the following definitions

are included.

According to Noctor, Stoney and Stradling (1992), financial literacy is the ability to make

informed judgments and to take effective decisions regarding the use and management of

money. This definition shows financially literate individuals are able to make decisions

regarding financial issues knowingly.

The President‟s Advisory Council on Financial Literacy in the US (PACFL, 2008),

defined financial literacy as the ability to use knowledge and skills to manage financial

resources effectively for a lifetime for one‟s financial well-being. It is the knowledge of

basic economic and financial concepts, as well as the ability to use that knowledge and

other financial skills to manage financial resources effectively for lifetime of financial

well-being. Financial literacy skills enable individuals to navigate the financial world,

make informed decisions about their money and minimize their chances of being misled

on financial matters (Beal and Delpachitra,2003; Commonwealth Bank Foundation,

2004b).

OECD report in 2005 defines that financial literacy is the combination of

consumers‟ /investors‟ understanding of financial products and concepts and their

ability and confidence to appreciate financial risks and opportunities, to make informed

choices, to know where to go for help, and to take other effective actions to improve their

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financial well-being. Financial literacy has been described as the ability to make use of

financial education in any finance related issues (Wiener et al., 2005).

The centre for financial inclusion defines financial literacy as “the ability to understand

how to use financial products and services and how to manage personal, household, or

microenterprise finances over time”. Financial literacy is a basic concept in

understanding money and its use in daily life. This includes the way income and

expenditure are managed and the ability to use the common methods of exchanging and

managing money. Further, financial literacy incorporates an understanding of everyday

situations that need to be understood such as investment, insurance, credit and savings

and borrowings. The understanding of financial terms and concepts includes an

understanding of key financial concepts central to investing and managing funds to

increase financial wealth and be free from financial insecurity. Individuals require an

awareness of features available for borrowing and investing. This awareness includes the

understanding of prospectuses and annual statements, compound interest calculations and

delaying the use of funds for consumption. Individuals further need to be aware that high

return investments are also likely to involve high risk, the realization that market values

fall as well as rise, and the principles of diversification. This need introduces a new

complex set of skills in relation to products and how they work, the advantages and

disadvantages. The other component of financial literacy is the skill to utilize knowledge

and understanding of finance to make informed financial decisions (Wagland and Taylor

2009).

The definition of Financial Literacy used by the New America foundation and

cited by Vitt et al. (2000) is “the ability to read, analyze, manage and write about the

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personal financial conditions that affect material well-being. It includes the ability to

discern financial choices, discuss money and financial issues without (or despite)

discomfort, plan for the future, and respond competently to life events that affect every

day‟s financial decisions, including events in the general economy” (Parrishand Servon,

2006).

Financial literacy involves an individual‟s ability to interpret and understand basic

financial concepts and apply that knowledge to make informed decisions. Financial

literacy is more than a measure of knowledge. According to Hogarth (2002), financial

literacy is the ability to read, analyze, manage, and communicate about the personal

financial conditions that affect material well-being. It includes the ability to discern

financial choices, discuss money and financial issues without (or despite) discomfort,

plan for the future, and respond competently to life events that affect everyday financial

decisions, including events in the general economy. Hence, financial literacy includes

knowledge and understanding of basic financial concepts and the ability to use these to

plan and implement financial decisions.

From the definitions of financial literacy given above financial literacy is related to

financial knowledge, Financial Education and Financial Capability, financial behavior

and personal finance. These are the basic issues which are discusses by various

researchers while explaining financial literacy.

Recognizing that there are many definitions given for financial literacy by different

authors a working definition used for this study is as an individual knowledge of general

finance issues, savings and borrowing, investment and insurance as well as the skill and

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ability to use that knowledge to improve their financial opinions, make well financial

decisions and improve their financial management practices.

2.2. Related terms to financial literacy

2.2.1. Financial education

For the sake of keeping and increasing the wealth of each individual it is important that

individuals have the skills to manage their personal finance. To be financially capable,

knowledge on personal finance and family finance, ability to plan, get information for

decisions related to financial products, and monitoring financial market is required.

According to Hogarth J. M. (2006), financial education includes being knowledgeable,

educated, and informed on the issues of managing money and assets, banking,

investments, credit, insurance, and taxes, understanding the basic concepts underlying the

management of money and assets (e.g., the time value of money in investments and the

pooling of risks in insurance) and Using that knowledge and understanding to plan,

implement, and evaluate financial decisions.

OECD (2005), defines financial education as the process by which financial consumers

and investors improve their understanding of financial products and concepts and,

through information, instruction and/or objective advice, develop the skills and

confidence to become more aware of financial risks and opportunities, to make informed

choices, to know where to go for help, and to take other effective actions to improve

their financial well-being. Financial education is a process where the user of financial

services or investors improve their understanding for financial products, notions and

risks and on the bases of information, instructions and objective advice develop the skills

and confidence in strengthening information about financial risks and occasions, make
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decisions on the bases of good information, are acquainted with the fact where to find

help and take other effective measures for improving their wealth.

According to Commission of the European Communities (2007a), The most common

subject of programs in financial education are the basics of how to deal with money, like

for example how to use a bank account. Then follow the skills of dealing with finances

including dealing with credits and debts. The questions of deposit, saving and retirement,

insurance and to cope with risk do not rank that high which means that these are fields

where it has to be dedicated a little bit more. For the target group this are the same

number of programs meant for children, young and adults. It seems that only some

schemes are meant to be for more specific groups like for example the scheme for the

group in the age before retirement, women, ethnic minorities or people with low income.

The President„s Advisory Council on Financial Literacy (PACFL) (2008), had defined

financial education as the process by which people improve their understanding of

financial products, services and concepts and hereby are empowered to make informed

choices, avoid pitfalls, know where to go for help and take other actions to improve their

present and long-term financial well-being. It also states, financial education is a process

through which financial knowledge and skills are gained, rather than the knowledge and

skills themselves. Hence, financial education should be considered a concept that

promotes financial literacy.

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2.2.2. Financial knowledge

De-lavande, Rohwedder and Willis (2008), defines financial knowledge as particular kind

of human capital that is acquired throughout the life cycle, by studying subjects that

affect the ability to effectively manage revenues, expenses, and savings.

2.2.3. Financial behavior

According to OECD (2013), financial behavior is a key element of financial literacy, and

it is undoubtedly important. According to Atkinson and Messy (2012), the positive

results of being financially literate are driven by behavior such as planning expenses and

building financial security, on the other hand, certain behaviors, such as excessive use of

credit, may reduce financial well-being. In turn, financial attitudes are established

through economic and non-economic beliefs held by a decision maker on the outcome of

a certain behavior and they are, therefore, a key factor in the personal decision-making

process (Ajzen, 1991).lack of financial knowledge may be a big barrier for financial

access among the poor, pointing out financial education as the best policy choice to

improve low-income individuals‟ access to finance (World Bank, 2014).

2.2.4. Financial capability

According to The Scottish Government's 'Financial Capability Discussion Paper' (2010),

financial capability is defined as the motivation to efficiently manage finances and effect

change in day-to-day management of finances. Thus, a financially capable person will be

able to appreciate financial management and seek advice from professionals. Financial

capability plays an important part in a wider role in the ability of individuals to access

financial services and support. Alongside income maximization, debt advice and

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measures to ensure access to affordable credit, improving financial capability should help

people participate more fully in society and reduce poverty. Financially capable

consumers plan ahead, find and use information, know when to seek advice and can

understand and act on this advice, leading to greater participation in the financial services

market (Her Majesty‟s Treasury January 2007).

2.2.5. Personal finance

According to Lusardi and Mitchell (2011), Personal Finance involves all financial

decisions and activities of an individual, including budgeting, insurance, savings,

investing, debt servicing, mortgages and more. Personal financial decisions may involve

paying for education, financing durable goods such as real estate and cars, buying

insurance, e.g. health and property insurance, investing and saving for retirement Central

to personal finance is personal financial planning.

2.3. The need for financial literacy

Financial literacy helps individuals to improve the level of understanding in financial

issues which helps to process financial information and do informed decisions and

choices. It is associated to the well being of individuals to improve their financial wealth.

The need for financial literacy has grown rapidly over the last decade because financial

markets have been deregulated and credit has become easier to obtain, as financial

institutions compete strongly with each other for market share. (Beal and Delpachitra

2003).Financial literacy is very important in our modern era for many reasons. First, the

recent financial crisis has reduced access to credit and increased its cost in many

developing-country markets, just as it already has in the United States and Europe.

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Second, financial literacy helps consumers to prepare during difficulty in financial

matters, by designing ways to minimize risk through diversification or insurance finally,

financial literacy can strengthen behaviors such as onetime payment of bills (World Bank

2009). Understanding some principles such as setting financial goals, budgeting,

investing and understanding money management helps individuals to live sustainably

without difficulty to make choices among different alternatives. Financial literacy is

important for so many reasons. Financial literacy is needed for the following reasons.

2.3.1. Retirement preparation

Those individuals who score higher on the financial literacy questions are associated with

a higher probability of retirement planning. Finding of researches conducted on financial

literacy shows that individuals those who are financially literate increases their income

after retirement. According to (Van Rooij et al., 2012;Lusardi and Beeler, 2007; Gustman

et al., 2010; Lusardi, 2008), the correlation between retirement planning and financial

literacy is strong. It has been shown that the planning of retirement savings, or even the

mere consideration of retirement, doubles the total amount individuals put aside for

retirement and hence, those who think about retirement in advance tend to have twice the

savings of those who do not. According to Garman (1997), financially literate people

have a greater capacity to save for retirement. Individually those who are financially

literate (those who score higher on the financial literacy questions) plans for their

retirement, which is likely to leave them better positioned for old age. Increasing

financial awareness would be beneficial to individuals considering how to save for

retirement (Lusardi, A. & Mitchell, O 2011). Financial literacy is believed to be an

important predictor of retirement planning that individually tends to go ahead beyond

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living for today only. The higher level of financial knowledge was positively correlated

to a higher level and regular source of income as well as a higher savings rate (Danes,

1994).

2.3.2. Better Investment decision

The level of financial literacy of an individual affects the investment decision made by

the individual i.e. financially literate individuals will make better investment decisions

through the application of the financial knowledge. According to Mahmood (2011),

financial literacy skills enables individuals to make informed investment decisions

concerning their investment and it minimizes the chances of investors being misled on

financial matters. Financial literacy influences investment decision making because

individuals with low literacy often rely on others as their main source of financial advice,

such individuals may make decisions based on the outcome of previous investments

made by others (free rider problem). As such they are not likely to make sound

investment decisions (Musundi 2014).

An investor needs to make the right choice among various alternatives at the right time in

order to make effective investment decisions which can maximize profitability and

minimize risks associated with it. Rehman, Faridi and Bashir (2010); Wahid, Salahuddin

and Noman (2008); Klapper and Panos (2011); Musundi (2014) and Awais et al., (2016),

financial literacy is an applicable instrument for predicting the investment behavior of

individuals.

According to Klapper and Panos (2011), the higher literacy was positively related to

retirement planning and investigating in private pension funds. Individuals with low

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financial literacy level were much less likely to invest in stocks. The majority of

respondents demonstrated a basic financial knowledge and has some grasp of concepts

such as interest compounding, inflation, and the time value of money. However, many

respondents could not distinguish between bonds and stocks, the link between bond

prices and interest rates, and the basics of risk diversification; thus, confirming that FL

does influence financial decision-making (Van Rooj et al. 2011).

2.3.3. Risk management

Because of the uncertainty of the future it is impossible to predict exactly what will

happen after a time. According to EMN (2010), financially literate individuals have a

good understanding about how to coup up with risk or how to manage risk and therefore

the problem of under coverage of risk through different methods like insurance. A good

estimation of risk leads to purchase insurance and other methods like hedging and

reducing the burden in the financial system even through having diversified investment.

2.3.4. Confidence in the stock market

According to Griffin and Tversky (1992), individuals who are financially literate and

those who have experience in the stock market results to have higher tendencies of

overconfidence than inexperienced individuals or as compared to those who are

financially illiterate. There is a positive correlation between stock market experience and

financial literacy i.e those who are financial literate individuals do have high stock

market participation (Frijns et al 2014 and Hilgert et al 2003). An individual, who has

above average financial experience, also has greater financial literacy. The same author

also suggests that individuals with greater financial experience are more willing to

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acquire further financial knowledge, either through financial educational programs or

self-education (Frijns et al., 2014).

2.3.5. Financial inclusion

Financial inclusion which is measured using access to and use of financial services is an

important goal of economic and financial development. According to Allen et al (2016),

financial inclusion is related to financial depth, physical proximity of financial

institutions, low costs for financial accounts, or a strong legal system which facilitates the

activities in the financial system to bring economic and financial development. Studies

conducted on financial literacy which examines the relationship between financial

literacy and good financial decision making supports financial inclusion, such as

improving saving for retirement or planning for retirement to be free of worry during the

old age (Skimmyhorn, 2016), accumulation of saving using the knowledge in how to

make decisions and have a proper plan and budget (Jamison et al., 2014), making good

decisions by participating in the stock market like holding stock (van Rooij et al., 2011),

wealth accumulation to live the life happily and without any financial dilemma (van

Rooij et al., 2012) good entrepreneurs financial practices or being very active in the

financial market (Drexler et al., 2014), better investment decisions through making good

analysis before and after and after making the investment (Guiso and Viviano, 2015),

and proper management of debt considering all the factors in the debt (Lusardi and

Tufano,2015). Kaiser and Menkhoff, (2017), founds that an increase in financial literacy

improves financial behavior.

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2.3.6. Improved financial behavior

Many studies investigate that financial literacy does have a positive effect on financial

behavior. According to J. W. Bauer, B. Braun, and P. D. Olson (2000), financial literacy

facilitates students‟ involvement in savings and investment, ability to manage debt,

effective management money through living on a budget financial illiteracy leads to

financial difficulties in students lives ( J.R. Hibbert and I.F. Beutler 2001). Increasing

financial literacy can be an effective strategy in improving quality of lives of individuals

because more knowledge on money leads to positive attitudes towards quality of life

which ultimately leads to better decision making resulting with effective utilization of

resources to improve their standard of living ( J. P. Knapp,1991).According to A.

Lusardi, and O. S. Mitchell(2007), Financial literacy influences planning behavior,

which, in turn, increases wealth holdings, even after controlling for many socio

demographic factors . It is also recognized that financial literacy facilitate wealth

accumulation, by increasing the probability of investing in stock market and have an

higher diversified portfolio (V.Rooij, C. J. Maarten, A. Lusardi, and R.J.M. Alessie,

2011).

2.4. Consequences of financial illiteracy

There are many consequences that may happen due to lack of financial knowledge.

Among the sequences the following are discussed.

2.4.1. Spending more than their income

According to Atkinson and Kempson (2004), the young people (aged 18 to 24) are

increasingly over-borrowed which leads to financial difficulties because of financial

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Illiteracy or lack of financial knowledge. Anthes (2004) finds that employees was in

financial crises because of spending their income on costly goods, such as branded

clothes and cell phones even the goods are necessary due to lack of financial knowledge.

2.4.2. Inability to keep financial record

Budgeting can change spending patterns of individuals through the successful regulation

of finances. As a result, unnecessary spending is curbed and budget maintenance is met

with a favorable attitude (Kidwell and Turrisi,2004). Chen and Volpe (1998) founds that

students with better financial knowledge keep detail financial records which suggests

that groups who are more knowledgeable regulate their spending patterns and decisions

by keeping detailed financial records.

2.4.3. Not planning and implementing a regular investment programme

Chen and Volpe (1998), founds that Students who are financially literate students views

the financial planning and implementation of a regular investment program as a very

important part of their life. Those students who are financially literate makes correct

investment decision as compare to the financially illiterate students. Most consumers are

not educated enough to make informed investment decisions.

2.4.4. Making incorrect financial decisions

According to Chen & Volpe (1998),the more knowledgeable an individual concerning

personal financial issues, the less likely that individual would be to make inaccurate

financial decisions that could lead to financial problems, such as taking out inadequate

insurance, exceeding their income and making incorrect investment decisions. Garman,

Leech and Garble (1996), suggest that negative financial decisions could be rectified or

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avoided by providing employees with the necessary financial counseling and intelligence

to manage their finances in a more effective manner. Consumers who spend more than

they earn, who do not keep financial records and do not plan and implement regular

investment programmes, are individuals who make flawed financial decisions.

2.5. Scope of financial literacy

According to Roy Morgan Research (2003), the scope of the financial literacy is not is

not only mathematical literacy and standard literacy, but it also includes knowledge and

understanding, behavior, attitudes, perceptions and awareness towards financial matters.

This includes:

a. Mathematical Literacy and Standard Literacy

 Essential mathematical, reading and comprehension skills

Mathematical ability provides a fundamental base for financial literacy. The ability to

perform basic calculations is important in budgeting, understanding basic statements and

most aspects of being an informed consumer of financial services.

b. Financial Understanding

 Understanding of what money is and how it is exchanged

 Understanding of where money comes from and goes

c. Financial Competence

 Understanding the main features of basic financial services

 Understanding financial records and appreciating the importance of reading

and retaining them

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  Attitudes to spending money and saving

 Awareness of the risks associated with some financial products and

appreciation of the relationship between risk and return

d. Financial Responsibility

 Ability to make appropriate personal life choices about financial issue

 Understanding consumer rights and responsibilities

 Ability and confidence to access assistance when things go wrong

2.6. The scope of term “Financial Literacy” for the present study

To examine the level of financial literacy among university students in Ethiopia the scope

of financial literacy is limited to the following concepts.

 Personal financial knowledge which includes the importance of financial literacy,

personal financial planning, personal budget, liquidity of asset management and

interest versus inflation.

 Personal saving and borrowing which involves type of deposits with high return,

guarantee on personal loan, concept of compound interest and simple interest,

distinguishing type of loan with low interest, concept of overdraft and factors to

be considered while offering loan.

 Personal investment which includes type and nature of investment alternatives,

concept of diversification, risk and return relationship and identification of

suitable investment strategy.

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  Insurance which includes property insurance, reason to have insurance, health

insurance, life insurance, cost of insurance and third party insurance.

 Personal financial opinion which involves opinion on record keeping, income and

expense management, maintaining life and non life insurance and planning for

investment regularly.

 Personal financial decisions: decisions related to saving, risk and return and

improving financial wealth and

 personal financial management practices related to saving, planning , comparison

of prices before purchasing items and keeping track of expense and income

2.7. Studies on Financial literacy

2.7.1. Schagen and Lines (1996)

Schagen and Lines (1996), conducted a financial literacy survey in UK on behalf of the

NatWest Group Charitable Trust. The study focuses on four groups which are young

people in work or training, students in higher education living from home, single parents

and families living in subsidized housing. The main focus of the study was on the

respondents‟ attitudes to save and borrow their use of financial information and

institutions, money management in families and their confidence in dealing with financial

issues. It also covers issues on the respondents‟ understanding and knowledge of

financial markets, financial instruments, financial decision making, financial problem

solving and financial planning. The results of the study found that most of respondents

were confident in their financial dealings. The single parents groups were less committed

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with regard to saving. The students groups were less confident while dealing with the

financial matters.

2.7.2. Chen and Volpe (1998)

Chen and Volpe (1998), conducted a survey of 924 college students from thirteen

colleges to examine their personal financial literacy; the relationship between financial

literacy and students‟ characteristics and impact of financial literacy on students

„opinions and decisions in U.S. The survey examined the personal financial literacy of

college students in general knowledge, savings and borrowings, insurance and

investments. The response of the students participated in the survey were classified into

two subgroups using the median percentage of correct answers. Students with scores

higher than the median were classified as having relatively more knowledge and students

with scores equal to or below the median were classified as having relatively less

knowledge. This dichotomous variable was used as the dependent variable in the logistic

model and the independent variable were represented by the demographic characteristic

variables. This study found that personal finance skills and knowledge overall median

percentage of correct scores of 55.56 percent which is inadequate or weak financial

knowledge. In this study the most answered questions were those questions included in

the general knowledge and the most questions which are missed by the participants of the

survey was questions involved in investments. Demographic variables that were used in

the analysis of the study were academic discipline, class rank, gender, race, nationality,

years of work experience, age and income. It was found that those students with a

business majors, men, and students in a higher class rank, over the age of 30 and had

more work experience have high levels of knowledge. It was also found that the

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participants with better financial knowledge identified more efficient options, while in

their decision making concerning personal financial issues, they reacted more effectively.

This study concluded that students with less knowledge were more likely to hold wrong

opinions and make incorrect financial decisions and college students are not

knowledgeable about personal finance. The low levels of knowledge limit their ability to

make informed decisions. The study also concluded that the level of an individual‟s

financial knowledge tends to influence attitudes that in turn affect the individual‟s

financial behavior.

2.7.3. UK Adult Financial Literacy Advisory Group (2000)

The Adult Financial Literacy Advisory Group had also performed a study through

conducting the relevant research, investigating areas of good practice, consulting with a

variety of organization across the public, private and voluntary sectors and visiting

organizations active in providing financial education programs to socially excluded

people to on how to promote better access to financial education to young people and

adults. The study concluded that the need for financial literacy would continue to grow

because individuals were expected to become more self-reliant, difficulties arising from

changing work patterns, an ageing population, less government involvement and

increasingly complex financial products. To this end, The Adult Financial Advisory

Group recommended that short term financial literacy education should be built around

the education, employment, housing, financial services and communication with

particular focus on needy population sectors such as older people, young people, single

parents, and people with disabilities and people living in social housing.

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2.7.4. Beal and Delpachitra (2003)

Beal and Delpachitra (2003), conducted a study on a sample of students from the

University of Southern Queensland. Primary data was collected from 789 students,

through which the main skills were tested by asking technical multiple choice questions

such as basic concept, markets and instruments of financial markets, planning, analysis

and decision making, and insurance. Results from the Analysis of the full model showed

that independent variables, major, sex, occupation, experience and risk preference impact

significantly on the dependent variable which is the financial literacy. Those Students

with higher financial literacy scores considered as financially knowledgeable were more

likely to be male, have greater work experience, have a higher income and have a lower

aggregate risk preference. Analysis of the study showed that students with higher general

financial knowledge and skills were more likely to be studying business, be male,

working in more highly skilled occupation and have more work experience. Overall, it

was concluded that university students in Australia were not skilled nor knowledgeable in

financial matters and that this will tend to impact negatively on their future lives through

incompetent financial management.

The Results of the study showed that Students who participated in the survey responds

better in how saving is achieved, the nature of the liability undertaken when guaranteeing

loan, the advantages of keeping a daily track of expenditure, the awareness of bank

statements allowing them to keep watch on interest rates and bank charge and saving

offset accounts. In the other side student‟s responses which shows weak are about

Interest, reason for diversifying an investment portfolio, the effect of compounding

interest and the relationship between risk and return, identify the determinants of

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insurance premium and the method of effecting bank reconciliation. The methodology

used to analyze the survey responses was very similar to that of Chen and Volpe (1998).

2.7.5. Roy Morgan Research (2003)

Roy Morgan Research (2003), conducted Australia„s first national study using a

telephonic survey of 3,548 adults and an in-depth survey of 202 individuals. The

objective of this study was to measure the knowledge of respondents against an

individual„s needs and circumstances. The telephone survey consisted of finance related

questions which was grouped in to four categories .The ANZ survey attempted to

measure knowledge and, behavior, attitude, perceptions and awareness. In the analysis

part of the survey, ten levels of financial literacy were used which were combined to form

financial literacy quintiles, where quintile one was the lowest level of financial literacy

and quintile five was the highest. Correlations, averages and percentages were also used

to summarize results. The survey findings concluded that Australians overall are a

financially literate. in this study respondents in the highest financial knowledge were

males, people with tertiary degrees, professionals and business owners, couples with no

children and people aged between 45 and 59 years. In the other side, some groups of the

participants in the survey have some challenges. Those groups were identified as those

having lower level of education, those not working or in unskilled work, those with lower

incomes, and those with lower saving levels, single people and people at both extremes of

the age profile (18-24 years old and those above 70 years).

2.7.6 Commonwealth Bank Foundation (2004)

Common wealth Bank Foundation, (2004) conducted a survey on financial literacy to

investigate the strength of association between financial literacy and outcomes in

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Australia. The study was done in three phases which starts with a national telephonic

survey of 5,000 respondents followed by investigating the microeconomic effects of

improving financial literacy, and finally investigated the macroeconomic effects of

improving financial literacy.

The telephonic survey was done using 20 multiple choice questions which was designed

to test each respondent„s ability to make financial decisions and also collected

demographic information such as personal finances, whether the individual had ever

owned a business, personal and health history, and sources of financial knowledge.

Results of this phase showed that those who were unemployed were financially illiterate

in financial skills. In additions to this the survey concluded that younger people (aged 16-

20 years), males, students, people with lower levels of education, people with lower

personal income, people with lower annual household income and people who had never

worked in paid employment results in weak financial literacy Results also indicated that

those individuals with high financial knowledge posses lower probability of being

unemployed. In addition, lower financial literacy was found to have an impact on an

individual„s health. The survey also showed that majority of the respondents learn about

finance matters through experience and around one third of the respondents learn

financial knowledge from financial institutions.

The results of the second phase of the study revealed that lifestyle of individuals can be

improved through improvements in financial literacy. Those with high level of financial

literacy were expected to be employed better as compared to those with low financial

literacy.

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The final phase of the study revealed that an improvement in financial literacy has the

potential to create more than 16,000 new jobs boosting Australia„s economy by $ 6

billion per annum. The other effects strengthening of national savings, a boost to both

public and private consumption, and the creation of more successful small businesses are

also the other macroeconomic effects of improving financial literacy in the society.

2.7.7. Chen and Volpe (2005)

Chen and Volpe (2005), conducted a survey in us with the main focus on importance of

financial knowledge and the level of knowledge possessed by employees. In addition to

that the study discuses about whether inadequate personal finance knowledge leads to a

decline in productivity, the use of a financial literacy test to screen new hires and the

most effective approach to improve employee„s financial literacy in the workplace.

The results the study suggests that the respondents do not have adequate knowledge

about the financial issues. The respondents ranked Retirement planning as the most

important topic in the financial literacy followed by personal finance basics, insurance,

company benefit plans, taxes, investments and estate planning. More than 55 % of

respondents who believes that inadequate personal finance knowledge leads to a decline

in productivity. Although a few respondents recommended using a financial literacy test

to screen new employees is important.

2.7.8 US National Council on Economic Education (2005)

The National Council on Economic Education (2005), surveyed schools with the main

focus of investigating personal financial education in schools. Results of the survey

revealed that only 34 states had standards for personal finance and 20 of these required

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that these standards be implemented. In addition, only six states required that students

complete a course that covers personal finance before graduating from high school and

only eight states actually tested students‟ personal financial knowledge. From the results

of this survey, it was concluded that the vast majority of young people in the U.S. were

not being taught about personal finance in school.

2.7.9 OECD (2005)

OECD (2005), has conducted financial literacy surveys in selected five countries

(Australia, Japan, Korea, The United States, and the United Kingdom). The objective of

the survey was to identify financial literacy skills and knowledge possessed by the

consumers and to establish the baseline measurement of financial literacy for

policymakers and financial institutions .the survey used two ways to measure financial

literacy. The first way measures the respondents‟ knowledge and understanding of

financial terms and their ability to apply financial concepts to particular situations which

were used to undertake the study in the United States and Korea and were targeted at high

school students.

The other method was asking for their self perceptions, about their financial

understanding and knowledge, as well as for their attitudes towards financial instruments,

decisions, information and its receipt. This approach was used in the surveys conducted

in the United Kingdom, Japan, and Australia, Even though target respondents,

approaches used for financial literacy and methodology used are different the results of

the survey has similarities. Some of the similarities were, first the surveys conducted in

different countries concluded that there was low level of financial knowledge among the

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respondents. According to the Japanese Consumer Survey on Finance 71 % of adult

respondents were no financially literate about investment in equity and bonds and 57

percent of the respondents were financially illiterate in financial products in general.

Some of the respondents (29%) lack financial knowledge about insurance, pension and

tax. The survey in The U.S. found that 40% of American employees were not saving for

retirement which means weakness in financial knowledge regarding the saving for

retirement. The survey of Korean and American high-school students showed that 40% of

the questions were not answered correctly in their ability to choose and manage a credit

card, their knowledge about saving and investing for retirement, and their awareness of

risk and the importance insurance. The British survey found that consumers do not

actively seek out financial information that is to be used while making informed financial

decision. In the Australian survey only 28% of the respondents had a good level of

financial knowledge understanding in solving problems using the concept of compound

interest.

Secondly, the respondents in the survey feel that it is difficult to find and understand

financial information that will be used to make informed decisions. The Japanese Survey

concluded that respondents felt frustrated about the difficulty in finding easy-to-

understand information on financial products. When asked about the financial

information provided by various organizations and companies. The British survey

conducted in the United Kingdom found that consumers do not actively seek out financial

information. The information they do receive is acquired by chance.

Thirdly, financial understanding or financial literacy is correlated with education and

income level of the respondents. In the Korean and American surveys, those students

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from financially illiterate family and students with low income and experience results to

have low financial knowledge. In Australia, those respondents which had low levels of

education, unemployment or low skilled work, low incomes, low levels of savings

single, and being at either end of the age profile (18 to 24 years old and those aged 70

years or older) were found with low level of financial literacy. In the United Kingdom,

individuals in the lower social grades and the lowest income band, as well as young

people aged 18 to 24, were likely to be the least receptive consumers and also

uninterested, unconfident and least active.

Lastly, there was a variation in respondents‟ actual financial knowledge and perception of

the respondents. In the Australian survey when asked for their perceptions, most

respondents stated that they are financially literate. However, when asked to apply their

financial knowledge to solve a particular problem, they demonstrated a lack of financial

understanding. Although 67 percent of respondents indicated that they understand the

concept of compound interest, only 28 percent correctly answered a problem using the

concept of compound interest. The survey in United Sates found that 65 percent of

students said that they are somewhat sure or very sure of their ability to manage their own

finances. However, the scores of these students were not much higher than those of their

less confident peers, which suggested that, the students are unable to judge accurately

how capable they are to manage their money.

2.7.10 Mandell (2005)

Mandell (2005), conducted a survey of 4,000 high school students to find out financial

literacy of high school students using the data collected by The Jumpstart Coalition. The

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results of the survey showed that students are fairly financially illiterate, which has

continued in a downward trend since then and also the study found that financial

education does contribute, although only slightly, to measures of financial literacy and

financial education does positively affect the savings. Students who take courses dealing

with personal finance may emerge with little improvement in financial literacy, but they

may end up more savings oriented than students who have not had a course.

2.7.11 Lusardi and Mitchell (2006)

Lusardi and Mitchell (2006), developed a module on retirement planning and financial

literacy as part of Health and Retirement Study conducted in 2004 in The United States

with the main aim of exploring the hypothesis that weak planning may be a primary

result of financial illiteracy. To achieve this objective the study measured how employees

make saving decisions and how they gather information to make informed decision

regarding financial matters. In addition to that the study assessed whether the respondents

possess the required financial knowledge to make informed decisions.

The result of the study suggests that there is a strong relationship between financial

knowledge and planning. Here the study finds those individuals who have a good

financial knowledge prepares plan and were successful in their planned activities with

regard to financial matters.

The overall result of the study showed that the financial literacy of older Americans is

poor and because of this certain groups are at risk. In the other side the study also reveals

that those individuals with poor financial knowledge or financially illiterate individuals

weak in financial planning and saving for their retirement.

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Lusardi, M.& Mitchell, O. (2009), developed a study to measure of financial literacy

and to identify the links between financial literacy and retirement planning by exploiting

information about respondents „financial knowledge acquired in school before entering

the labor market and certainly before starting to plan for retirement using two sets of

questions to test economic knowledge.

The first part of the study aimed to measure capacity of the participants using financial

literacy concepts, which are crucial for everyday financial transactions and decision

making by raising questions about time value of money and inflation. From the study it

was found that majority of the respondents can do simple calculations regarding interest

rates and they also understand the effects of inflation, but majority of the respondents

doesn‟t poorly answered questions about compound interest and money illusion.

Regarding to the socioeconomic characteristics, respondents over the age of 50 were

more consistently better informed, although the age differences were not often

statistically significant. Respondents which don‟t attend college were less likely to

answer correctly. Men was also found that more financially literate that women.

The second part of the study measured advanced application based financial knowledge

questions. which are intended to reflect people„s confidence about understanding of

economics.

In this part of the study most respondents were found to be knowledgeable about the

functioning of stock markets and diversification.

In the other side, it was found that the respondent doesn‟t have a good financial

knowledge on bond prices and interest rates. In the socio economic characteristics, it was

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found that younger respondents were less well-informed. In addition, it was found that

better educated respondents were more knowledgeable than less educated counterparts.

Sex differences were also marked in that women knew substantially less than men with

regards to the stock market, risk, and bond returns versus stocks, risk diversification, and

basic asset pricing.

2.7.12 j. Maarten van Rooji, Anna-Maria Lusardi and Rob Alessie (2007)

Maarten van Rooji, Annamaria Lusardi and Rob Alessie (2007), designed Basic financial

literacy model and Advanced financial literacy model which is helpful for understanding

of financial literacy and its relation to financial decision making. The models covers

financial matters to measure the basic knowledge of inflation and time value of money

and advanced knowledge of financial market and instruments such as stocks and bonds.

The measures were developed to test whether the respondents uses the financial

knowledge whether it basic or advanced to make financial decisions.

This data set was representative of the Dutch population, and was contained over 2,000

households and the study found that lack of financial literacy correlates with investors„

decisions to participate in the stock market and also financial literacy matters for stock

market ownership, even after controlling a large set of demographic variables, income

and wealth. The study concluded that stock ownership increases sharply with the

financial literacy.

2.7.13 Hussain et al. (2009)

Hussain et al. (2009), conducted a study to measure the level of financial literacy of UAE

individual investors and to examine the relationship between financial literacy and the

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influence of the factors that affect the investment decision. The study used date that was

collected for 290 investors in UAE. Results of the study showed that the financial literacy

of the investors was low which means the investors were financially illiterate. The main

factors affecting financial literacy level were found to be income level, education level

and workplace activity.

Those respondents with high income highly educated and those who work in the field of

finance had a higher financial literacy level than others. There was significant difference

in the level of financial literacy was found as well between the respondents according to

their gender. Specifically, men possess higher level of financial literacy than women. The

study also concluded that those investors with high financial knowledge made good

investment decision as compared to those who were financially illiterate. i.e there is a

relationship between financial literacy and investment decisions.

2.7.14 Seth, P., Patel, G., and Krishnan, K. K. (2010)

Seth, P., Patel, G., and Krishnan, K. K. (2010), conducted a study to assess the level of

financial literacy among the investors of Delhi and National Capital Region. The study

also attempts to analyze the relationship between financial literacy and other

demographic factors such as age, income, and education. According to this study the

financial the investors‟ shows difference in studying among them taking different

financial matters. 4% of the investors doesn‟t have saving accounts in banks,70% of the

investors lacks knowledge on National Savings Certificate & Public Provident Fund.

While 2% % of the investors don‟t knew about Life Insurance, only about 45% preferred

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Life Insurance as the most effective financial instrument, which would be helpful at the

time of contingencies.

Results of the study shows also financial literacy is found to be affected by age, income

and educational level of the individuals. Investors with low income had low financial

knowledge. The study also revealed that people consider Life Insurance as the most

effective financial instrument followed by Fixed Deposits in banks.

2.7.15 Shaari, N. A., Hasan, N. A., Mohamed, R. K. M. H., & Sabri, M. A. J. M.

(2013)

Shaari, N. A., Hasan, N. A., Mohamed, R. K. M. H., & Sabri, M. A. J. M. (2013),

conducted a survey of 384 students on financial literacy in Malaysia with the main

objective of examining the financial literacy level among University. The study used a set

of demographic control variables Such as age, race, gender and family background and

associates them with financial knowledge.

Results of the study showed that there is significant relationship between financial

literacy level and age of the students (younger students have low level of financial

literacy that older students) , gender of the students( males were more financially literate

that women),students field of study(those students with business major were more

financially literate than non business students) and students year of study(senior students

have high level of financial knowledge that freshman students). In the other side the

study found a negative relationship between the financial literacy and respondents‟

spending habit, the overall results show that the financial literacy level of University

students was moderate as 65.7% of the students answered around 7 questions out of

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10.The test revealed that five factors including age, spending habit, gender, faculty and

year of study are significantly affect the financial literacy level.

2.8 Empirical evidence on personal financial knowledge

In this section a detailed review of individuals general financial knowledge,

knowledge in savings and borrowings, knowledge in investment and knowledge in

insurance is discussed which is based on the objectives of the study.

2.8.1. General financial knowledge

Danes and Hira (1987), surveyed three hundred twenty three college students and find

that participants had a low level of knowledge regarding overall money management.

There was a fairly healthy attitude towards basic money management and financial

planning matters and respondents recognized the importance of financial planning even

they used financial planning for their personal matters. The study finds that many

respondents do not manage and plan their finances in a disciplined or structured manner.

The Media Research Consultants Ltd (2005), Financial literacy among the youth in

Germany is low that only less than one-third of young adults were found with basic

knowledge of interest rates, inflation, and risk diversification (Lusardi et al. 2010).

Jorgensen (2007), investigated the personal finance and found low score of the students

in financial knowledge, attitude, and behavior but significantly increasing each year from

freshman to masters. Further, it also revealed that students who were financially

influenced by their parents had higher financial knowledge, attitude, and behavior scores

and students with higher financial knowledge also had higher financial attitude and

behavior scores. Shaari et al. (2013), examined the financial literacy among 384

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university students from local Universities of Malaysia using questionnaires survey. The

results of their study revealed that the spending habit and year of study have a significant

positive relationship with the financial literacy, whereby the age and gender are

negatively associated with the financial literacy. It has concluded that financial literacy

can prevent the university students from engaging in extensive debt especially credit card

debt. Agarwalla et al. (2013), identified that there is the influence of various socio-

demographic factors on different dimensions of financial literacy among the working

young in urban India. A few factors specific to India, such as joint-family and

consultative decision making process were found to significantly influence financial

literacy in urban Indian youths. a research conducted for the OECD‟ s study on financial

education indicates that the level of financial literacy is low in most countries, including

in developed countries.

2.8.2. Knowledge in Savings and borrowing

According to (Turnham, 2010), those with no financial knowledge have saved their

money in a traditional way. Low-income households with a lack of access to saving

programs and lack of trust in financial institutions kept cash at home rather than in a bank

account. (Okech, Mimura, Mauldin, & Kim, 2013), founds that Only about a one third

of respondents in individuals willing to saved from their income or being motivated to

save in financial institutions Some educational programs have succeeded in increasing

saving among the poor(Sherraden, Schreiner, & Beverly, 2003). But, financial literacy

has remained an issue at the lower levels of income. Lusardi (2008) ,recognized that

lower income individuals often possessed limited financial literacy and they did not plan

for saving for their retirement. The other findings were some characteristics negatively

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affect saving .the characteristics include: pessimism, ability to save, and Motivation to

save. According to Mills and Amick (2010), issues with health, loss of income,

insufficient income, or irregular income have made saving difficult. Those who own

home positively correlated with the saving habit Homeownership (Avery & Kennickell,

1991).

According to Henager-Greene, Robin & Mauldin, Teresa (2015), the financial knowledge

had a significant positive relationship with saving behavior. Other significant variables

were planning (usually or most of the time), irregular income, resource constraints,

employment, gender, and race.. (Lusardi and Mitchell, 2007). Examined financial literacy

knowledge on how employees made saving decisions, whether those employees collect

information for making these decisions, whether they possessed the financial literacy

needed to make informed decisions regarding their financial matters. The research

concluded that only fifty percent of the respondents from answer two simple questions

regarding interest compounding and inflation correctly. While over 80percent got the

Percentage Calculation question correct, only about half could do division or

mathematical literacy correctly.

Mahdzan and Tabiani (2013), analyzed the effect of financial literacy on the personal

savings in a sample of 192 students of Malaya University and Klang valley residents and

discovered that financial literacy was a significant positive determinant of personal

savings. In another study, Jappelli and Padula (2013) also examined the effect of

financial literacy on wealth and savings in a sample of 50 and over aged population and

revealed that financial literacy supports the saving habit. In another study, Beckmann

(2013), researched the effect of financial literacy on household saving with regression

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analysis and discovered that financial literacy affected the savings positively. Another

study, Hidajat (2015) analyzed the effect of financial literacy on savings for a 258

fishermen in Indonesia and revealed that financial literacy was a significant component of

savings. Murendo and Mutsonziwa (2017), researched the effect of financial literacy on

personal saving decisions in a sample of 400 persons from Zimbabwe and revealed a

positive relationship between financial literacy and personal savings.

Excessive borrowing has become a n important and every individuals problem that

threatens the lives of consumers, as credit became an easily accessible instrument for

financial consumers Any Wrong borrowing decisions made by any person may lead to

over-indebtedness and may ruin consumers‟ credibility affect in the individuals‟ financial

wealth and living standards. According to (Gianni et al., 2007), for over-indebted

households, usually a lower consumption/income ratio is reported than normal

households as because of they reduce consumption to repay debts. Indebted consumers

are more likely to experience physical and mental health problems, depression-related

symptoms of illness, thoughts of suicide and feelings of helplessness .Over-indebtedness

may produce a lower standard of living for the household and may affect the well-being

of children with basic needs unsatisfied in the family (Persson,2007). Over-indebted

people may face difficulties in ending employment in case of unemployment.-indebted

consumers are also prone to social exclusion (Persson, 2007). Over-indebtedness may

lead to public costs related to social housing, legal expenses, loss of productivity due to

stress and increase in healthcare expenses (Allwood et al.,2010).

Lack of financial knowledge is one of the most important factors that may promote

excessive borrowing. Lusardi and Tufano (2008), financial consumers with a higher level

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of financial literacy appear to be less likely to exhibit excessive borrowing behavior and

more informed credit use behavior and the relationship between financial literacy level

and over borrowing behavior attempts to increase financial literacy of financial

consumers may have important consequences in the prevention of excessive borrowing. l

consumers with high financial literacy levels are expected not to demonstrate excessive

borrowing behavior and to demonstrate informed credit use (Sevim, N., Temizel, F., &

Sayılır, Ö. 2012).Financial literacy is related to financial behavior and consequently to

borrowing decisions of individuals. According to (Lusardi et al., 2010), financially

illiterate people are found to be more likely to have debt problems. (Masonand Wilson,

2000), also found that Relationships between debt literacy and financial experiences and

debt loads imply higher risk o financial risks and opportunities, make informed choices

and perform efficient activities to increase financial welfare.

Those individuals with low financial knowledge results in over indebtedness. i.e high

levels of financial illiteracy are associated with high levels of indebtedness. Agarwal, S.,

Dricsoll, J. C., Gabaix, X. and Laibson, D. (2008), Suggested that financial competence is

directly related to the ability to make better decisions regarding borrowing. The

conclusion is that individuals who have more knowledge on credit cards make better

choices on loans. On the contrary, people with lower levels of financial literacy usually

make weak loan decisions. In another study by Lusardi, A. and Tufano, P. (2009), low

levels of financial literacy among loan users are associated with high loan costs.

Similarly, Stango, V. and Zinman, J. (2009), found that financial illiteracy is connected to

debt accumulation.

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2.8.3. Knowledge in Investment

According to Thilakam (2012), investment today has become a dynamic field that it need

special attention and analysis as investment alternative do have their own associated risk

and return. Mahmood (2011), carried out a study in Pakistan to assess the influence of

various factors that influence the investment decisions of investors and the result revels

that risk perception plays a major role in the investment decision process and also, the

changes in government policies impacts greatly on the risk perception of an invest.

Another study conducted by Nye, Pete & Cinnamon (2013), founds that a successful

investment decision is highly dependent on the financial literacy level of the decision

makers. Financial literacy refers to the extent to which an individual possesses the

understanding of key financial concepts, the confidence and ability to make appropriate

short term and long term investment decisions, while considering the changing economic

conditions. Awais et al., (2016), conducted a study on financial literacy and investment

decisions in Pakistan and concluded that financial literacy positively affects investment

decisions or these with high knowledge of finance do good financial decision. Klapper

and Panos (2011), concluded in developing countries financial literacy is positively

affects retirement planning and private pension funds investments. In the same way

Musundi (2014), founds that there is a significant positive impact of financial literacy on

investment decisions in the real estate sector of Kenya. There is a strong relationship

between financial literacy and financial decisions like retirement planning (Allesie et al,

2011) and investment decisions (Subha & Priya 2014).

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2.8.4. Knowledge in Insurance

Studies in financial literacy show that those individuals with low financial knowledge

also lack knowledge in insurance. Chen and Volpe (1998), find that college students have

a very low knowledge of insurance. Danes and Hira (1987), students have a low level of

knowledge regarding insurance. According to Lusardi and Mitchell (2014), financial

literacy helps in understanding the financial institutions and individuals uses the financial

information and posses financial market awareness. The reason is, as financial knowledge

increases, individuals become conscious and familiar with the financial system and begin

to express willingness to participate in the financial market. This supports the argument

that financially unsophisticated individuals have a huge responsibility to make sensible

and accurate financial investment decisions such as borrowing, investing, saving and

insurance. besides being financially literate, a person must be willing to pay for micro-

insurance to make it successful(Aidoo et al., 2014).Akter (2012), maintains that the

success story of micro-insurance in reducing livelihood vulnerabilities hinges on the

target population‟s willingness and ability to pay the true cost of the insurance scheme.

Willingness to pay for micro-insurance can be envisioned as two-step process; the

decision of whether or not to participate in micro-insurance; once a decision is made to

participate in micro-insurance, the next step is to decide how much to pay. In as much as

this argument sounds plausible, it is, however, imperative to acknowledge that target

clients knowledge about the features of a particular insurance scheme plays significant

role in convincing a potential insuring person to subscribe to insurance.

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2.9. Financial literacy and personal financial opinions, decisions and practices

Chen and Volpe (1998), made a survey of nine hundred twenty four college students

from thirteen colleges to examine their personal financial literacy; the relationship

between financial literacy and students „characteristics and impact of financial literacy on

students‟ opinions and decisions. They found that high school and college students in the

US are not receiving good education in personal financial fundamentals and have poor

knowledge. Personal finance skills and knowledge are inadequate; with the overall

median percentage of correct scores was fifty five point six percent. This study concluded

that students with less knowledge were more likely to hold wrong opinions and make

incorrect financial decisions and college students are not knowledgeable about personal

finance. The low level of knowledge limits their ability to make informed decisions. The

study also concluded that the level of an individual„s financial knowledge tends to

influence attitudes that in turn affect the individual„s financial behavior. Princeton Survey

Research Associates (1997) surveyed 1,770 households nationwide on their financial

knowledge and the result shows that household financial decision makers do not have a

good grasp of basic finance concepts the average correct score was forty two percent.

This indicates that poor personal financial knowledge.

Personal Financial decision making is the process of selecting a logical financial choice

from the available alternatives which is to be made by individuals. According to Lusardi,

A., & Mitchell, O. (2006), those personal financial decisions are greatly affected by the

person‟s limited resources or income and the means of generating the goods and services

in the market. In the current period it is now becoming increasingly necessary for

consumers to be more knowledgeable and competent in managing money. This is

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because changes in financial markets have resulted in the availability of a wider selection

of financial products and services, making financial decisions multifaceted and more

complicated. Fonseca, R., Mullen, K.., Zamarro, G., & Zissimopoulos, J. (2010),

Suggests that the knowledge and skills related to money management include the ability

to balance a checkbook, prepare a budget and compare prices of different products.

Individuals must therefore make day to day money management decisions to enable

better planning and management of life events such as food, education, illness, housing

purchase or retirement.

According to Agarwal et al. (2009), an increase in age also comes with the

accumulation of knowledge based on practical life experiences. The initial rise with age

might be interpreted as an increase in experience, while the subsequent decline could be

the result of deteriorating cognitive functions.UK Adult Financial Literacy Advisory

Group (2000), concluded that the need for financial literacy would continue to grow

because individuals were expected to become more self-reliant, difficulties arising from

changing work patterns, an ageing population, less government involvement and

increasingly complex financial products because of this the Adult Financial Advisory

Group recommended that short term financial literacy education should be built around

the education, employment, housing, financial services and communication with

particular focus on needy population sectors such as older people, young people, single

parents, and people with disabilities and people living in social housing. The findings of

Chen and Volpe (1998) indicate that, in terms of participants work experience and ages,

participants with more years of work experience are more knowledgeable than those with

less experience.

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In another study gender has been identified by several empirical studies to have a

relationship with the level of knowledge on financial differences. Bernheim (1998) finds

that males perform better on both financial and macroeconomic questions. Goldsmith,

Goldsmith and Heaney (1997), suggest that women score worse than men because in

general they are less interested in the topics of investment and personal finance and,

consequently, use financial services more seldom. Chen and Volpe (2002) and

Goldsmith, Goldsmith and Heaney (1997) links risk taking and confidence as

contributors to gender differences in financial literacy. Similarly, Chen and Volpe (2002),

Bajtelsmit and Bernasek (1996) and Powell and Ansic (1997), report that women were

more risk averse than men. Women generally have less enthusiasm for, lower confidence

in and less willingness to learn about personal finance topics (Chen, 2002).

2.10. Measurement of financial literacy level

The financial literacy has been studied by different researchers in different countries

throughout the world. Because of its need it has gain attention of many researchers and

countries. Among the specific topics some of the studies concentrate on the measurement

of financial literacy level. As reviewed from the researches most of the researchers used

whether self assessed approach or objective test approach to study the level of financial

literacy.

In the self assessment method individuals are required to assess their financial

understanding and skills to deal with financial issues their self and their financial literacy

level will be evaluated. This method doesn‟t be practiced by many researchers because

of respondents may be biased in respondents and is time taking.

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The second method used to measure financial literacy level is objective based test. Most

of the researchers use multiple choice questions to measure financial literacy based on

their objective. The respondents are required to answer the correct answer and their

literacy level is measured based on the correct and incorrect responses. This approach is

found to be acceptable and applicable in many research studies of financial literacy.

OCED (2005), the objective test is better to assess financial knowledge than self assessed

method.

The Jump start coalition conducts a survey on personal financial literacy of high school

students in US using a multiple questions on saving and investment, income, money

management, spending and credit. Mandell, L. (2008) and Mandell and Klein (2007),

used questions used by Jump start coalition to study financial literacy. Other researchers

such as Chen and Volpe (1998, 2002) and Volpe et al. (1996), also measured financial

literacy of students by using objective test questions to measure the financial knowledge

of students on the areas of insurance, investment, saving and borrowing and investment.

Lusardi and Mitchell (2006), prepared financial literacy test to conduct health and

retirement survey which involves questions to assess individuals understanding of the

concepts of compound interest, diversification and inflation. Almenberg and Soderberg

(2011) in Sweden and Klapper and Panos (2011), in Russia used the questions developed

by Lusardi and Mitchell to test the financial literacy level.

2.11. Determinants of financial literacy level

After reviewing the studies conducted on financial literacy done in many countries the

factors which affect the financial literacy level are identified. The main determinants of

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financial literacy level are gender, education, income, work related experience, and

exposure to finance issues. The empirical evidence of those variables is discussed below.

2.11.1. Gender

Studies conducted on financial literacy suggest that gender affects significantly the

financial literacy level. Many researches which test the difference in financial literacy

level of males and females founds that there is significant difference in financial literacy

level based on gender. These studies done by Chen & Volpe (1998), Danes & Haberman

(2007) and Micomonaco (2003), Peng et al. (2007) founds that males are more

financially literate as compared to females. Al-Tamimi and Kalli (2009), find a

significant difference in the level of financial literacy between men and women. Beal

and Delpachitra (2002) find that students with lower financial literacy scores were more

likely to be female. Bumcrot et al.,( 2011), founds that males are more financially

knowledgeable than females. The results of these studies conclude that males

outperformed females in all the dimensions to financial literacy. Some researchers

believe that the difference is due to cultural and social barriers and lack of interest in

financial topics among women. For instance, Goldsmith and Heaney (1997) suggest that

women are less financially literate than men because in general women are less interested

in the topics of investment and personal finance and, consequently, use financial services

less often. According to Falahati and Paim (2011), in developing countries the possible

reason for why women are less financially knowledgeable than females is different

financial socialization during childhood Men are normally responsible for financial

decisions in various households and are therefore more likely to understand financial

concepts better than.

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2.11.2. Education (field of study and year of study)

Education level and field of study are directly related to financial literacy level of

individuals. The student‟s field of studies in university is one of the sign about courses

which affect knowledge to personal financial literacy. Ibrahim (2009) found that

Students from business and economics are more financially literate than students from

other that business and economics field. Beal and Delpachitra (2003), Chen & Volpe

(1998), Volpe, Chen, & Pavlicko (1996), Peng et al. (2007), and Robb & Sharpe (2009),

founds that Students from business and economics field are found be more financially

knowledgeable than non business and economics students. Peng, Bartholomae,Fox, &

Cravener (2007) also suggests a positive relationship between courses taken in college

and students‟ knowledge of investment. This indicates that field of study has an impact

financial knowledge score, with business majors and students with higher year of scoring

better on the test of financial knowledge.

Studies also found that there is positive relationship between financial literacy level and

year of study. Higher level of education students‟ scores high mark in the financial

literacy tests (Chen & Volpe, 1998; Fogarty & MacCarthy, 2006; Mandell & Klein,

2009). Besides, as students in high year of study are more likely to have more life

experience with financial issues s and were significantly demonstrated better finance

attitude, behaviors than fresh man students. Marsh(2006); Chen & Volpe, 1998; Key

Bank & Harris Interactive, 2006; Mandell & Klein, 2009). Aggarwal N et al (2014), also

found that respondent with high educational qualification tend to have high financial

knowledge. College first year students have low scores on tests of financial knowledge.

Manton et al. (2005) found that college first year students were able to answer only about

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thirty five percent of financial literacy questions correctly. From this it can be concluded

that field of study and year of study have a n impact on the financial literacy level.

2.11.3. Family characteristics ( education level and occupation)

Studies suggest that there is positive impact of family education back ground and

occupation level on financial literacy level of students. Lusardi et al (2010) conducted a

study on the factors associated with financial literacy among American youth and found

factors such as social and family, family financial status, and parents' academic education

influenced individuals' financial literacy level. This study also concludes that the cultural

of the family, their income, parental participation in investment, parents‟ investment and

their race have an effect on financial literacy level. Therefore, there is a positive impact

of family education level and occupation status on financial literacy level of students.

2.11.4. Income

Financial literacy level varies positively with the income levels of individuals. According

to Cude (2010), there was a positive correlation between income and individuals financial

literacy level. The studies conducted on financial literacy also finds that those individuals

with high income are more financially literate as compared to individuals with low

income level (Lusardi, 2012; Hastings and Mitchell, 2011). According to Hilgert and

Hogarth (2002), respondents with high financial knowledge were more likely to be

relatively of high income respondents. Al-Tamimi and Kalli (2009) suggested that those

respondents with high income level are found to have high financial literacy level than

respondents with low income. A study conducted in Australia by Beal and Delpachitra

Study (2002) find that students with higher financial literacy scores were more likely to

have a higher income. Individuals with high income are expected to invest, save and have
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access to financial issues. While thinking about saving, investment, borrowing or other

financial issues those individuals should make financial decisions. To make financial

decisions they are expected to know more about finance issues. This indicates that as the

income level of an individual increases, there is high involvement in financial products

which can improve the level of financial knowledge.

2.11.5. Experience (age and work )

Cude (2010), in the study of factors affecting individuals' financial literacy finds that

there is a positive correlation between aging and individual‟s financial literacy level.

Financial literacy is seen to be low especially among young individuals (Lusardi, 2012;

Hastings and Mitchell, 2011). Less financially knowledgeable respondents are more

likely to be young (Hilgert and Hogarth, 2002). Chen and Volpe (1998), founds students

between 18 to 24 years were less financially literate as compared to those aged above 24.

They further explained that students below 25 years are less exposed and inexperienced

with little financial responsibility accounting for their low level of financial literacy.

Many of these students gain independence and a greater sense of financial responsibility

for the first time. So the reason for the low level of knowledge can be ascribed to the fact

that majority of them are in a very early stage of their financial life cycle.

Work experience is found to be significant determinant of financial literacy level.

Worthington (2004), founds that professionals, executives, business or farm owners

display the highest level of financial literacy and unemployed and non-working perform

low financial literacy level. Monticone (2010), concludes that in Italy white-collars,

managers and self-employed are with high financial knowledge. Cude (2010), finds that

high work experience increases individual‟s financial literacy level. In a financial literacy

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survey conducted on students from Australia, by Beal and Delpachitra (2002), finds that

students with higher financial literacy scores were more likely to have greater work

experience. Individuals with longer work experience have higher financial literacy level

because of greater familiarity with economic and financial subjects, while unskilled or

unemployed workers show less desirable attitudes and behaviors (Chen and Volpe 1998;

Kim and Garman 2004;Calamato 2010).

2.12. Research Gap

Based on the detail review of the literature the researcher found the following research

gaps;

First of all there is no financial literacy study conducted in Ethiopia. Most of the studies

conducted are in developed countries. There is no information about whether individuals

have the financial knowledge and skills to better understand financial literacy and its

relation to financial decision-making.

There is a low level of financial literacy among the various demographic groups of the

citizens of different countries, irrespective of stage of the economic development of a

country

There is a strong relationship between financial literacy level and demographic factors.

The literature review supported that there is a strong relationship between financial

literacy levels and demographic factors such as gender, field of study, year of study

income level, work experience family characteristics and exposure to finance issues.

The present study attempts to study the financial literacy level and the relationship of

financial literacy and personal financial opinions, decisions and practices of university

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students in Ethiopia, The present study has focused on demographic and socio economic

factors of the students which are gender, field of study, year of study, personal income,

work related experience, family background, exposure to finance issues and relationship

of financial literacy level and students personal opinions, decisions and practices.

2.13. Theoretical frame work

The carrier of finance is based on theories from many disciplines. It may be from studies

in family, economics, psychology and sociology. Theory is a framework of ideas. A

pattern emerges, after collection of specific types of information, and a theory is

developed to offer elaboration for any situation. This section describes theoretical

frameworks to explain personal financial literacy.

2.13.1. Human Ecological Model

The human ecological model developed by Bronfrenbrenner (1979), explains persons as

role players that influence and influenced by interactions with and within systems.

According to this model the four basic systems that make up the ecological make up are

the microsystem, the mesosystem, the exosystem, and the macrosystem.

 microsystem includes immediate family, friends, classmates or employees, and

members of one's faith community.

 Mesosystem recognizes that parts of the micro system interact with each other and

with the other systems.

 exosystem, includes groups, organizations, or entities that influence the micro

system.

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  The fourth level, the macro system, surrounds and affects all

other systems. It includes cultural values, personal and social conditions, political

ideologies, and market and economic performance.

2.13.2. Life Cycle Hypothesis of Savings

The life cycle hypothesis of savings was developed by Ando and Modigliani in the year

1963. This model assumes an individual consumes a constant percentage of their income

over the life cycle and that they are born without an inheritance and die without leaving a

legacy. Young individuals prefer to borrow for consumption while learning and

developing their skills. At their middle age they repay debts and involved in saving for

their retirement. At the age of retirement they spend their saving. However, many retired

individuals continue to save and also plan to transfer their remaining wealth to their

relatives. These demographic factors play an important role while predicting the expected

financial obligation such as child„s education, marriage and provision for retirement. as a

part of financial planning, each stage in the human life cycle, has a unique financial

objective which needs to be fulfilled, which in turn plays an important role in credit,

saving and investment decisions.

2.13.3. Discounted Utility Model

The discounted utility framework was introduced by economist Paul Samuelson in 1938.

This model describes that the cost and benefit at different times can be comparable to

future utility by some constant factor. When an individual faced with a choice from

amongst a number of possible alternatives, the individual will choose the one that yields

the highest utility. However, individuals are constrained by the amount of their income.

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The utility function assessed both in terms of current and future consumption. According

to this model, what one gets in the future is less valued now than it will be later.

2.13.4. Family Resource Management Model

The human ecological model and systems theory was used by Deacon and Firebaugh

(1988) as a base to provide a context for understanding the goal-directed financial

decision of individuals. The systems theory has three important elements namely inputs,

throughputs, and outputs. In the family systems, the demands and resources enter the

managerial subsystem as inputs. The activities, through which families clarify their

demands and assess their resources to attain their goals, are known as throughputs. Then,

a particular sequence of actions to achieve the goal is developed, and a plan is

implemented, known as an output. Feedback provides information to various parts of the

system for their use. This managerial process is similar to any opinions, decisions and

practices that an individual can make about financial issues.

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 Figure 2.1 Family resource management model

 Demand  Decision Making  Meet demand

 Values  Achieve Goals
 Attitudes  Implementing
 Altered resource
 Knowledge
 Use of resource
 Personal  Life satisfaction
Characteristics behavior

Input Through Puts Output

Feed Back
Positive or Negative

Source; Jorgensen (2007)

2.13.5. Maslow’s Need Hierarchy Theory and understanding the Financial Needs

Financial need hierarchy is similar to Maslow„s need hierarchy theory which was

developed in 1943. According to this theory the basic needs (survival) should achieved

before the higher needs. According to Katona, (1960) an individual‟s decision about

saving, investment and credit depends up on the objectives and resources to own the

financial assets and liabilities. The priorities of financial needs resource accessibility at

each stage of a household„s life cycle guides the sequence in which financial decisions

are to be made.

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The financial needs theory has 5 stages like that of motivational theory

1. Survival money: The money that an individual spends simply to survive.

2. What-if money: The money required to protect the life.

3. Freedom money: The money needed to do the things that bring joy and fulfillment.

4. Gift money: This is the replacement for love.

5. Dream money: This is the elusive self-actualization‖ level where an individual

finds true happiness and meaning.

2.14. Conceptual framework of the study

The conceptual frame work which is the model for this study is developed as follows.

Figure 2.2 Determinants of financial literacy and impact of financial literacy on

personal opinions, decisions and practices model

Determinants
Gender
Education Financial Knowledge

Income
Experience
Family characteristics
Exposure
Better Financial Opinion, Decision

Financial Management Practice

Source: Author's construct

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 Table 2.1 Summery of the Researches Reviewed

Name of Author(s) Target & Statistical Findings

and title sample tools
Thapa B (2015), Financial University ANOVA, The students have basic
literacy in Nepal: A survey students/ Regression financial knowledge and
Analysis from 436 analysis demographic and educational
College students factors are significantly
associated with financial
literacy.

Aggarwal N et al (2014), Framers/ Chie square About 47% of the farmers have
Financial Literacy among 300 test fair financial knowledge.
Farmers: Empirical Evidence
from Punjab

Taft M K (2013),Relationship Professor/ t-test, There is significant relationship

between financial literacy, 103 Pearson‟s of financial literacy level and
financial wellbeing and financial Correlation, financial well being and less
concerns Chronbech‟s financial concern.
Alpha

Agarwalla S K, et al (2013) Working Logistic Majority of the working young

Financial literacy among working young regression, (76%) doesn‟t have high
young in urban India people/75 ANOVA financial knowledge
4

Bhushan P and Medury Y (2013), Salaried ANOVA There is low level of financial
Financial literacy and its individual literacy(58.3%) and financial
determinants s/ literacy level is associated to
516 economic, demographic and
geographic factors

Shaari N A (2013), Financial University ANOVA, Medium financial literacy level

literacy: A study among the students/3 Multiple

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University students 84 regression (65.7%)

And Age, Gender,

Spending habits and
field of study affect financial
literacy level of the students.

Ansong and Gyensare (2012), Students/2 ANOVA, The financial literacy level is
Determinants of university 50 Pearson‟s positively related with
working-students‟ financial product demographic factors and
literacy at the University of Cape moment mothers education level.
Coast, Ghana correlation

Taylor M (2011), Measuring BHP Correlation The financial capability is

Financial Capability and its survey coefficient, determined by health,
Determinants data Regression financial ability and
(1991- and ANOVA knowledge.
2006)

Taliaferro D L et al (2011), Students Correlation, Curriculum is associated

(class X )/ Regression with levels of financial
A review of Howard University‟s
NJC and t-test literacy; Business
financial literacy curriculum
survey students are more
1997 financially literate
(60%)

Lusardi A et al (2010) Financial Young ANOVA, There is Low financial literacy:

literacy among the young people/ Correlation, significant difference
7414 Chie square prevails in the levels of
test financial literacy of male and
female

Ibrahim D (2009) Financial Students chronbech‟ There students has Low level of
literacy of Malaysian degree (Age 18- s Alpha, financial

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students 20 correlation. literacy; students
years)/ Chie square having higher financial
200 test knowledge bear higher
financial attitude

Lusardi and Tufano (2009),Teach Workers/1 Multinomial Debt literacy is low: They find
workers about the perils of debt 000 logistic a strong
analysis relationship between debt
literacy and financial
experiences and debt loads.

LusardiA and MitchellO S(2007) Workers Bar About half of the worker can
above age diagrams respond
Financial Literacyand Retirement
of 50 correctly; Financial
Preparedness
years literacy was low for
Blacks and Hispanics, women,
and those with low education

Jorgensen (2007), Financial Students/1 ANOVA Financial knowledge, attitude,

literacy of college students: 084 and
Parental and peer influences behavior scores of the
respondents are low; students
with higher financial knowledge
have higher scores on financial
attitude and behavior.

Hilgert, Hogarth, and Beverly Students/1 Percentages those who are more financially
(2003), Household financial 004 literate have higher Financial
management Practices financial knowledge is
related to financial behavior

Chen H and Volpe P (2002) Student/ Chronbech‟ The Students have an

Personal financial literacy of 924 s alpha, average knowledge on

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students in Colleges ANOVA, financial matters with a mean
Chie square score of 52.8%.
test

Chen and Volpe (1998), An Students/9 Analysis Of The college students have
analysis of personal financial 24 Variance inadequate financial
literacy among college students (ANOVA), knowledge. Non-business
Logistic majors, women, students in the
regression lower class ranks, under age 30,
analysis and with little work
experience have lower levels of
financial knowledge. Less
knowledgeable students tend to
hold wrong opinions and
make incorrect decisions.

Volpe, Chen, and Pavlicko Students/4 Percentiles The college students have
(1996), Personal investment 54 inadequate knowledge
literacy among college students of personal investment. They
also find that female students,
non-business majors, non-
financial accoutering majors are
less knowledgeable in
investment.

Source: Author's construct

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 CHAPTER THREE
RECENT DEVELOPMENTS IN THE FINANCIAL SECTOR OF
ETHIOPIA

3.1. Introduction

This chapter investigates the financial developments in Ethiopia in order to justify the

study on financial literacy. Mainly this section of the study placed an emphasis of

financial system and other current finance development issues in Ethiopia.

3.2. Back ground of the financial sector

In Ethiopia the financial sector comprises formal, semiformal and informal institutions.

Formality is to mean by the institutions are controlled and regulated by the national bank

of Ethiopia. Banks, insurance companies and microfinance institutions are grouped under

formal sector. Saving and credit associations, cooperatives are among the semi formal

sectors. Iqub (Revolving Savings and Credit Associations) Idir (Death Benefit

Association) and money lenders are informal sectors which are unregistered traditional

associations. Financial system is a channel which connects financial intermediaries and

companies, governments and individuals in a money transmission activities and the

provision of loans and other facilities. Financial institutions occupy a key position in the

economy as intermediaries in channeling money from those who have excess to those

who needs it or among borrowers and savers. One of the roles played by the

intermediaries is settling the requirements of savers and borrowers. The basic functions

of financial institutions are: production of information about investments and allocation

of capital, monitor investments and exert corporate governance, facilitate the trading,

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diversification and management of risk, mobilizing funds and facilitates the exchange of

goods and services (Levine, 2005).

3.2.1. Formal financial sectors

The main formal financial institutions operating in Ethiopia are banks, insurance

companies and micro finance institutions.

3.2.1.1. Banks

In Ethiopia banking was started in 1905. The first bank was established by the name of

Bank of Abyssinia which was co owned by the Ethiopian government and National Bank

of Egypt then under British rule. The modern bank with a well structure banking system

was started after the departure of Italy from Ethiopia in the year 1940. The state bank of

Ethiopia Established in the year 1942 and a number of foreign bank branches and a

private bank were operating in competition with the government owned commercial bank

until they were nationalized and merged into one government owned mono-bank in 1976.

After new government change in 1991some measure has taken liberalize the economy.

The financial market was deregulated. A proclamation number 84/94 was issued out to

effect the deregulation and liberalization of the financial sector, and a number of private

banks and insurance companies were established following the proclamation. Directives

issued in subsequent years further deepen the liberalization mainly including the gradual

liberalizations of the interest rate, foreign exchange determination, money market

operation, etc. In the year 2013/14, there were sixteen private banks operating along with

3 public banks, namely the Commercial Bank of Ethiopia, the Construction and Business

Bank, and the Development Bank of Ethiopia. Other financial institutions operating in the

economy includes seventeen insurance companies, one pension fund and about thirty one
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Micro Finance Institutions with a business focus mainly in the rural areas but in reality

concentrated in urban area. The Development Bank of Ethiopia (DBE) is a specialized

bank in project financing and is not a deposit taking institution (National bank of

Ethiopia, 2013/14).

According to National bank of Ethiopia report (2013/14) the banking sector is mainly

dominated by Government banks. The Commercial Bank of Ethiopia is public bank

which is the largest bank in the country which owns 38.8% of the branch networks,

53.3% of the outstanding loans and mobilizes 66.4% of the deposits of the commercial

banks. The numbers of bank branches reached 2208, of which 45 percent belong to the

Commercial Bank of Ethiopia. Despite modest branch expansion, Ethiopia remains as

one of the under-banked countries even at sub-Saharan African countries standard. The

bank branch to population ratio was 1:43912 in 2013/14 during 20013/14. Similarly, total

capital of the banking system reached Birr 37.3 billion, of which about 44.7 percent was

hold by government owned three banks. Commercial Bank of Ethiopia accounted for

more than 34 percent of total capital of the banking system (excluding NBE). Yet

geographical distribution of bank branches was highly skewed to major towns and cities.

Nearly 34 percent of bank branches were located in the capital city (Addis Ababa).

3.2.1.2. Insurance companies

The Bank of Abyssinia established in 1905 was acting as an agent for insurance

companies of foreign countries to underwrite fire and marine insurance policies. Before

liberalization the command economy including political instability had been the main

factors affecting for the growth of the financial sector in Ethiopia. The 1990‟s

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liberalization of economy leads to permit private sector participation in the finance

sector. This leads to the emergence of a number of private banks.

According to the National bank of Ethiopia report (2013/2014), the number of insurance

companies in Ethiopia reached to seventeen and a total number of branches three hundred

thirty two across the county. Major branch expansion was undertaken by the state owned

Ethiopian Insurance Corporation (EIC) (13 branches) followed by Abay Insurance (seven

branches), Oromia Insurance and Nile Insurance Company (5 branches) each. About 55%

of insurance branches were located in the capital city .The share of private insurance

companies in total branches is 81.3 percent, slightly down from 82.1 percent a year ago.

On the other hand, total capital of insurance companies increased by 36.6 percent

reaching Birr 2.0 billion from Birr 1.5 billion last year. Private insurance companies

accounted for 78.6 percent of the total capital of insurance sector while the share of EIC

was 21.4 percent.

The insurance sector in Ethiopia is still not yet developed with less competition. The

current practice of coverage and competition is focusing on general insurance and has

limited coverage in life insurance (Gebreyes 2011). According to Smith, A., &

Chamberlain, D. (2010), in Ethiopia the insurance companies have sister banks and these

banks tries to refer their customers to their sister insurance companies. This shows that

the insurance sector is dependent on the banking business. Moreover, insurance

companies tend to derive a large portion of their total income from investments in banks.

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3.2.1.3. Microfinance institutions

According to Degifie, B., & Yewhalawork, T. (2000), the history of Microfinance

institution is a recent phenomenon in Ethiopia. The first microfinance institution in

Ethiopia was started as an experiment when the Relief Society of Tigray (REST)

attempted to rehabilitate drought and war affected people through the rural credit scheme.

It was inspired by other countries‟ experiences and adapted to the conditions of the

Tigray region (northern part of Ethiopia). In the second half of the 1990s, as a result of its

success, the microfinance service was gradually replicated in other regions.

The microfinance institutions in Ethiopia Similar to microfinance services in many other

countries mainly engage in lending and promote savings. They use joint liability, social

pressure, and compulsory savings as alternatives to conventional forms of collateral .The

institutions are mainly offering services of credit and saving. The main focus of the

microfinance institutions is reducing poverty through the means of increasing income and

improving agricultural productivity, increasing the sources of income and constructing

better household assets. As a means of achieving these objectives, the micro finance

institutions uses easy and accessible financial services.

The Ethiopian microfinance sector improved in terms of asset and capital base and its

accessibility (Amha, W. 2004). According to Gobezie, G. (2005) for additional

stimulation of economic activities and used opportunities escaping majority of the poor

from poverty through financial services, the Government has been refining the regulatory

framework for the microfinance operations. The regulation that put a ceiling on the

interest rate that micro financial institutions could charge from their credit clients no

longer exists and a new liberal system is in operation. Whereby MFIs could decide the

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level of interest rate, they charge as long as they can remain in the competitive market,

thus opening up a new opportunity in the effort to ensure both operational and financial

sustainability for MFIs. Although most MFIs in developing countries aim to reach poor

people, it has become increasingly apparent that they rarely serve very poor people. The

number of micro-finance institutions (MFIs) operating in the country reached thirty one

by the end of 2013/14.

3.2.2. Semiformal saving and credit cooperatives

In Ethiopia there are three types of saving and credit cooperatives, namely Institution

based, Community based, and sponsored by nongovernmental organizations. These types

of institutions are an organization which offers financial services to the economically

poor and residing in rural areas of Ethiopia.

3.2.3 Informal finance

In Ethiopia it is common and everywhere to have a community based organizations.

Community based organization is means where individuals and households organize

themselves. The nature of such kind of organizations varies from social, religious and

financial, geographical and other concerns. What makes common those institutions is

their main objective is to maximize the needs of their members. Among the community

based organizations iddirs, iqqubs and mehabers are very common. These traditional

community based institutions also play a crucial role in savings and beneficiary

mobilization in the informal financial sector.

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3.2.3.1. Iddirs

Iddir is the most common informal institution both in rural and urban areas or Ethiopia. It

is an association made up by a individuals and households organized by link of family

and friendship, by living in the same district, by jobs, or by belonging to the same ethnic

group and as an object of providing mutual aid and financial assistance in certain

circumstances. According to Pankhurst, A., & Mariam, D. H. (2000) Iddir is an

association of individuals and house whereby savings are made to cover the cost of

funerals and weddings. Whenever a death occurs among its members, the organization

raises an amount of money to handle the burial and other related ceremonies. It further

aims to address different community concerns and provides various services to its

members. Membership is regularly by residence, whereby members pay a small monthly

fee.

Actually iddir is like insurance program that individuals or households meet their

emergencies. As compared to insurance this is very popular in Ethiopia because of it is

appropriate culturally and easy accessible with a very low cost. The aim of such kind of

association is not for profit rather for the mutual befit of the members.

3.2.3.2. Iqqubs

Iqqub is a traditional association which looks like saving and credit association. Its

purpose is pooling the savings of the members and offering credit turn by turn. This is

rotating saving and credit association. Deposit or contributions will be made as the time

sated by the association like daily, weekly or monthly. Generally this kind of association

had played an important role in the informal financial sector in Ethiopia.

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3.2.3.3. Mehabers

According to Pitamber, S. (2003), Mehaber is common community based organizations.

it is a religious, informal organization that aims to raise funds for medical and burial

expenses. It is widespread among the Orthodox Christians of Ethiopia, as it typically

draws its members from the church. Members usually meet on a monthly basis for food

and drink, and commonly support each other in times of difficulty.

3.3. Monetary and financial developments

3.3.1. Monetary developments

The monetary policy of Ethiopia was mainly focusing on maintaining inflation in single

digit in 2016/17 and is maintained as stated through the monetary policy instruments.

3.3.1.1. Developments in monetary aggregates

During the year 2016/17, domestic liquidity reflects annual expansion of 28.8%. This

expansion was because of external assets increment and growth in domestic credit. The

external asset surge was 76.7% and the growth in domestic credit was 79.7% (National

bank of Ethiopia report 2016/17).

3.3.1.2. Developments in reserve money and monetary ratios

In the year 2016/17 the reserve money in the country grows at 22.7%. The growth was

described an increase in deposits by 42.2% and 42.2% in currency in circulation. The

growth in reserve money was because of 128.3% increase in national bank of Ethiopia

net foreign assets and 28.7% expansion of demotic credit. Meanwhile, excess reserves of

commercial banks reached Birr 26.7 billion at the end of June 2017 compared to Birr

13.3 billion a year earlier. The ratio of broad money to gross domestic product which is a

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determinant for financial dependency increases by 6.6% to 0.31. This indicates that well

advised measures was taken to control inflationary pressures. The ratio of narrow money

to reserve money remained constant at 1.5 while the ratio of broad money to reserve

money slightly increased to 3.9% indicating improvements in deposit mobilization by

commercial banks (National bank of Ethiopia report 2016/17).

3.3.1.3. Developments in interest rate

In Ethiopia the maximum and minimum deposit interest rates were 5% and 5.75%

respectively during the year 2016/17. The average interest rate on saving deposit, simple

average lending interest rate, weighted average annual average interest rate on demand

and deposit savings was 5.38%, 12.75%, 5.54% and 0.04% respectively. The real rate of

interest except the lending rate was negative as head line inflation stood higher than the

deposit interest rates. Consequently, the average real interest rate stood at negative 3.43

percent for saving deposit, negative 3.26 percent for time deposit and positive 3.95

percent for lending interest rate (National bank of Ethiopia report 2016/17).

3.3.2. Developments in the financial sector

The major financial institutions operating in Ethiopia were banks, insurance companies

and micro finance institutions. In Ethiopia a total of 18 banks are operating of which 16

are private and the remaining 2 are public banks. By the end of June 2017 the number of

insurance companies and micro finance institutions was 17 and 35 respectively (National

bank of Ethiopia report 2016/17).

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3.3.2.1. Development in the banking sector

In the year 2016/17 banks opened 956 new branches raising the number of branches from

3,301 to 4,257. Because of branch expansion the bank branch to population ration

decreases from 1:27,932 people in 2015/16 to 1:22,164 people. Around 33% of the banks

branch was located in the capital city of the country. Major branch expansion was

undertaken by Commercial Bank of Ethiopia (160 branches), followed by Cooperative

Bank of Oromia (103 branches), Awash International Bank (94 branches), Berhan

International Bank (89 branches), Dashen Bank (83 branches) and Abyssinia Bank (77

branches). The share of private banks in total branch network rose to 66.6 percent from

61.8 % last year, in line with the branch expansion target set for private banks in

growth and transformational plan II (National bank of Ethiopia report 2016/17).

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 Table 3.1 Branch expansion and percentage share of the banks

No Name of the bank 2015/16 2016/17

Branches % share Branches share
1 Commercial bank of Ethiopia 1150 34.8 1310 30.8
2 Development bank of Ethiopia 110 3.3 110 2.6
3 Awash international bank 245 7.4 339 8
4 Dashen bank 232 7 315 7.4
5 Abyssinia hank 176 5.3 253 5.9
6 Wegagen bank 161 4.9 223 5.2
7 United bank 144 4.4 204 4.8
8 Nib international bank 155 4.7 203 6.7
9 Cooperative bank of oromia 184 5.6 287 3.7
10 Lion international bank 121 3.7 158 5.6
11 Oromia international bank 210 6.4 237 0.5
12 Zemen bank 13 0.4 22 3.4
13 Buna international bank 105 3.2 143 4.2
14 Berhan international bank 88 2.7 177 3.6
15 Abay bank 116 3.5 152 1.2
16 Addis international bank 43 1.3 53 0.9
17 Debub global bank 28 0.8 38 0.8
18 Enat bank 20 0.6 33
Total 3,301 100 4,257 100
Source: National bank of Ethiopia report 2016/17

3.3.2.2. Development in the insurance sector

In the year 2016/17, the numbers of insurance companies operating in Ethiopia were 17.

The number of branches increased from 426 to 492. 53.3% of the insurance branches are

located in the capital city of the country. Only 15.2% the insurance branches are owned

by the government and the remaining 84.8% are private owned insurance companies

(National bank of Ethiopia report 2016/17).

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 Table 3.2 Branch expansion of insurance companies

Branches
No Insurance companies
2015/16 2016/17
1 Ethiopian ins. corporation 70 75
2 Awash Insu. Com. S.c 38 41
3 African Insu. Com. S.c 22 27
4 National Insu. Com of Ethiopia 29 34
5 United Insu. Com. S.c 28 31
6 Global Insu. Com. S.c 13 15
7 Nile Insu. Com. S.c 36 39
8 Nyala Insu. Com. S.c 23 30
9 Nib Insu. Com. S.c 30 37
10 Lion Insu. Com. S.c 28 31
11 Ethio life Insu. Com. S.c 16 19
12 Oromia Insu. Com. S.c 33 37
13 Abay insu. S.c 19 23
14 Berhan Insu. Com. S.c 8 11
15 Tsehay insu. S.c 12 15
16 Lucy 8 11
17 Buna insu. S.c 13 16
Total 426 492
Source; National bank of Ethiopia report 2016/17

3.3.2.3. Development in the insurance micro finance institutions

In the year 2016/17, the total number of micro finance institutions operating in Ethiopia

was 35. Their total capital and assets increased by 20.8% and 35.1% respectively at the

end of 2017. There was expansion in the deposit mobilization and credit allocation by

42.8% and 25.8% in the same year. Amhara, Dedebit, Oromiya, Omo and Addis Credit

and Savings institutions were the major MFIs accounting for 83.7 percent of the total

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capital, 93.1 percent of the savings, 88.6 % of the credit and 89.9% of the total assets of

the MFIs sector (National bank of Ethiopia report 2016/17).

3.3.3. Developments in financial markets

In Ethiopia still there is no secondary market. But in order to finance the government

fiscal operations and/or to absorb the excess liquidity in the banking system government

bonds issued. The most common and major financial instruments in the primary market is

issuance of treasury bills (National bank of Ethiopia report 2016/17).

3.3.3.1. Treasury bills

During the year 2016/17, the amount of treasury bills issued shows a growth of 42.6%

and reached Birr 210.4 billion. Treasury bills were issued weekly. The amount of treasury

bills issued during the same year shows an increment of 10%. The maturity period of the

treasury bills issued increased from 28days to 365 days. The participants of the treasury

bills market were non bank financial and public institutions. The average weighted yield

slightly decreased to 1.424 percent from 1.438 percent a year earlier. (The highest yield

(3 %) was recorded for the 364-day T-bill and the lowest (0.67%) for 182-day T-bill.

3.3.3.2. National bank of Ethiopia bill market

The national bank of Ethiopia bill market was introduced during the year 2011. At the

end of 2016/17, the total NBE bill purchased (net of redemption) by the banking sector

reached Birr 55.7 billion at the end of 2016/17 (National bank of Ethiopia report

2016/17).

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3.3.3.3. Bond market

During the year 2016/17 the corporate bond purchased by commercial bank of Ethiopia

shows a growth of 11.5%. Corporate bond redeemed by regional government, City

Governments, of Addis Ababa and Railway Corporation stood at Birr 74.7 million, 4.6

billion and Birr 78.6 million, respectively. .As a result, total outstanding bond holdings

registered an annual growth rate of 26.0 percent and reached to Birr 237.8 billion. The

share of EEPCO in outstanding corporate bond reached 75.4 percent while that of City

Government of Addis Ababa, Railway Corporation and Regional States was 24.6 percent

(National bank of Ethiopia report 2016/17).

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 CHAPTER FOUR

RESEARCH METHODOLOGY

4.1. Introduction

According to the Advance Lerner„s Dictionary of Current English research is a careful

investigation or inquiry especially through search for new facts in any branch of

knowledge. Before executing any research study, its research methodology should be laid

down explicitly. Research methodology includes various steps that are generally adopted

by a researcher in studying his/her research problem along with the topic logic behind it.

Major parts of the research methodology are statement of the problem, research design,

sampling plan, questionnaire design, and field work plan and analysis plan ( Nargundkar

R 2003). The way in which research is conducted may be conceived of in terms of the

research philosophy subscribed to, the research approach employed and the research

instruments developed and utilized in the pursuit of a goal the research objective(s) and

the quest for the solution of a problem the research question. The purpose of this chapter

is to present the research methodology adopted in this study. According to Dawson, C.

(2002), research methodology is the philosophy or the general principle which will guide

your research. It is the overall approach to studying your topic and includes issues you

need to think about such as the constraints, dilemmas and ethical choices within your

research. It is a way to systematically solve the research problem. It may be understood

as a science of studying how research is done scientifically. (Kothari, C. R. 1999).

This chapter presents a detail and systematic process that the researcher adopted to

achieve the objectives of the study. The main discussions in this chapter include: the

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research design, research strategy, population of the study, the sample size and sampling

technique, data sources and collection method, validity and reliability of data, data

analysis, model specification and ethical considerations.

4.2. Research design

Research design is the conceptual structure within which research is conducted; it

constitutes the blueprint for the collection, measurement and analysis of data. The design

includes an outline of what the researcher will do from writing the hypothesis and its

operational implications to the final analysis of data ( Kothari, C. R,2004 ). A good

research design can provide valid conclusions and suggestions from the research (Ryan,

Scapens and Theobald, 1992). This section explains and justifies the appropriateness of

the research design adopted in conducting this study.

The purposes of research may be organized into three groups based on what the

researcher is trying to accomplish. explore a new topic (Exploratory Research), describe

a social phenomenon (Descriptive Research), or explain why something occurs

(Explanatory Research). To achieve the objectives and provide valid conclusions and

recommendations, descriptive and explanatory research designs were used for this study.

The purpose of descriptive research is to portray an accurate profile of persons, events or

situation (Robson, 2002). Descriptive research includes surveys and fact-finding

enquiries of different kinds. The major purpose of descriptive research is description of

the state of affairs as it exists at present (Kothari, C. R, 2004). It is directed at making

careful observations and detailed documentation of a phenomenon of interest. These

observations must be based on the scientific method (i.e., must be replicable, precise,

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etc.), and therefore, are more reliable than casual observations by untrained people (Anol

Bhattacherjee, 2012). The main aims of descriptive research are describing the situation

in terms of its characteristics i.e. provide an accurate profile of a group, gives a verbal or

numerical picture (percentage) of the situation, present background information, creates a

set of categories or classify the information, clarify sequence, set of stages, and Focus on

`who,' `what,' `when,' `where,' and `how' but not why?. This study seeks to collect data to

provide a clear picture and accurate profile of the financial literacy level of university

students in Ethiopia which directs to use descriptive research design.

Explanatory research studies aim at testing hypotheses to explain the nature of certain

relationships, or establish the difference among groups, or the independence of two or

more factors in the situation (Sekaran, 2003). Explanatory research tries to: determine the

accuracy of a principle or theory; find out which competing explanations is better;

advance knowledge about an underlying process; link different issues or problems under

a common general statement; build and elaborate a theory so it becomes complete and

extend theory or principle to new areas by providing evidence to either refuse or support

an explanation (Neumann, 1996). Typical techniques used in exploratory research include

case studies, observation and historical analysis, which can provide both quantitative and

qualitative data. Such techniques are very flexible as there are few constraints on the

nature of activities employed or on the type of data collected. The research assesses

which existing theories and concepts can be applied to the problem or whether new ones

should be developed. The approach to the research is usually very open and concentrates

on gathering a wide range of data and impressions. As such, results of exploratory

research rarely provide conclusive answers to problems or issues, but they can provide

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significant insight into a given situation. Thus they are not useful in decision making by

themselves (Kotler et al, 2006). Explanatory research frequently includes descriptive

elements but goes beyond this to identify and explore the causes underlying the effects

and the nature of the relationships between the dependent and independent variables. This

study is deemed to be explanatory since it seeks to establish and explain the relationship

between financial literacy and personal characteristics of students. Also, it goes a step

further to ascertain whether there is a causal relationship between level of financial

literacy and students' financial decisions, opinions and practice. In this study descriptive

research was used to establish a factual picture of the issue under investigation, whereas

explanatory research was used in explaining the why and how of some group of

university students are more knowledgeable than others.

4.3. Research strategy

Based on the designs chosen for this study (descriptive and explanatory), the survey

research strategy was adopted. This strategy has been used in many financial literacy

studies (Lusardi, 2012; Hastings and Mitchell, 2011; Beal and Delpachitra, 2002; Chen

and Volpe, 2002; and Chen and Volpe, 1998). The survey strategy is a popular and

familiar strategy in business and management research and is most frequently used to

answer who, what, where, how much and how many questions. Surveys are popular as

they allow the collection of a large amount of primary data from a sizeable population in

a highly economical way. Often obtained by using a questionnaire administered to a

sample, these data are standardized to allow for easy comparison. In addition, the survey

strategy is perceived as authoritative by people in general and is both comparatively easy

to explain and to understand (Saunders et al., 2007). The survey strategy can be used to

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collect quantitative data which can be analyzed quantitatively using descriptive and

inferential statistics. In addition, the data collected can be used to suggest possible

reasons for particular relationships between variables and to produce models of these

relationships. Using a survey strategy therefore gives more control over the research

process and, when appropriate sampling is used, it is possible to generate findings that are

representative of the whole population at a lower cost than collecting the data for the

whole population.

This strategy was used because of that enables the researcher to gather enough amount of

data in a highly and economical way. The survey strategy best meets this work because of

the large number of students located in much geographical location. This was the most

effective strategy and the researcher collects sufficient data about the student‟s personal

financial literacy and their personal financial opinions, decisions and practices. The

survey strategy used the use of a questionnaire to gather the data. Thus, the use of

quantitative approach to data analysis was mostly employed in this study. The research

instrument was designed to contain data that could usefully be quantified to help the

researcher answer the research questions and to meet the objectives of the study.

4.4. Population of the study

The population of a study is the collection of all possible individuals, objects or

measurement of interest (Mason et al, 1999). From Saunders et al (2007) population of

study is the full set of cases from which a sample is taken. There are 39 public

universities in Ethiopia during the year 2017/2018. For this study, the population

consists of students in four public universities namely Wollo University, Wolkita

University, Semera University and Adigrat University. Data on the estimated total

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population of university students in Ethiopia was not readily available. However,

information gathered from the universities estimated their total population to be about

53,174 (see Table 4.1below).

Table 4.1 Population and sample of the study

No Universities Students Percentage of No. of students

population students assigned

1 Wollo university 18,480 34.75 138

2 Wolkite University 13,894 26.13 104

3 Semera university 4,300 8.09 32

4 Adigrat university 16,500 31.03 123

Total 53,174 100 397

Source: Developed for the research

4.5. Sample size

It is often impossible and generally accepted that the entire population for the study

cannot be studied. This is normally due to the difficulty on the part of the researcher in

getting access to the whole target population normally due to the size of the population,

time constraints and the cost involved. To address the challenge of access to the complete

population, representative samples are thus prescribed in any scientific study (Saunders et

al., 2007). Since it was impossible to cover the entire population given the population

size, time and cost, a sample was used. The smaller the absolute size of the sample and,

to a far lesser extent, the smaller the relative proportion of the total population sampled,

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and the greater the margin of error. Within this, the impact of absolute sample size on the

margin of error decreases for larger sample sizes (Saunders et al., 2007).

Yamane (1967) suggested a formula for calculation of sample size from a population.

According to him, for a 95% confidence level and p. = 0 5, size of the sample should be

Where:

n= corrected sample size

N = population size and

e = Margin of error

Confidence Level; The confidence level indicates the degree to which the sample size

falls within the required intervals. It gives an estimated range of values, which are likely

to include the unknown population parameter (kothari 2004). Therefore, for a confidence

level of 95%, 95 out of 100 samples will have a true population value within the

confidence interval and 95% is the proportion of the population covered by ±2 standard

deviations from the mean in a normal distribution. The wider we allow the confidence

interval to be, the more confident we can be that the real answer lies within the range.

Degree of Sampling Variability The degree of variability describes the distribution of

attributes in the population, while the sampling variability of a statistic refers to how

much the statistic varies from sample to sample and is usually measured by its standard

error. The smaller the standard error, the less the sampling variability will be

(Anderson1958). For example, the standard error of the mean is a measure of the

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sampling variability of the mean. The more heterogeneous the population, the larger the

sample size required to obtain a given level of precision; the more homogeneous the

population, the smaller the sample size required.

Level of Significance; The level of precision sometimes referred to as the confidence

interval or sampling error, is the range in which the populations‟ actual value is estimated

to exist (Anderson 1958). For instance, if one finds that 80% of a sample has adopted a

specific practice with a precision rate of ±5%, then it can be concluded that the actual

number of samples in the total population that has adopted the practice lies in the range of

75–85%.

Sample size for ±3%, ±5%, ±7% and ±10% Precision Levels Where Confidence Level is

95% and P=.5. Is given below

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 Table 4.2 Sample size for ±3%, ±5%, ±7% and ±10% Precision Levels Where
Confidence Level is 95% and P=.5.

Size of Sample Size (n) for Precision (e) of:

population
±3% ±5% ±7% ±10%
500 a 222 145 83
600 a 240 152 86
700 a 255 158 88
800 a 267 163 89
900 a 277 166 90
1,000 a 286 169 91
2,000 714 333 185 95
3,000 811 353 191 97
4,000 870 364 194 98
5,000 909 370 196 98
6000 938 375 197 98
7000 959 378 198 99
8000 976 381 199 99
9000 989 383 200 99
10,000 1000 385 200 99
15,000 1,034 390 201 99
20,000 1,053 392 204 100
25,000 1,064 394 204 100
50,000 1,087 397 204 100
100,000 1,099 398 204 100
>100,000 1,111 400 204 100
a = Assumption of normal population is poor (Yamane, 1973). The entire
population should be sampled

Source; Yamane, T. (1973). Statistics: An introductory analysis.

There for, the sample for the study is determined as follows

n=

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4.6. Sampling technique

In order to increase the validity and reliability of the data, the study used both

probability and non probability sampling techniques. Probability sampling is

known as „chance sampling‟ , where every item of the population has an equal chance of

inclusion as a sample for the study (Ghosh, B. N. 1985). It is like lottery method in

which individual items are picked from the whole population without bias. . For instance,

one can write the names of a finite population on slips of paper and, after mixing the slips

of paper thoroughly, can draw the required number of slips one after the other without

duplication (Preece, R. A 1994).In doing so, each of the elements of the population has

the equal chance of being selected. In research, population does not necessarily mean the

number of people; it may consist of objects, people or even events (e.g. schools, miners,

revolutions) that describe the total quantity of things (or cases) or of types that are the

subject of the study. the results obtained from the random sampling technique can be

assured in terms of probability: i.e., one can measure the errors of estimation or the

significance of the results obtained from a random sample (Berger, A. e.al 1978). This

method ensures that the sample has the same composition and characteristics as the

population.

Non-probability sampling is known by various names such as deliberate

sampling, purposive and judgment sampling, where the choice of the researcher

concerning the items to be included in the sample remains supreme (Gopal

1964). In other words, in non-probability sampling, the organizers of the

inquiry purposefully choose the particular units of the population to constitute a

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sample on the basis that what they select will be typical or representative of the

whole population (Preece, R. A 1994).

For this study, the sample included students from four public universities located in four

regional states in Ethiopia. Sampling was done in such a way that students cut across

various levels and subject areas in the universities. Both probability and non-probability

sampling techniques were employed in selecting the four universities. Purposive

sampling technique was used to select the four public universities. The four public

universities included in the study Wollo University, Worksite University, Semera

University and Adigrat University was purposively selected since they are located in four

regional states in Ethiopia.

Stratified random sampling technique is used to select the students for this study.

Stratified random sampling is a modification of random sampling in which the researcher

groups the population into two or more strata based on one or a number of features.

Grouping the population into different but relevant strata meant that the sample is more

representative, as it ensured that each of the strata was well represented within the sample

(Saunders et al., 2007). This technique was chosen primarily based on the objectives and

hypotheses set out in this study. The population was first divided into two strata based on

the field of study of the students. The students were grouped under business and

economics and non business and economics. After the first stratification, the population

was regrouped based on the level of study of the students, namely first year, second year

and third year. Due to the complexity of data collection and to increase participation rate,

the researcher personally administered the questionnaires to students at a previously

arranged lecture. For the convenience and in agreement with lecturers concerned,

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questionnaires were administered at the end of the class. Thus the questionnaires were

distributed to all students who were available Convenience sampling method is normally

prone to the problems of bias and lack of control. However, these problems are less

important where there is little variation in the population (Saunders et al., 2007). Since

there are only minor variations in the population of university students, the problems of

bias and non-representation is least important. This method is fully complemented by the

stratified sampling which ensures that each type university subject area and year of study

is adequately represented within the sample. Firstly proportional sampling was

considered where the sample size was shared in proportion to the population of the

universities.

Table4.1 Provides information on the universities included in the study, students‟

population, sample proportion based on the population of the university and sample size

assigned to each university for the study.

The population of the universities was sourced from university websites, fact or statistics

books, staff of the universities and congregational address by presidents. The figures

reflect that of 2017/2018 academic year.

4.7. Data sources and collection method

The research was based on primary data that was collected using questionnaire from the

field. A comprehensive questionnaire designed to cover major aspects of financial

literacy, including financial literacy on general personal finance issues, savings and

borrowing, investments, and insurance, was used to collect the data. The study adapted

the questionnaire of Chen and Volpe (1998), which the researcher saw to be

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comprehensive in addressing the objectives of the study. The questionnaire is structured

into seven sections. The first section attempts to obtain demographic data about the

respondents in order to help in testing the various hypotheses developed for the study.

Specific questions are asked on gender, age, year of study, field of study income and

work experience. The second section of the questionnaire focuses on testing

respondents‟ knowledge of basic issues in general personal finance. Questions in this

section give emphasis on importance of financial literacy, financial planning, budget,

cash management etc. It is expected that students who are financially literate will have

knowledge of basic issues in financial planning and cash management, hence the

questions under this section. Section three examines knowledge about savings and

borrowing. Generally, questions under this section concentrate on knowledge of savings,

loans and overdraft facilities. Respondents who are financially literate are expected to

have knowledge about basic issues in savings and borrowing. The fourth section

examines students‟ knowledge of basic issues in investment such as risk return

relationship, short term and long term investment. These are fundamental questions on

investment that financially literate persons are expected to know. Section five focuses on

respondents‟ knowledge of basic issues in insurance such as premium, reason for taking

an insurance policy, the health insurance and third part insurance.. Students were also

tested on their personal financial matters, decisions and practice under section six. This

section was added to enable the researcher test the last hypothesis of the study which

seeks to find out the relationship between financial literacy and financial opinion,

decisions and practice. The seventh and final part of the questionnaire focuses on

questions that measure how students are exposed to financial issues.

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4.8. Reliability and validity of data

The validity of a research instrument refers to how well the instrument measures what it

is supposed to measure (Crocker and Algina, 1986). One of the ways employed to

achieve content and face validity, was the adaptation of research instrument used by

researchers such as Chen and Volpe (1998) and of Lusardi, Mitchell and Curto (2010).

Due to the differences in socio economic context, the instrument was modified .The

questionnaire was used in a pilot and the feedback received from the participants was

used to refine the instrument for the main research. Reliability is the extent to which an

instrument is consistent in its measurement over time and across situations (Crocker and

Algina, 1986). In other words, if someone was to take the survey various times, the

individual‟s score should remain relatively consistent with little deviation. Thus, an

instrument can be reliable without being valid but it cannot be valid unless it is reliable

(Pedhazur and Schmelkin, 1991).The reliability of the survey instrument was assessed

using Cronbach‟s Alpha. This allowed for the measurement of the overall reliability and

consistency of the scales from the survey instrument (Crocker and Algina, 1986). The

alpha coefficient for the items used to measure financial literacy is 0.89, suggesting that

the items have relatively high internal consistency.

4.9. Data analysis

The findings are mainly presented in the form of Tables. The mean percentage of correct

scores for each question, section and the entire survey was used to measure the level of

financial literacy of the students. This approach is very consistent with existing literature

(Danes and Hira, 1987; Volpe, Chen, and Pavlicko, 1996; Chen and Volpe, 1998). The

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mean percentages scores are grouped under correct, incorrect and don‟t know (Lusardi et

al., 2010). Further, the mean percentage of correct scores is grouped into three grades:

grade (1) 80% and above, (2) 60% to 79%, and (3) below 60% (Chen and Volpe, 1998).

The first, second and third grades represent a relatively high level of knowledge,

moderate level of knowledge and a relatively low level of knowledge respectively. These

are used as benchmarks in determining the literacy level of students. The analysis of the

data is in two forms - univariate, and multivariate.

4.9.1. Univariate analysis

The literacy level of students‟ in general personal financial knowledge, financial

knowledge on savings and borrowing, financial knowledge on investment and financial

knowledge on insurance and analysis of differences in the financial literacy level among

subgroup of students is covered under the descriptive analysis of the sample.

The difference in the level of financial literacy among the different sub groups of the

students were analyzed using cross tabulations, independent t-test, one way ANOVA and

chi square.

4.9.2. Multivariate analysis

Under this section the logistic model is employed to predict the marginal effect of

explanatory variables coefficient for the likelihood of a binary dependent measure

The respondents are classified into two groups using the median percentage of correct

scores of the sample. Respondents which score above the median considered as relatively

with high financial knowledge and respondents who score below the median as low

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financial knowledge. This approach was used by Chen and Volpe, (1998). This

dichotomous variable was then used in the logit regression as the dependent variable,

which was explained by all of the independent variables using a model. The explanatory

variable that were used in the model are gender, Field of study, Year of study, income,

experience, fathers and mothers education level, residence , fathers and mothers

occupation and financial account.

The regression model estimated for this study is in the

form of:

[ ]

(Residence)+ β21 (foccupattion1) +β22 (foccupattion2) +

β23 (moccupattion1) + β24(moccupattion2) +β25(financial account)

Where ;

P= the probability that a student is with high financial knowledge (1= financially literate,

0 otherwise).

β0 = the regression intercepts and residual terms and

β1, β2 and β3…. = vectors of regression coefficients.

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Gender=1 if respondent is a male; 0 otherwise.

Field=1 if respondent is non-business and economics students; 0 otherwise

Experience1= 1 if respondent has no work experience; 0 otherwise.

Experience2=1 if respondent has less than 2yrs of work experience; 0 otherwise.

Experience3=1 if respondent has less than 2-6yrs of work experience; 0 otherwise.

Income1= 1 if respondent earns income less than Br 2,500; 0 otherwise.

Income2= 1 if respondent earns income of Br 2,500-7500; 0 otherwise.

Income3= 1 if respondent earns income of Br 7,501-23,500; 0 otherwise.

Income4= 1 if respondent earns income above Br 23,501; 0 otherwise

Financial account = 1 if respondent has no personal account; 0 otherwise.

First year= 1 if respondent is first year student, 0 otherwise.

Second year= 1 if respondent is second year student, 0 otherwise.

Residence = 1 if respondent is not living in a capital town; 0 otherwise.

F education1= 1 if respondent's father's education is none; 0 otherwise.

F education2= 1 if respondent's father's education is High school or below; 0 otherwise

F education3= 1 if respondent's father's education is diploma; 0 otherwise

F education4= 1 if respondent's father's education is bachelors degree or above; 0

otherwise

M education1= 1 if respondent's father's education is none; 0 otherwise.

M education 2= 1 if respondent's father's education is High school or below; 0 otherwise

M education 3= 1 if respondent's father's education is diploma; 0 otherwise

M education 4= 1 if respondent's father's education is bachelors degree or above; 0

otherwise

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F occupation1 = 1 if respondent's father is Unemployed; 0 otherwise.

F occupation 2 = 1 if respondent's father is Self-employed; 0 otherwise

M occupation1 = 1 if respondent's mother is Unemployed; 0 otherwise.

M occupattion2 = 1 if respondent's mother is Self-employed; 0 otherwise

Gender was included in the models to test gender differences in financial literacy. The

field of study of the students is included to test the difference in financial literacy level.

Field of study is classified into two as business and economics and non business and

economics. Students under business and economics field were consequently used as

benchmark for the analysis. Year of study is used in the analysis are in three categories:

first year, second year and third year students. Income variables used in the analysis were

designated as per their income and those students with income levels of Br 23,500 and

above were merged. Respondents with work experience 2 to less than 6 were merged.

Family characteristics were added because previous studies have shown that

individuals learn through interaction with others, in particular, family (Lusardi,

Mitchell and Curto, 2010; Li, 2009; and Mandell, 2008). For instance Mandell

(2008) finds financial literacy of students to be influenced by parents‟ level of

education. Family characteristics included are parents' education, occupation and

driving experience of the students.

Following Chiteji and Stafford (1999), financial market participation was included to

investigate the influence of having a bank or investment account on students‟

financial literacy. The study also incorporated residential and education financing

characteristics to assess the extent to which living in the capital town and how

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students finance their education affect their financial literacy (Volpe and Chen,

2002). These exposure characteristic were used as control variables.

Capital town is included to test the financial literacy of students who live outside the

regional capitals in reference to those who live in the capital. To control for financial

market involvement, Personal account (students without personal accounts) without

investment accounts) are compared to those with personal accounts.

To examine how financial literacy level affects the students‟ opinions, decisions and

practices on finance related matters. Concerning their opinions on financial matters,

students were asked to rank personal finance issues using five point likert scales: very

important, somewhat important, not sure, somewhat unimportant and very unimportant.

Respondents were also to make decisions on related financial matters. The approach

adopted here is consistent with the work of Chen and Volpe (1998). Respondent's

personal financial management practices were also ascertained using a five point likert

scale ranging from never to always. Although, most studies did not include the practices,

they were considered in this study since they are equally important as the opinions and

decisions. As in the logit regression, the sample was categorized into two groups of

students with relatively high knowledge and those with relatively low knowledge based

on the median percentage of correct answers.

4.10. Ethical considerations

Blumberg et al. (2005) define ethics as the moral principles, norms or standards of

behavior that guide moral choices about our behavior and our relationships with others‟ .

Research ethics therefore relates to questions about how we devise and make clear our

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research theme, plan our research and gain right of entry, gather data, process and store

our data, analyze data and put in writing our research outcomes in a proper and

responsible way (Saunders et al., 2007). This means that the researcher must make sure

that the way the research is designed is both methodologically sound and ethically

justifiable to all those who are involved.

To ensure that ethical issues are fully addressed, the researcher considered voluntary

participation of the students. They were aware of the fact that they had the right to

withdraw from the participation in the research. They were assured of the confidentiality

of the information they had provided. The researcher took reasonable steps in

maintaining the confidentiality of data provided by students.

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 CHAPTER FIVE

RESULTS AND DISCUSSIONS

5.1. Introduction

According to Kothari (2004), Data analysis refers to computation of certain measures

along with searching for patterns of relationship that exist among group of data. It

involves a number of closely related activities and operations to summarize and organize

the data collected through different methods, to answer the research questions and

achieve the research objectives.

The purpose of this chapter is to analyze the raw data and convert them into some useful

information based on the results gathered from the respondents. This chapter includes

results and discussions of primary data that were collected through fieldwork. After

gathering the data the researcher had observed it carefully and entered in to (SPSS)

Statistical Package for Social Sciences version 21.0 and MS-Excel for analysis purpose. .

Different types of statistical tests were performed depending on the variables under study.

The inferences and conclusion are drawn from the output of these tests are presented in

this chapter. The section of the study is in two forms; Univariate and multivariate

analysis.

5.2. Univariate analysis

Under the univariate analysis section back ground of the respondents, descriptive

analysis of the sample about financial knowledge, difference in the level of financial

literacy among the different sub groups of the students were analyzed using cross

tabulations, independent t-test and one way ANOVA.

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5.3. Descriptive statistics

5.3.1. Background of respondents

For this study a total of 397 questionnaires were distributed to students from four public

universities in Ethiopia of which 382 were collected and the analysis and discussions part

of the study is done based on results of the 382 respondents. The sample was designed to

be representative of the university student population in Ethiopia as shown in detail in the

methodology part. The students in business and non business majors, different

departments, different year of studies starting from first year to third year were

adequately represented in the study.

The demographic characteristics of the respondents such as gender, education, experience

and income levels are presented in Table 4.1.

Table 5.1. Demographic Characteristics of the Respondents

Frequency %
1. Gender
a. Male 195 51.0
b. Female 187 49.0
Total 382 100.0
2. Year of study
a. First year 124 32.5
b. Second year 128 33.5
c. Third year 130 34.0
Total 382 100
3. Field of study
a. Business and Economics 192 50.3
b. Non business and Economics 190 49.7

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total 382 100.0
4. Specialization under business and Economics
a. Accounting 65 33.9
b. Management 63 32.8
c. Economics 64 33.3
Total 198 100.0
5. Personal income in a year
a. Below 2,500 51 13.4
b. 2,501-7,000 135 35.3
c. 7,001-23,500 126 33.0
d. 23,501-70,500 59 15.4
e. above 70,500 11 2.9
Total 382 100.0
6. age
a. 17-19 196 51.3
b. 20-24 186 48.7
Total 382 100
7. work experience
a. None 207 54.2
b. Less than two years 98 25.7
c. Two to less than four years 51 13.4
d. four to less than six years 26 6.8
Total 382 100.0
Source: Developed for the research from field work 2018

5.3.1.1. Gender of the respondents

As shown in the above table4.1 the gender distribution of the respondents is almost equal

which are 195(51%) male and the remaining 187(49%) female. Even though the

proportion of the students in the university shows that female students are less than male

students for this study the researcher systematically gathers the information with the

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intention of equal distribution. These gender distributions were very helpful for

comparing the literacy level taking gender as a variable for comparison.

5.3.1.2. Education of the respondents

The above table 4.1 also shows about the current year of study, field of study and area of

specialization (under business and economics category) of the students at the university.

124(32.5%), 128(33.5%) and 130(34%of the students were from first year, second year

and third year respectively. This indicates that there was fair proportion among the

respondents year of study. Regarding their field of study 192(50.3%) of the respondents

were from business and economics field and the remaining 190(50.3%) were from other

that business and economics. The table also indicate the students area of specialization

under business and economics field and revels that 65(33.9%) from accounting and

finance department, 63(32.8) from management department and the remaining 64(33.3%)

from economics department. This indicated that the data is collected considering similar

distribution among the students not only for their field of study but also year of study and

specialization.

5.3.1.3. Age and experience of the respondents

The above table 4.1 also indicates the age and work related experience of the

respondents. The age of the respondents lies between 17 and 24. 196(51.3%) of the

respondents are in the age range of 17 up to 19 and the remaining 186(48.7%) of the

respondents age ranges from 20 up to 24. This implies that this study is dealing with a

very youthful population.

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Regarding the work related experience 207(54.2%)of the respondents have no work

experience, 98(25.7%) have less than two years' experience, 51(13.4%) have two to less

than four years' experience and 26(6.8%) have four to less than six years' experience

work related experience. This indicated that majority of the respondents have no work

experience.

5.3.1.4. Personal income of the respondents

Respondent‟s annual income is assumed as the amount of money received by the

respondent for personal use over the past year from any source which includes loan,

salary, commissions, regular remittances from family etc. the above Table 4..1 shows that

51(13.4%) of the respondents have annual income which is below Br 2,500,135(35.3%)

have income which lies between Br 2,500 and Br 7,000,126(33%) have annual income

between Br 7,001 to Br 23,500, 59(15.4%) have income between Br 23,500 to Br 70,500

and the remaining 11(2.9%) have annual income of above Br 70,500. Majority of the

respondents have income which lies between Br 2,500 and Br 7,000 which is 35.3%

following by income which lies between Br 7,001 to Br 23,500. This indicated that

majority of the students income was below Br 2500.

Table 5.2 Family characteristics of the respondents

Frequency Percentage
1. Fathers education level
a. None 80 20.9
b. High school or below 124 32.5
c. Diploma 84 22.0
d. Bachelor‟s degree 89 23.3
e. Masters or above 5 1.3

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 total 382 100.0
2. Mothers education level
a. None 131 34.3
b. High school or below 129 33.8
c. Diploma 93 24.3
d. Bachelors‟ degree 27 7.1
e. Masters or above 2 .5
Total 382 100.0
3. Father's main occupation
a. Unemployed 59 15.4
b. Self employed 172 45.0
c. Employed 151 39.5
Total 382 100.0
4. Mothers main occupation
a. Unemployed 205 53.7
b. Self employed 133 34.8
c. Employed 44 11.5
Total 382 100
Source: Developed for the research from field work 2018

5.3.1.5. Family Educational Level and Occupation

Table4.2 shows on family education and occupation. The results indicate that respondents

rated the educational levels of their fathers relatively higher than that of their mothers.

For instance, 131(34.3%) of mothers have no formal education, compared to 80(20.9%)

of fathers. In the other side, 89(23.3%) of fathers have a bachelor‟s degree or above

compared with27 (7.1%) of mothers. Parents with masters degree or doctorate degrees

are 5(1%) and 2(0.5%) for fathers and mothers which is consistent with the assertion that

fathers are relatively with highest educational level as compared to mothers especially in

the highest degrees. Over all, majority of the parents have an educational level of high

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school or below which is 129(34.3%) and 124(32.5%) for mothers and fathers

respectively.

The above table also indicates the parent‟s employment status, the results show that

59(15.4%), 172(45%) and 151(39.5%) of fathers were unemployed, self-employed and

employed, respectively and 205(53.7%), 133(34.8%) and 44(11.5) of mothers were

unemployed, self-employed and employed, respectively Thus, most mothers 342(89.5%)

are either unemployed or self-employed. This observation may be due to the cultural and

social setting that supports the idea that females should make their home first priority.

With the tasks of caring for their children and the house, having their own business or

staying out of full time employment probably are the best options for them.

Table 5.3 Residence of the respondents

Frequency Percentage
1. Region or place of residence
a. Tigrai 58 15.2
b. Afar 35 9.2
c. Amhara 85 22.3
d. Oromia 96 25.1
e. Somalia 18 4.7
f. SNNPR 50 13.1
g. Addis Ababa 34 8.9
h. Dire Dawa 6 1.6
Total 382 100
2. Capital town or not (residence )
a. Yes 117 30.6
b. No 265 69.4
Total 382 100
Source: Developed for the research from field work 2018

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5.3.1.6. Area lived by respondents or residence

Table4.3 shows that most of the respondents have mostly lived in the two regions in

Ethiopia. 181(47.4%) of respondents have mostly lived in the Amhara and Oromia

regions, Amhara (22.3%) and Oromia (25.1%), with the remaining percentage fairly

distributed across the other regions as follows; Tigrai 58(15.2%), A far 35 (9.2%),

Somalia 18 (4.7%), SNNPR 50 (13.1%), Addis Ababa 34 (8.9%) and Dire Dawa6(1.6%).

Further, it was noted that 117(30.6%) of these respondents live in the capital towns while

265(69.4%) live outside the regional capitals.

5.3.2. Type of financial account of the respondents

Table5.4 Shows that 279(73%) of the respondents have saving personal accounts and the

remaining 103(27) of the respondents doesn‟t have any personal account. From this we

can understand that majority of the students do have personal account in a bank.

Currently the banks in Ethiopia are encouraging for students to have an account through

arranging incentives which has high interest rate for students account.

Table 5.4 Type of financial account of the respondents

Frequency Percentage
Type of Financial Account
a. None 103 27
b. Saving 279 73
Total 382 100.0
Source: Developed for the research from field work 2018

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5.4. Financial Knowledge of the Respondents

The financial literacy questions distributed and filed by the respondents are divided into

four parts. These are knowledge in general finance, knowledge in savings and borrowing,

knowledge in investments, and knowledge in insurance. The answers to be responded for

each question were grouped in to three groups as correct, incorrect and do not know. In

the prior researches on financial literacy those responses which means "don't know"

answers with low levels of financial knowledge (Lusardi, Mitchell and Curto, 2010;

Lusardi and Tufano, 2009; and Lusardi and Mitchell, 2006). The result of the descriptive

statistics is interpreted using the same approach set by Chen and Volpe (1998; 2002) and

other researchers. Under this approach percentage of correct scores are grouped into three

categories: over 80% (High Financial Literacy), 60-79% (Medium Financial literacy) and

below 60% (Low Literacy).

Table 5.5 Financial literacy score of the respondents

Correct Incorrect don‟t know Total

a. General financial knowledge
1. Personal financial literacy 61.5 35.3 3.1 100
2. Personal financial planning 42.1 53.7 4.2 100
3. Personal budget 44.5 53.4 2.1 100
4. Liquidity of personal assets 49.7 48.4 1.8 100
5. Net value of asset 47.9 50.8 1.3 100
6. Interest rate v/s inflation 45.3 53.9 .8 100
Mean percentage score 48.5
b. Knowledge in saving and borrowing
1. Financial account with high interest 43.7 55.8 0.5 100
2. Guarantee on loan 50 48.4 1.6 100
3. Better option on type of interest 47.1 50.3 2.6 100

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4. Time value of money 46.9 51.6 1.6 100
5. loan with low cost of borrowing 42.9 53.9 3.1 100
6. Concept of overdraft 42.1 56.3 1.6 100
7. Financial account with high interest 51.6 47.4 1.0 100
Mean percentage score 46.3
c. Knowledge on investment
1. Type of short term investment 46.9 51 2.1 100
2. Collective investment vehicle 50 47.1 2.9 100
3. concept of diversification 44.5 54.5 1.0 100
4. Risk and return relationship 47.6 50.3 2.1 100
5. Suitability of investment strategy 42.7 55 2.4 100
Mean percentage score 46.3
d. Knowledge on insurance
1. premium determination 56.8 41.4 1.8 100
2. Reason to purchase insurance 42.1 56 1.8 100
3. type of insurance for stolen car 44.5 52.9 2.6 100
4. health insurance 45.5 52.1 2.4 100
5. Product of life Insurance 50 47.9 2.1 100
6. Cost of Insurance 44.2 54.2 1.6 100
7. Third party insurance 54.3 44.2 1.3 100
Mean percentage score 48.2
Source: Developed for the research from field work 2018

5.4.1. General financial knowledge

This section examines respondents‟ knowledge in savings and borrowing”. Six

questions were used to examine the level of students' knowledge in general finance

issues. As shown from the above table 4.5, 61.5% of respondents answered the question

about how personal finance can help respondents in their life correctly, 35.3% answered

the same question incorrectly and the remaining 3.1%responded that they don‟t know the

answer. This indicates that more than half of the respondents know the importance of

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personal finance literacy. The respondents answer on what personal financial planning

involves were 42.1%, 53.7% and 4.2% correct, incorrect and don‟t know respectively.

This shows that only 42 % of the respondents know the financial activities that should be

involved while preparing personal financial plan. Regarding the question on how

personal budget can help respondents reply 44.5% correctly, 53.4% incorrect and the

remaining 2.1 don‟t know response. Only 49.7% of respondents answered the question

on identifying liquid asset or asset that can be converted in to cash easily correctly,

48.4% provided incorrect answers and 1.8% responded that they don‟t know the answer.

Although most respondents answered the liquidity of asset question incorrectly, only

47.9% answered a question on how to find net worth on assets correctly, 50.8%

incorrectly and the remaining 1.3% replies do not know answer. This implies most

students do not know how they can compute the net worth of asset. On how much

savings can buy today if inflation rate exceeds saving interest rate, 45.3% of respondents

answered correctly while 53.9% answered incorrectly and the remaining 0.8 % answered

don't know. This is an indication that majority of the respondents which is about 55%

don‟t know much about time value of money and inflation. With the exception of the

question on the importance of financial literacy that had a mean correct response of 62%,

all the questions under this section recorded mean correct responses less than 50%.

Comparatively, students' knowledge on personal financial planning is low.

5.4.2. Knowledge of Savings and Borrowing

Under this section to explore the level of students' knowledge in saving and borrowing

seven questions were used. Table 4.5, shows respondents answer on identifying financial

account that pays higher interest income and 43.7% of respondents answered the question

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correctly, 55.8% provided incorrect answer and 0.5% responded that they don‟t know the

answer. This is an indication that most of the respondents don‟t know the account that

pays the highest interest income. The test question on the implication of guaranteeing a

loan results that 50%,48.4% and 1.6% correctly, incorrect and do not know answer

respectively which indicates that about one half of the respondents doesn‟t know about

guarantee on loan processing. The response on how to calculate future value in simple

interest were 47.1%, 50.3% and 2.6% correct, incorrect and do not know respectively.

This shows that majority of the respondents doesn‟t know how to calculate the future

value of money using simple interest. Regarding a question on compound interest 46.9%

of the respondents answer correctly, 51.6% incorrectly and the remaining 1.6 provides do

not know answer. As compared to compound interest students results in better answer in

simple interest. Thus, it seems many respondents don't understand the concept of

compound interest. Only 42.9% of the respondents answered correctly the question on the

source of borrowing that is likely to charge a higher interest rate. Of the rest, 53.9%

answered it wrongly and3.1% responded that they don‟t know the answer. Clearly, about

half of the respondents don't know the cost associated with the various sources of loan.

The respondents answer on a question of concept of overdraft results that 42.1%, 56.3%

and 1.6% correct, incorrect and don‟t know responses respectively. The questions on the

most important factor lender uses when deciding on whether to approve a loan recorded

correct, incorrect and don‟t know percentage response rate of 51.6%, 47.7% and 1%. This

implies that the respondents have moderate knowledge in identifying important factors to

approve loan by banks. In all questions in this section the students resulted in mean

correct responses of less than 50%.

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5.4.3. Investment Knowledge

This section inspects the respondents‟ knowledge in investment arena. Five questions

were used to explore the level of students' knowledge in investment. The first question

was asked to identify a type of short term investment. As shown in Table4.5, 46.9% of

the respondents answered the question correctly, 51% provided incorrect answer and

2.1% responded that they don‟t know the answer. This is an indication that more than

half of the students don‟t know the short term investment alternatives. Results on the

other question on mutual fund or identifying a collective investment vehicle shows that

50%,47.1% and 2.9% correctly, incorrectly and don‟t know answer respectively. Only

44.5% of respondents knew the answer to the question relating to concept of

diversification, 54.5% provided incorrect answer and the remaining 1.0% responded do

not know answer.

The respondents answer on a question about risk and return relationship results 47.6%,

50.3%and 2.1 correctly, incorrectly and do not know answer respectively. Thus, most

respondents‟ don‟t demonstrate knowledge of the concept of diversification and risk and

return relationship.

The correct, incorrect and don‟t know responses to the question on identifying suitability

of investment strategy for with high risk and high return were 42.7%, 55% and 2.4%

respectively. Thus, most respondents do not know the suitable investment strategy for

high risk high return investment option.

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5.4.4. Insurance Knowledge

This section examines respondents‟ knowledge in the principles of insurance and

different types of insurance products. The correct, incorrect and don‟t know responses to

the question on car insurance premium results 56.8%, 41.4% and 1.8% respectively. Thus

most of the respondents demonstrate a moderate knowledge on car insurance premium

determination.

The results also show that 42.1% of the respondents answered correctly to the question of

the main reason for buying insurance, 56 % incorrectly and 1.8% does not know

response. Thus only about 41% of the respondents answered the question correctly

indicating low level of knowledge by students in Ethiopian public universities. .

The correct, incorrect and don‟t know responses to the question on type of insurance

coverage that covers the replacement of a stolen car were 44.5%, 52.9% and 2.6%

respectively. Clearly, most respondents‟ knowledge of type of insurance coverage that

covers the replacement of a stolen car is low.

The correct, incorrect and don‟t know responses to the question scope of health insurance

results 45.1%, 52.1% and 2.4% respectively. Thus most of the respondents do not

understand the rationale and the benefits to be derived from subscribing to the health

insurance.

The correct, incorrect and don‟t know responses to the question on products of life

insurance were 50%, 47.9% and 2.1% respectively. More than half of the respondents did

not know what the products included in life insurance.

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About 44.2% answered the question on the kind of house (wood house or brick house)

that will be expensive to insure correctly, 54.2% answered wrongly and the remaining

2.1%% responded they don't know. The correct, incorrect and don‟t know responses to

the question on scope of third party insurance were 54.5%, 44.2% and 1.3% respectively.

Thus about half of the respondents know about the scope of third party insurance.

5.4.5. Overall Financial Literacy measure

The overall measure of financial literacy is calculated based on the average percentage

score of the results from survey. Table 4.6, indicates that the weighted average score or

overall mean score of the four components used to measure financial literacy level. The

average percentage scores for general financial knowledge, savings and borrowing,

investment, and insurance were 48.5, 46.3, 45.3 and 48.2 respectively.

Comparatively, respondents‟ level of knowledge in general financial knowledge is good

.where as their knowledge in investment is low. Over all students have inadequate

knowledge in general financial knowledge, saving and borrowing, investment and

insurance. The overall mean percentage of correct scores for the entire survey is 47.3%,

indicating on average the respondents answered less than half of the questions correctly.

The results indicate that university students' knowledge in personal finance is low.

Thus, the findings show that lack of financial knowledge is widespread among

university students in Ethiopia. This finding is consistent with the assertion by Cole and

Fernando (2008) who report that similar to the findings of developed countries, the small

number of studies in developing countries show that the level of financial literacy is very

low. Tamimi and Kalli (2009) also find similar low levels of knowledge in these areas in

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a study of UAE investors. Lusardi, Mitchell and Curto (2010) and Chen and Volpe

(1998) also find low level of financial literacy among young consumers and students in

the US. Thus level of financial literacy is low in both developed and developing

countries.

Several reasons could account for the low financial literacy level of students in

Ethiopia. One reason for this could be the lack of personal finance education in the

curricula of high schools and universities in Ethiopia. Most of the senior high schools and

universities do not have courses consciously designed to educate students on basic issues

in finance. Even for times that non-accounting and non business students are made to

take accounting and finance related courses, most of them do not take it seriously because

they think that it is not part of their mainstream courses. Even faculty members of those

students portray the courses as if they are irrelevant. Considering the lack of attention to

finance education, it is not surprising the results depict that university students' financial

literacy is low.

Table 5.6 Overall measure of financial literacy

Measures of financial literacy Percentage score

1. General Finance Knowledge 48.5
2. Savings and Borrowing 46.3
3. Investment 46.3
4. Insurance 48.2
5. Overall Financial Literacy 47.3
Source: Developed for the research from field work 2018

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5.5. Financial Literacy Grading

5.5.1. Scores of the respondents in general financial knowledge

Table 4.7, shows that 0.8% of the respondents‟ scores zero, 12.8% of the respondents

scores only one right answer with the rest wrong, 26.7% of the respondents scores two

right answer with the rest wrong, 27% of the respondents scores three, 22.8% four, 6.8%

five out of the six general knowledge questions and the remaining 3.1% answered all the

questions in general financial. This indicates that majority of the respondents general

financial knowledge is low. This finding is consistent with studies by (Chen and Volpe

1998). Similarly, Lusardi, Mitchell and Curto (2009) also find low level of understanding

of general finance issue like inflation among the youth in the United States of America.

Kotzè and Smit (2008) find similar low level of knowledge among students in South

Africa.

Based on the grading system sated as standard above, table 4.12,indicate only 9.9% of the

respondents scores 1 grade or high financial knowledge , 22.8% scores 2 grade or

medium financial knowledge and the remaining 67.3% scores 3 grade or low financial

knowledge in general finance issues. This grading system also shows majority of the

respondents do not have good financial knowledge in general finance issues.

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 Table 5.7 Scores of the respondents’ General financial knowledge

No Score Frequency Percentage

1 All wrong 17 0.8
2 One right 69 12.8
3 Two right 143 26.7
4 Three right 97 27
5 four right 41 22.8
6 Five right 15 6.8
7 All right 12 3.1
Total 382 100
Source: Developed for the research from field work 2018

5.5.2. Scores of the respondents in saving and borrowing

Table 4.8 show that respondents score out of the seven questions on saving and

borrowing, 2.1% scores zero, 7.6% one, 20.7% two, 30.1% three,21.2% four, 11.3%

five, 5.5% six and the remaining 1.6% answered all the questions right. 39% of the

respondents scores four and above and 61% of the respondents scored below four out of

the seven questions. Generally the result indicates that the students‟ knowledge on saving

and borrowing is low.

Using the grading system, only 7.1% of the respondents score 1 grade (high financial

knowledge), 11.3% of the respondents‟ scores 2 grade (medium financial knowledge) and

the remaining 81.6% of the respondents 3 (low financial knowledge). Majority of the

students are ranked under the low level of financial knowledge.

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 Table 5.8 Scores of the respondents in saving and borrowing

No Score Frequency Percentage

1 All wrong 8 2.1
2 One right 29 7.6
3 Two right 79 20.7
4 Three right 115 30.1
5 Four right 81 21.2
6 Five right 43 11.3
7 Six right 21 5.5
8 All right 6 1.6
Total 382 100
Source: Developed for the research from field work 2018

5.4.3. Scores of the respondents in investment knowledge

Table 4.9, show that respondents score out of the five questions on investment, 4.5%

scores zero, 18.1% one, 37.4% two, 25.4% three,10.7% four and the remaining 3.9%

answered all the questions right. 40% of the respondents scores four and above and 60%

of the respondents scored below four out of the seven questions. Generally the result

indicates that the students‟ knowledge on saving and borrowing is low.

Using the grading system, only 14.6% of the respondents score 1 grade (high financial

knowledge), 25.4% of the respondent‟s scores 2 grade (medium financial knowledge) and

the remaining 60% of the respondents 3 (low financial knowledge). Majority of the

students (60%) are ranked under the low level of financial knowledge. this result is

similar with other studies of (Van Rooij et al. 2011. Volpe et al. 1996).

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 Table 5.9 Scores of the respondents in Investment

No Score Frequency Percentage

1 All wrong 17 4.5
2 One right 69 18.1
3 Two right 143 37.4
4 Three right 97 25.4
5 Four right 41 10.7
6 All right 15 3.9
7 Total 382 100
Source: Developed for the research from field work 2018

5.4.4. Scores of the respondents in insurance knowledge

Tablec4.10 shows that 0.8% of the respondents‟ scores zero, 9.4% of the respondents

scores only one right answer with the rest wrong, 15.4% of the respondents scores two

right answer with the rest wrong, 30.6% of the respondents scores three, 23.8% four,

12.6% five, 5% six out of the seven insurance knowledge questions and the remaining

2.4% answered all the questions in general financial. This indicates that majority of the

respondents general financial knowledge is low.

Based on the grading system sated as standard above, only 7.4% of the respondent‟s

scores 1 grade or excellent knowledge, 12.6% scores 2 grade or medium and the

remaining 80% scores 3 grade or low knowledge in general finance issues. This grading

system also shows majority of the respondents general financial knowledge is low.

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 Table 5.10 Scores of the respondents in insurance

No Score Frequency Percentage

1 All wrong 3 0.8
2 One right 36 9.4
3 Two right 59 15.4
4 Three right 117 30.6
5 Four right 91 23.8
6 Five right 48 12.6
7 Six right 19 5
7 All right 9 2.4
Tota1 382 100
Source: Developed for the research from field work 2018

5.4.5. over all financial literacy score

In this section based on the standard sated above those students whose score is above 80

are with high financial literacy, students which scores 60 up to 79 with medium financial

knowledge and students who score below 60 in the financial literacy test are grouped

under low financial knowledge.

Table 5.11 Overall financial literacy score

No Students financial knowledge Frequency Percentage

1 Low (2 up to 14 right ) 298 78
2 Medium (15 up to 19 right ) 62 16.2
3 High (20 and above right ) 22 5.8
Total 382 100
Source: Developed for the research from field work 2018

Based on table 4.11, On the overall financial literacy test, 78% of the respondents got the

right answer of two up to 14 questions which are grouped under low financial knowledge,

16.2% of the respondents answered fifteen up to nineteen questions correctly and

grouped under medium financial knowledge, and the remaining 5.8% of the respondents

answered 20 up to twenty five questions correctly and grouped under high financial

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knowledge. This indicates that majority of the respondents have low financial

knowledge.

Table 5.12 Grade of the respondents

GENERAL KNOWLEDGE
No Score Frequency Percentage Grade
1 >80% 32 9.9 1
2 60-79 41 22.8 2
3 <60 326 67.3 3
Total 382 100
SAVINGS AND BORROWING KNOWLEDGE
1 >80% 27 7.1 1
2 60-79 43 11.3 2
3 <60 312 81.6 3
Total 382 100
INVESTMENT KNOWLEDGE
1 >80% 56 14.6 1
2 60-79 97 25.4 2
3 <60 229 60 3
Total 382 100
INSURANCE KNOWLEDGE
1 >80% 28 7.4 1
2 60-79 48 12.6 2
3 <60 306 80 3
Total 382 100
OVERALL SCORES
1 >80% 22 5.9 1
2 60-79 62 16.2 2
3 <60 298 77.9 3
Total 382 100
Source: Developed for the research from field work 2018

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5.6. Financial literacy and students characteristics

In this section, the relationship between financial literacy and respondents demographic

and family characteristics is examined using cross tabulation.

Table 5.13 Mean % of Correct Responses by Characteristics

Characteristics General Saving and Investment Insurance Financial

borrowing literacy
a. Gender
1. Male 50.8 49.1 47.9 51.3 49.8
2. Female 46.1 43.4 44.7 44.8 44.8
b. Field of study
1. Business and 56.3 49.6 52.6 56.8 53.8
economics
2. Non business 40.6 43 40 41.5 41.3
and economics
c. Specialization under business and economics
1. Accounting 56.4 47.7 53.5 54.5 53
2. Management 57.7 51.5 54.9 57.8 55.5
3. Economics 54.7 49.8 49.4 56.7 52.6
d. Year of study
1. First year 39.7 37.4 37.6 43.1 39.4
2. Second year 47 44.9 44.8 46.3 45.7
3. Third year 60 56.2 56.4 55 56.9
e. Income(in Ethiopian Birr)
1. below 2,500 38.2 43.1 43.5 42.6 41.8
2. 2,501-7000 45.6 43.7 45 43.6 44.5
3. 7001-23,500 49.1 44.7 44.9 50.3 47.2
4. 23,501-70,500 57.9 48.2 50.5 53.7 52.6
5. Above 70,500 74.2 73.9 68 70.6 73.2
f. Age
1. Below 20 43.2 39.9 40.7 45 42.2

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2. Above 20 51.2 49.4 48.5 47.5 49.2
g. Experience
1. none 45.5 42.6 41.7 46.7 44.2
2. less than 2 years 52 49.6 47.6 48.4 49.4
3. 2 – less than 4 50.6 49.3 55.7 45.1 50.2
years
4. 4 –less than 6 58.9 56 59.2 60.4 58.6
years
Source: Developed for the research from field work 2018

5.6.1. Financial Literacy and Gender

The results presented in Table 4.13 show that respondents' financial literacy level in

gender wise. The mean percentage score on general financial knowledge, knowledge on

saving and borrowing, knowledge on investment and knowledge on insurance for males

were 50.8, 49.1, 47.9 and 44.7 respectively and for female respondents 46.1, 43.4, 44.7

and 45.2 respectively. males students scores on average 5.2%,5.3%,5.2% and 5.2%

greater than female students on general financial knowledge, knowledge on saving and

borrowing, knowledge on investment and knowledge on insurance respectively.

The average overall score of male students is greater than that of female students. On

average on the four financial literacy dimensions namely general financial knowledge,

knowledge on saving and borrowing, knowledge on investment and knowledge on

insurance, males respondents scores 49.8% and female respondents‟ scores 44.8%.Thus

male respondents scored on average about 5.3 percentage points higher than female

respondents.

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5.6.2. Financial Literacy and field of study
The above table 4.13also shows mean correct scores of students based on their field of

study. The students were classified in to two categories as business and Economics and

other than business and Economics. On average, business and economics answered

correctly 56.3% on general knowledge test, 49.6% on the savings and borrowing test,

52.6% on the investment test and 56.8% on the insurance test. The other than that of

business and economics, however, on average recorded correct scores of 40.6% for

general knowledge test , 43% for savings and borrowing test, 40% for investment test

and 41.5% for insurance test. Clearly, the average score of the business and economics

students for the four financial literacy tests were higher than non business and economics

students. Business and economics student‟s scores on average 5.8%, 5.4%, 5.7% and

5.8% greater than that of non business and economics students on general financial

knowledge, knowledge on saving and borrowing, knowledge on investment and

knowledge on insurance respectively.

The overall survey results indicates that those students from business and economics field

scores on average 53.8% and those other than business and economics students scores

41.2%. Business and economics students scores 5.5% greater than that of non business

and economics students.

5.6.3. Financial Literacy and specialization

The study also explores whether there are differences in financial knowledge among the

business and economics students based on their specialization. Under this section

students were grouped in to three as Accounting and finance, management and

economics.

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Business and economics students specializing in accounting and finance answered

correctly 56.4% of the general financial knowledge questions, 47.7% of the savings and

borrowing questions, 53.5% of the investment questions and 54.5% of the insurance

questions. Management students answered correctly 57.7% of the general knowledge

questions, 51.5% of the savings and borrowing questions, 54.9% of the investment

questions and 57.8% of the insurance questions. Economics students answered correctly

54.7%, 49.8%, 49.4% and 56.7% of the general knowledge questions, the savings and

borrowing questions the investment questions and of the insurance questions.

Management students scores relatively higher scores than accounting and finance and

economics students on all the financial literacy dimensions.

The results for the entire survey, indicates that the Management students

with average correct scores of 55.5% are more knowledgeable than the Accounting and

finance and economics students which scores 53% and 52.6%respectively.

5.6.4. Financial literacy and year of study

The survey also shows respondents result using year of study or class ranks. Under this

students were categorized in to three as first year, second year and third year students.

First year students answered mean correct scores of 39.7% in general knowledge

questions, 37.4% savings and borrowing questions 37.6% investment questions and

43.1% in insurance questions. Second year students 47%, 44.9%, 44.8% and 46.3% in

general knowledge, savings and borrowing, investment and insurance respectively. third

year students scored 60%,56.2%,56.4% and 55% in general knowledge, savings and

borrowing, investment and insurance respectively.

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In the four financial literacy dimensions higher class ranks were more knowledgeable

than those lower class ranks. Third year students were more knowledgeable that the first

year and second year students and second year students were more knowledgeable that

first year students.

The gap in the correct response rate between third year and first year students were 6%,

6%, 6% and 5.6%, for questions on general financial knowledge, savings and borrowing

and investment insurance respectively. The gap in the correct response rate between third

year and second year students were 6.2%, 5.5%, 5.5% and 5.8%, for questions on general

financial knowledge, savings and borrowing and investment insurance respectively. The

gap in the correct response rate between second year and first year students were 5.4%,

5.5%, 5.3% and 5.42, for questions on general knowledge, savings and borrowing and

investment insurance respectively.

For the entire survey, first year, second year and third year answered 39.4%, 45.7% and

56.9% mean correct responses respectively. The overall gap in the correct response rate

between first year and third year students, second year and third year students, first year

and second year students were 5.9%,5.6% and 5.4% respectively.

5.6.5. Financial Literacy and Income

The survey also shows respondents differences in financial literacy according to their

personal income in a year. The students were grouped in to five categories based on their

annual personal income level. Those students with income level of below Birr 2,500

scored 38.2%,43.1%,43.5%, 42.6% and 41.8% in general financial knowledge, savings

and borrowing knowledge, investment knowledge insurance knowledge and overall

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financial literacy respectively. Respondents with income of Birr 2,501 up to Birr 7000

answered mean correct scores of 45.6%, 43.7%, 45%, 43.6% and 44.5% in general

financial knowledge, savings and borrowing knowledge, investment knowledge

insurance knowledge and overall financial literacy respectively. Respondents with

income of Birr 7,001 up to Birr 23,500 answered mean correct scores of 49.4%, 44.7%,

44.9%, 50.3% and 47.2% in general financial knowledge, savings and borrowing

knowledge, investment knowledge insurance knowledge and overall financial literacy

respectively.

Respondents within incomes of Birr 23,501up to Birr 70,500 and above Birr 70,500

scored high means in general knowledge (57.9% and 74.2%), savings and borrowing

(48.2% and 73.9%), investment (50.5% and 68%)and insurance (53.7% 70.6%), and

(52.6% and 72.2%) in overall financial knowledge respectively.

5.6.6. Financial Literacy and Experience

The respondents mean score percentage based on work experience also shows a

difference. Those respondents with no work experience have mean correct percentage

scores of 45.5, 42.6 41.7and 46.7 in general financial knowledge, in savings and

borrowing, in investment and in insurance respectively. Respondents with less than two

years of working experience answered average correct scores of 52%, 49.6%, 47.6% and

48.4% in general financial knowledge, savings and borrowing, investment and insurance

respectively. Respondents with more than two but less than four years of working

experience answered mean correct scores of 50.6% in general knowledge, 49.3% in

savings and borrowing, 55.7% in investment, and 45.1% in insurance. Respondents with

four to less than six years working experience answered correctly 58.9%, 56%, 59.2%

136 | P a g e
and 60.4% of the tests on general knowledge, savings and borrowing, investment and

insurance respectively.

Table 5.14 Mean % of Correct Responses by family characteristics

General Saving & Investment Insurance Financial

borrowing literacy
a. Fathers education
1. None 44.4 43.6 39.3 43.4 42.7
2. High school or 46.1 47.7 45 46.3 46.3
below
3. Diploma 49.8 43.5 46.9 50.2 47.6
4. Bachelors degree 53.5 48.7 53 52.3 51.9
5. Masters degree or 63.3 60 64 65.7 63.2
above
b. Mothers education
1. None 43.5 45.5 43.6 43.8 44.2
2. High school or 47.4 40.9 43.4 43.2 43.7
below
3. Diploma 51.1 52.8 50.3 55.7 52.5
4. Bachelors degree 67.9 52.9 58.5 67.7 61.7
5. Masters degree or 58.3 64.3 60 64.3 61.8
above
c. Fathers main occupation
1. none 36.7 39.2 41.7 37.5 38.8
2. self employed 51 44.3 41.5 50 47.6
3. employee 50.1 51.4 49.9 50.4 50.4
d. mothers main occupation
1. none 46.2 43 43.6 47.6 45.1
2. self employed 50.5 48.5 48.4 47.8 48.8
3. employed 53 55.5 52.7 52.6 53.4
Source: Developed for the research from field work 2018

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5.7. Financial literacy and exposure to finance issues

This section examines whether there is a relationship between the students financial

literacy and family education, family occupation, residence and opening or having a

financial account.

5.7.1. Financial literacy and family education

The results from table 4.14show that respondents' knowledge varies with family

characteristics. Respondents whose fathers have no educational background scores

44.4%,43.6%,39.3%,43.4% and 42.7% on questions of general financial knowledge,

saving and borrowing ,investment, insurance and overall financial knowledge

respectively. those students whose fathers have high school or below education level

answers correctly the questions 46.1%,47.7%,45%,46.3% and 46.3% on the four

dimensions of financial literacy and overall financial literacy respectively. The

respondent who‟s their father have diploma answers correctly the questions 49.8%,

43.5%, 46.9%, 50.2% and 47.6% on the four dimensions of financial literacy and overall

financial literacy respectively. Respondents whose fathers have bachelors degree or

masters degree or above answers correctly the questions on four financial literacy

dimensions and overall financial literacy higher than as compare to the respondents

whose fathers have no educational background, high school or below and diploma. The

results were 53.5%,48.7%,53%,52.5% and 51.9% respectively on general financial

knowledge, saving and borrowing ,investment, insurance and overall financial knowledge

for the respondents whose fathers have bachelors degree and 63.3%,60%,64%,65.7% and

63.2% respectively on general financial knowledge, saving and borrowing ,investment,

insurance and overall financial knowledge for the respondents whose fathers have

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masters degree or above. The result indicates that those students whose fathers‟ education

level is higher answers the questions better than those students whose fathers have lower

educational level.

Respondents whose mothers have no educational background scores 43.8%, 45.5%,

43.6%, 43.8% and 44.2 % on questions of general financial knowledge, saving and

borrowing ,investment, insurance and overall financial knowledge respectively. those

students whose mothers have high school or below education level answers correctly the

questions 47.4%,40.9%,43.4%,43.2%,43.7%, and 45.6% on the four dimensions of

financial literacy and overall financial literacy respectively. The respondent who‟s their

mother have diploma answers correctly the questions 51.1%, 52.8%, 50.3%, 55.7% and

52.5% on the four dimensions of financial literacy and overall financial literacy

respectively. The results of correct scores were 67.9%,52.9%,58.5%,67.7% and 61.7%

respectively on general financial knowledge, saving and borrowing ,investment,

insurance and overall financial knowledge for the respondents whose mothers have

bachelors degree and 58.3%,64.3%,60%,64.3% and 61.8% respectively on general

financial knowledge, saving and borrowing ,investment, insurance and overall financial

knowledge for the respondents whose mothers have masters degree or above.

5.7.2. Financial literacy and Family occupation

The table also shows respondents financial literacy and the family occupation. On

average, students whose fathers are unemployed answered correctly 36.7% of the general

knowledge questions, 39.2% of the savings and borrowing questions, 41.7% of the

investment questions and 37.5% of the insurance questions. Those whose fathers are self-

employed, on average recorded correct scores of 51% for general knowledge, 44.3% for

139 | P a g e
savings and borrowing, 41.5% for investment and 50% for insurance. Students whose

fathers are employees of some organization or somebody, recorded mean correct scores

of 50.1%, 51.4%%, 49.9%, and 50.4 in general knowledge, savings and borrowing,

investment and insurance respectively. For the entire survey, towards of fathers who are

unemployed, self-employed and employees of some organization or somebody answered

mean scores of 38.8%, 47.6%, and 50.4% respectively. Clearly, the average correct

scores of respondents whose fathers are employees are higher than the other categories.

And also the financial knowledge of students whose fathers are employed is higher than

students having unemployed fathers.

On average, students whose mothers are unemployed answered correctly 46.2% of the

general knowledge questions, 43% of the savings and borrowing questions, 43.6% of the

investment questions and 47.6% of the insurance questions. Those whose mothers are

self-employed, on average recorded correct scores of 50.5% for general knowledge,

48.5% for savings and borrowing, 48.4% for investment and 47.8% for insurance.

Students whose fathers are employees of some organization or somebody, recorded mean

correct scores of 53%, 55.5%%, 52.7%, and 52.6in general knowledge, savings and

borrowing, investment and insurance respectively. For the entire survey, towards of

mothers who are unemployed, self-employed and employees of some organization or

somebody answered mean scores of 45.1%, 48.8%, and 53.4% respectively. Clearly, the

average correct scores of respondents whose mothers are employees are higher than the

other categories. And also the financial knowledge of students whose mothers are

employed is higher than students having unemployed mothers.

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 Table 5.15 Mean % of Correct Responses by residence region

General Saving & Investment Insurance Financial

borrowing literacy
a. area lived
1. Tigrai 46.3 47 48.3 49 47.6
2. .Afar 43.3 40.4 44.5 42.8 42.8
3. Amhara 48.6 45.9 49.4 47 47.7
4. Oromia 47.9 43 42.5 48.7 45.5
5. Somalia 45.4 53.9 37.8 50 46.8
6. SNNPR 50 42 39.2 39.4 42.6
7. Addis Ababa 54.4 51.5 58.8 62.6 56.8
8. Dire Dawa 69.4 69 70 69 69.3
b. Residence in Capital town or not
1. Yes 53.5 52 51.8 53.3 52.6
2. no 46.7 43.8 43.9 46 45.1
Source: Developed for the research from field work 2018

5.7.3. Financial literacy and residence of the respondents

The results in Table 4.15 reveal that on the average respondents in the various regions of

Ethiopia. The mean percentage of correct scores of respondents from Tigrai region were

46.3, 47, 48.3.3,49 and 47.6 in general knowledge, savings and borrowing, investment,

insurance and for the overall survey respectively. The mean percentages of correct scores

of respondents from Afar region were 43.3, 40.4, 44.6.3, 42.8 and 42.8 in general

knowledge, savings and borrowing, investment, insurance and for the overall survey

respectively. The mean percentage of correct scores of respondents from Amhara region

were 48.6, 45.9, 49.4, 47and 47.7 in general knowledge, savings and borrowing,

investment, insurance and for the overall survey respectively. The mean percentage of

correct scores of respondents from Oromia region were 47.9,43,42.5,48.7 and 45.5 in

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general knowledge, savings and borrowing, investment, insurance and for the overall

survey respectively. The mean percentage of correct scores of respondents from Somalia,

were 45.4, 53.9, 37.8, 50 and 46.8 in general knowledge, savings and borrowing,

investment, insurance and for the overall survey respectively. The mean percentage of

correct scores of respondents from SNNPR region were 50, 42,39.2,39.4 and 42.6 in

general knowledge, savings and borrowing, investment, insurance and for the overall

survey respectively. The mean percentages of correct scores of respondents from Addis

Ababa city administration were 54.4, 51.5, 58.8, 62.6 and 56.8 in general knowledge,

savings and borrowing, investment, insurance and for the overall survey respectively. The

mean percentages of correct scores of respondents from Diredawa city administration

were 69.4, 69, 70, 69 and 69.3 in general knowledge, savings and borrowing, investment,

insurance and for the overall survey respectively. This implies that students who live in

Diredawa scores higher result in the overall financial literacy survey followed by

respondents from Addis Ababa.

The table also shows that respondents' difference in financial knowledge with whether

they live in the regional capital or not. On the average, those who live in the capital

answered 53.5% of the general knowledge questions, 52% of the savings and borrowing

questions, 51.8% of the investment questions and 53.3% of the insurance questions

correctly. However, students who live outside the capital obtained mean correct scores of

46.7%, 43.8%, 43.9% and 46% in general knowledge, savings and borrowing, investment

and insurance respectively. The percentage correct answers from respondents who live in

the capital town (52.6) for the entire survey are higher than those who live outside the

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capital (45.1). This pattern persists among all the financial literacy questions on general

knowledge, savings and borrowing, investment and insurance.

5.7.4. Financial literacy and personal financial account

Table 4.15shows that respondents' financial knowledge with their personal financial

account, On the average, those who do not have personal account answered 45.5%,

39.2%, 43% and 46.9% on the general knowledge, savings and borrowing, investment

and insurance questions respectively. Those who have saving account correct percentage

correct score were 46.9, 48.8, 47.5 and 48.8 on the general knowledge, savings and

borrowing, investment and insurance questions respectively.

Table 5.16 Mean % of Correct Responses by residence region

General Saving & Investment Insurance Financial

borrowing literacy
type of account
a. None 45.5 39.2 43 46.9 43.6
b. Saving 46.9 48.8 47.5 48.8 48.7
Source: Developed for the research from field work 2018

5.8. Means to learn or improve financial knowledge

Students were asked to indicate where they want to learn or improve their

financial knowledge. A list of potential manses to increase ones financial knowledge was

provided to the respondents to choose from. They had the options to choose many

channels they like to use to improve their financial knowledge.

The result as shown in table4.16 indicates that, 4.2% of the respondent indicated that they

expect to improve or learn their financial knowledge in from their

parents,7.1%,46.7%,9.9%,12.3%,2.1%,2.9% and 13.9% from friends, school, books,

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media, job, life experience and financial institutions respectively. The result indicates that

majority of the respondents (47.6%) wants to learn or improve their financial knowledge

through schooling.

Table 5.17 Means to improve financial knowledge

Means to learn financial knowledge Frequency Percentage

a. Parents 16 4.2
b. Friends 27 7.1
c. School 182 47.6
d. Books 38 9.9
e. Media 47 12.3
f. Job 8 2.1
g. Life experience 11 2.9
h. financial institutions 53 13.9
total 382 100.0
Source: Developed for the research from field work 2018

5.9. Statistical tests

In this section to examine the financial knowledge of the students and identify those

students with financial knowledge and without financial knowledge independent t-test

and one-way analysis of variance (ANOVA) test was used to test if there are significant

differences in the financial literacy scores of the respondents based on the various

demographic and family characteristics.

5.9.1. Analysis of Mean differences using independent t-test

Table 4.17 shows the results of independent t-test to see the difference in means and f

statistics of the results in General Finance Knowledge, Savings and Borrowing,

Investment, Insurance and the overall financial literacy score. Although, the overall level

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of financial knowledge was low among the students, there are significant differences in

the financial literacy scores across the various students' and financial exposure

characteristics outlined above in the cross tabulation of correct scores.

As shown in table 4.18 the mean difference among male and female respondents were -

0.25551,-0.40864,-0.36301,-0.51370 and -1.37323 in General Finance Knowledge,

Savings and Borrowing, Investment, Insurance and the overall financial literacy score.

The mean score difference among business and economics students and non business and

economics students were -1.20132,-0.70554,-0.71508,-1.35877- and -4.10636 for

General Finance Knowledge, Savings and Borrowing, Investment, Insurance and the

overall financial literacy respectively.

Table 5.18 Results of independent t- test to show Difference in Means

General Saving & Investment Insurance Financial

borrowing literacy
a. Gender
Male vs. female - -0.40864 -0.36301 -0.51370 -1.37323
0.25551
F statistics 13.057 0.009 0.485 0.386 6.526
b. Field of study
Business major vs. non - -0.70554 -0.71508 -1.35877- -4.10636
1.20132
F. statistics 0.814 3.782 6.079 2.608 6.290
Source: Developed for the research from field work 2018

5.9.2. Analysis of Mean differences using one way ANOVA

Table 4.18 shows the results of independent t-test to see the difference in means and f

statistics of the results in General Finance Knowledge, Savings and Borrowing,

Investment, Insurance and the overall financial literacy score. Although, the overall level

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of financial knowledge was low among the students, there are significant differences in

the financial literacy scores across the various students' and financial exposure

characteristics outlined above in the cross tabulation of correct scores.

The mean score difference among second year and first year were -0.51109,-0.54738,-

0.46220,-0.19834 and -1.6234 General Finance Knowledge, Savings and Borrowing,

Investment, Insurance and the overall financial literacy respectively.

The mean score difference among third year and first year were -1.35484,-1.33921,-

1.02109,-0.79677 and -4.41663 in General Finance Knowledge, Savings and Borrowing,

Investment, Insurance and the overall financial literacy respectively. The mean score

difference among third year and second year students were -0.84375,-0.79183,-0.55889,-

0.59844 and -2.7933 in General Finance Knowledge, Savings and Borrowing,

Investment, Insurance and the overall financial literacy respectively.

The overall mean difference on financial literacy level among accounting and

management, accounting and economics and management and economics were 0.65665,-

0.01274 and 0.66939 respectively.

The overall mean difference on financial literacy level among personal income groups of

below Br 2,500 and 2,501-7,000, Br 2,501-7,000 and 7,001-23,500 and Br 7,001-23,500

and more than Br 70,500 were .9037, .95344 and 7.02176 respectively.

The overall mean difference on financial literacy level among the respondents work

related experience of none and less than 2 years, less than 2 years and 2 up to 4 years

and 2 up to 4 years and 4 up to 6 years were 1.05994,0.50300 and 2.24661 respectively.

This result indicates that there are some differences in the scores of the students in the

financial literacy levels.

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 Table 5.19 Results of ANOVA to show Difference in Means

General Saving & Investment Insurance Financial

borrowing literacy
a. Year of study
nd
1. 2 year vs. 1st year -0.51109 -0.54738 -0.46220 -0.19834 -1.6234
rd st
2. 3 vs. 1 year -1.35484 -1.33921 -1.02109 -0.79677 -4.41663
rd nd
3. 3 vs. 2 year -0.84375 -0.79183 -0.55889 -0.59844 -2.79339
F statistics 34.747 27.217 21.020 9.439 37.027
b. Specialization under business and economics
1. Accounting vs. 0.07570 0.26471 0.24198 0.24713 0.65665
management
2. Accounting vs. -0.10337 0.1459 0.00769 0.15288 -0.01274
economics
3. Management -0.17907 -0.11880 -0.21429 0.09425 0.66939
vs. economics
F statistics 0.301 0.444 0.546 0.557 0.484
c. Last year personal income
1. Below Br 2,500 vs. 0.51416 0.1362 0.26841 0.13159 0.90370
2,501-7,000
2. Br 2,501-7,000vs 0.22487 0.23388 -0.1958 0.56847 0.95344
7,001-23,500
3. Br 7,001-23,500 vs 1.047777 1.8597 0.20514 1.66872 7.02176
more than Br 70,500
F statistics 11.546 6.462 6.940 10.463 12.963
d. Work related experience
1. None vs. less 0.42404 0.4226 0.35714 -0.03354 1.05994
than 2 years
2. Less than 2 -0.61887 -0.02221 0.11345 0.01581 0.50300
years vs 2 up to 4 years
3. 2 up to 4 years 0.46229 0.59050 0.37557 1.05505 2.24661
vs. 4 up to 6 years
F statistics 4.534 4.415 4.963 3.548 6.877
Source: Developed for the research from field work 2018

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5.9.3. Financial literacy level difference based on gender

The table 4.19 shows that F statistic result is 8.994 and the significance value is 0.003,

which is less than the 0.05 at the 5% significance level, so there is a significant difference

between the financial literacy level and the respondent‟s gender. From the previous table

in cross tabulation, taking gender as a variable to show the difference in financial

knowledge indicates that, male respondents are more knowledgeable (49.8%) than that of

female respondents (44.8%). The differences for all the dimensions are statistically

significant. The overall survey indicates that males are more likely to be financially

literate than females at the 0.05 level. Hence, the hypothesis that there is a significant

difference in the level of financial literacy of students based on their gender is accepted.

The finding that males are more financially knowledgeable than females is consistent

with existing literature (Chen & Volpe, 1998; Danes &Haberman, 2007; Manton et al.,

2006; Peng et al., 2007; Volpe et al., 1996, Bumcrot et al., 2011; Al-Tamimi and Kalli,

2009; and Beal and Delpachitra, 2002).

Table 5.20 ANOVA test of Financial Literacy Level and the Respondent’s Gender

Sum of Squares Df Mean Square F Sig.

Between Groups 180.012 1 180.012 8.994 .003
Within Groups 7605.278 380 20.014
Total 7785.291 381
Source: Developed for the research from field work 2018

5.9.4. Difference in financial literacy level based on field of study

The table 4.19 below shows that F statistic result is 99.095 and the significance value is

0.000, which is less than the 0.05 at the 5% significance level. This result shows that,

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there is a significant difference in the levels of financial literacy among students based on

their field of study. Consistent with the previous cross tabulation table, the results suggest

that business and economics students are more likely to be financially knowledgeable

than non business and economics students. As shown from the above table the difference

in means of financial literacy level between business and economics students and non

business and economics students is significant at 5% level for general finance issues,

saving and borrowing ,investment, insurance and for the overall financial literacy

knowledge. Therefore, the hypothesis that there is a significant difference in the level of

financial literacy of students based on their field of study is accepted. The finding that

business and economics students are more financially knowledgeable is consistent with

findings of previous studies (Lusardi and Mitchell, 2007b; and Chen

and Volpe, 2002, 1998). Beal & Delpachitra (2003), Peng et al. (2007), Robb &Sharpe

(2009) and Volpe et al. (1996),

Table 5.21ANOVA test of Financial Literacy Level and the Respondents’

field of study

Sum of Squares df Mean Square F Sig.

Between Groups 1610.295 1 1610.295 99.095 .000
Within Groups 6174.996 380 16.250
Total 7785.291 381
Source: Developed for the research from field work 2018

5.9.5. Difference in financial literacy level based on year of study

Based on table 4.22the result of ANOVA on financial literacy level and students year of

study shows F-statistic result of 37.027 and the significance value is 0.000, which is less

than 0.05 at the 5% significance level. Consistent with the previous table of cross

tabulation, the result indicates there is significant difference among students based on

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their year of study in all the financial literacy dimensions. As we can see from the above

table the tests on general finance issues, saving and borrowing, investment, insurance and

for the entire survey are significant at 5% significance level. The third year students are

more financially knowledgeable than second year and first year students and the second

year students are more financially literate than first year students. This is because of

because of the third year and second year students take more finance courses as compared

to the first year students. In the other direction one can understand from this education is

one way that helps in upgrading the financial knowledge. This implies that year of study

has a significant impact on the financial knowledge of students. So, the hypothesis that

there is a significant difference in the level of financial literacy of students based on their

year of study is accepted. This finding is consistent with other studies that found

differences in financial literacy according to class rank of university students (Chen and

Volpe, 2002; and Chen and Volpe, 1998).

Table 5.22ANOVA test of Financial Literacy Level and

the Respondents’ year of study

Sum of Squares df Mean Square F Sig.

Between Groups 1272.538 2 636.269 37.027 .000
Within Groups 6512.753 379 17.184
Total 7785.291 381
Source: Developed for the research from field work 2018

5.9.6. Difference in financial literacy level based on personal income of

respondents

The result of ANOVA from the table 4.23on financial literacy and respondents‟ income

in a year shows F-statistic result of 12.963 and the significance value of 0.000, which is

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 less than 0.05 at the 5% significance level. This result is consistent with the above table

which shows the difference in means between different income groups is significant.

This means that there is significant difference among the respondents based on their

annual income. Those respondents with high income were more financially

knowledgeable than those students with low income. So, the hypothesis that there is a

significant difference in the level of financial literacy of students based on their income is

accepted. This finding is consistent with previous studies of ( Hastings and Mitchell,

2011). Those individuals with high income are more financially literate than those with

low or no income. Income is needed to improve financial knowledge.

Table 5.23 ANOVA test of Financial Literacy Level and the

Respondents’ personal income in year

Sum of Squares df Mean Square F Sig.

Between Groups 941.330 4 235.333 12.963 .000
Within Groups 6843.960 377 18.154
Total 7785.291 381
Source: Developed for the research from field work 2018

5.9.7. Difference in financial literacy level based on work experience

Table 5.24 ANOVA test on Financial Literacy Level and the Respondents’ work
related experience

Sum of Squares df Mean Square F Sig.

Between Groups 402.900 3 134.300 6.877 .000
Within Groups 7382.391 378 19.530
Total 7785.291 381
Source: Developed for the research from field work 2018

The result of ANOVA test from the table4.24on financial literacy level and respondents‟

work related experience shows F-statistic result of 6.877and the significance value of

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0.000, which is less than 0.05 at the 5% significance level. There is significant difference

between the respondents based on their work related experience. This ANOVA test result

is consistent with the cross tabulation done above. Those students which have more work

related experience were more financially knowledgeable that those with less work related

experience and no work experience. This result is also consistent with the findings of

Chen and Volpe (1998).

Table 5.25 Results of ANOVA test to show Difference in Means based on

exposure to finance issues

General Saving & Investment Insurance Financial

borrowing literacy
a. Fathers education
1. None vs. high school 0.19879 0.36694 0.92056 0.34516 1.26411
or below
2. High school or below 0.13633 -0.37289 -0.1152 0.54524 0.0126
vs. diploma
3. Diploma vs. bachelors 0.34845 0.49050 0.35152 0.20527 1.56485
degree
4. Bachelors degree vs. 0.6539 0.84045 0.70562 0.100449 3.08090
masters degree or above
5. F statistics 3.42 2.405 3.503 4.028 5.506
b. Fathers education
1. None vs high school 0.29404 -0.33990 -.32978 .05486 .09953
or below
2. High school or below 0.11126 .82275 .53088 .85646 2.10003
vs diploma
3. Diploma vs bachelors 1.16607 .07049 .31063 -6069 2.30824
degree
4. Bachelors degree vs. -1.0370 .37037 -1.25926 .87037 -1.38889
masters degree or above
F statistics 7.466 4.933 4.606 9.451 8.779
Source: Developed for the research from field work 2018

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The overall mean difference on financial literacy level among the respondents based on

their father‟s education level of no education back ground and high school or below,

high school or below and diploma , diploma and vs. bachelors degree and bachelors

degree and masters degree or above were 1.26411, 0.0126, 1.56485 and 3.08090

respectively.

The overall mean difference on financial literacy level among the respondents based on

their mother‟s education level of no education back ground and high school or below,

high school or below and diploma , diploma and vs. bachelors degree and bachelors

degree and masters degree or above were 0.9953,2.1003,2.30824 and -1.38889

respectively.

Table 5.26 Results independent t test to show Difference in Means based

on exposure to finance issues

General Saving & Investment Insurance Financial

borrowing literacy
1.Residence in capital
town
yes vs. no -0.3454 -0.58652 -0.64303 -0.46599 1.79452
F statistics 0.801 0.06 .128 3.518 8.626
2.Type of financial
account
None versus saving .12072 .647701 .58277 .5060 1.00230
F statistics .599 4.569 12.345 1.742 9.880
Source: Developed for the research from field work 2018

The overall mean differences on financial literacy level among respondents based on their

residence in capital towns or not were 1.79452 and the difference in means among those

who have financial account and those who do not have financial account were 1.00230.

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5.9.8. Difference in financial literacy level based on family education level

The result of ANOVA test from the table 4.27and 4.25 on financial literacy and

respondents‟ fathers and mothers‟ education level shows F-statistic result of 5.506 and

8.779 and the significance value of 0.000 for both, which is less than 0.05 at the 5%

significance level. This shows that there is significant difference among the students

based on their family educational level. Consistent with the cross tabulation done in the

above table the ANOVA test also shows significant difference among respondents based

on their family education level.

Table 5.27ANOVA test of Financial Literacy Level and the

Respondents’ father’s education level

Sum of Squares df Mean Square F Sig.

Between Groups 429.723 4 107.431 5.506 .000
Within Groups 7355.568 377 19.511
Total 7785.291 381
Source: Developed for the research from field work 2018

Table 5.28ANOVA test of Financial Literacy Level and the

Respondents’ mother’s education level

Sum of Squares df Mean Square F Sig.

Between Groups 663.369 4 165.842 8.779 .000
Within Groups 7121.922 377 18.891
Total 7785.291 381
Source: Developed for the research from field work 2018

5.9.9. Difference in financial literacy level based on family education level

The result of ANOVA test from the table 4.28 on financial literacy and respondents‟

residence in capital town or not shows F-statistic result of v13.201and the significance

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value of 0.000, which is less than 0.05 at the 5% significance level. This indicates that

there is significant difference among the respondents based on their residence. This

ANOVA test result is consistent with their previous cross tabulation. Those students who

lived most of their life in capital towns are more financially knowledgeable than those

who don‟t live in capital towns. Those who lived in capital town have more exposure to

finance issues.

Table 5.29ANOVA test of Financial Literacy Level and the

Respondents’ residence in capital town or not

Sum of Squares df Mean Square F Sig.

Between Groups 261.375 1 261.375 13.201 .000
Within Groups 7523.916 380 19.800
Total 7785.291 381
Source: Developed for the research from field work 2018

5.9.10. Difference in financial literacy level based on financial account

The result of ANOVA test from the table 4.27on financial literacy and respondents‟

financial account shows F-statistic result of 3.725and the significance value of 0.054,

which is greater than 0.05 at the 5% significance level. This indicates that there is no

significant difference among the respondents regardless of the difference in type of

account they maintain.

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 Table 5.30 ANOVA test of Financial Literacy Level and the
Respondents’ residence in financial account

Sum of Squares df Mean Square F Sig.

Between Groups 75.574 1 75.574 3.725 .054

Within Groups 7709.717 380 20.289
Total 7785.291 381
Source: Developed for the research from field work 2018

5.10. Multivariate analysis

5.10.1. Introduction

The previous section which is about univariate analysis shows the difference in financial

literacy level of the respondents based on their demographic, family characteristics,

residence and involvement in finance matters. In this section, a multivariate analysis is

used to assess predictors of financial literacy. The model considers variable such as

demographic, family characteristics, residence and involvement in finance matters as

explained in the methodology section. Using the multivariate model, the marginal effects

of specific characteristics on the financial literacy level is assessed. The model is

estimated for all the four dimensions of financial literacy (general knowledge, saving and

borrowing knowledge, investment knowledge and insurance knowledge) and for the

entire sample. The interpretations and conclusions were based on the model. The logit

results are reported in Table 5.31.

5.10.2. Multicollinearity test

The most common approach to identify multicollinearity (predictors or the independent

variables should not be too highly correlated) inflation factors (VIF) of the independent

variables. The variable inflation factors show the increase in variance of the coefficient

156 | P a g e
associated with the variable that result from the fact that the variable is correlated with

the other variables in the multivariate model. For this study the VIF was used to assess

the possible degree of multicollinearity among the variables. According to Gujarati

(2004) a VIF greater than five (VIF >5) or a tolerance level of less than 0.2) are

indicative of significant multicollinearity. Neter, et al. (1990) and Kutner, et al ( 2005)

also suggest a cut-off point of VIF greater than 10. The variable inflation factors

presented in Appendix suggest any potential issues of multicollinearity are not significant

since the VIFs coefficients fall below the cut-off point.

Results of the logistic regression are shown in table 5.31. The chi-square of the legit

regression are high which shows that the model have high explanatory power. The other

means to measure the overall fit of the model is to examine its ability to correctly classify

the observations and for the entire sample 80.4% of the observations are correctly

classified. The results of the logit regression were analyzed below.

5.10.3. Gender

There is significant evidence in the likelihood of being financially literate based on

gender. Consistent with the ANOVA test the results from the respondents as shown in

table5.31 male are more likely to obtain high score than females in the financial literacy

test. Being female decreases the likelihood (probability) of being less financially literate

for general financial knowledge, saving and borrowing knowledge, investment

knowledge and insurance knowledge. The overall financial literacy survey shows that

males are more likely be financially knowledgeable than female respondents is

significant at 0.01 level. This result tells us gender is a predictor of financial literacy

level.

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The finding that males are high financially literate than females is consistent with

existing literature (Bumcrot et al., 2011; Al-Tamimi and Kalli, 2009; and Beal and

Delpachitra, 2002).

There are so many reasons for this result (females are less financially literate than males)

given by different authors. Goldsmith, Goldsmith and Heaney (1997) recommends that

female are less financially literate than male because in general women are less

interested in the topics of investment and personal finance and, use financial services less

often. This reason might be applicable in Ethiopia also that during my stay in university

as a lecturer for some years I observe that male students be more interested in finance

issues and it may be also due to cultural and social barriers.

The other possible reason may be there is different financial socialization in developing

countries in developing countries (Falahati and Paim, 2011). Males are primarily

responsible for majority of the decisions regarding to financial issues and because of this

they have the access to the finance maters as compared to females.

5.10.4. Field of study

As shown in table5.31 there is significant difference of financial literacy level among

students of business and economics and other than business and economics. Consistent

with the ANOVA test students under business and economics are more likely to be more

financially knowledgeable than non business and economics students. The coefficients of

non business and economics students for general financial knowledge, saving and

borrowing knowledge, investment knowledge and insurance knowledge and the entire

survey are negative and significant at the 0.01 level. Being a non business and economics

158 | P a g e
student increases the likelihood of being less financially literate in general financial

knowledge, savings and borrowing, investment and insurance.

The finding that business and economics students are more financially knowledgeable

than female students are consistent with findings of previous studies (Lusardi and

Mitchell, 2007b; and Chen and Volpe, 2002, 1998).

The main reason behind this finding may be business and economics students have access

to finance related courses. In this category student takes courses like principles of

accounting, business mathematics, introduction to economics, statistics for business and

other related course irrespective of their specialization. This shows that field of study is a

strong predictor of financial literacy.

5.10.5. Year of study

Regarding the year of study (class rank) as shown in table5.30 students in higher year of

study are more likely to be more financially knowledgeable than those in lower year of

study. This is significant at the 0.01 level for all dimensions of financial literacy. This is

consistent with the results obtained from ANOVA test. Being in lower class ranks,

decreases the likelihood of being knowledgeable in general financial knowledge, savings

and borrowing, investment and insurance

This finding is consistent with the findings of Chen and Volpe, 1998. The reason for this

result may be, students at high class ranks study more courses related to finance as

compared to those students which are in the lower class ranks. Therefore, student‟s class

ranks or year of study is another predictor for financial literacy.

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5.10.6. Experience

Table 5.31 also shows the difference in financial literacy level based on the work related

experience. A student who has high years of work experience are more likely to be more

financially knowledgeable than those who have less work experience or no work

experience at all. Experince1 or those students who do not have work experience are

more likely to be less financially knowledgeable which is statistically significant at 0.01,

0.05 and 0.1 levels.

This finding is consistent with the findings of Chen and Volpe (1998). This may be due

to those who have work related experience have access to save, invest and actively

participate in financial market and the work environment provides a a means individuals

to improve their financial knowledge from their friends or colleagues.

5.10.7. Income

The table 5.31 shows there is a difference in the likelihood of being financially literate

based on their personal income. This result is significant with the ANOVA test. Being a

respondent with no or low income is significant at 0.05 and 0.1 levels. The findings that

those respondents with high income were more financially literate than no or low income

respondents is consistent with Lusardi, 2012; Hastings and Mitchell, 2011). As income

increases, the financial literacy level is also likely to increase. This may be due to the

access that individuals tries to manage their income.

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5.10.8. Family characteristics
5.10.8.1. Family education

As shown in table 5.30 there is significant difference of financial literacy level among

students of whose fathers and mothers have some educational qualification than those

who do not have educational back ground and low education level which is Consistent

with the ANOVA test. The likelihood of being financially knowledgeable increases as the

students fathers and mothers educational level increases. The coefficients for general

financial knowledge, saving and borrowing knowledge, investment knowledge and

insurance knowledge and the entire survey are negative and significant at the 0.05 and 0.1

levels. This indicates that the family education is a predictor for financial literacy. The

reason may be the students may have access to discuss on some finance issues with their

family.

5.10.8.2. Family occupation

As shown in table 5.30 there is significant difference of financial literacy level among

students of whose fathers and mothers has occupation than those students whose families

are unemployed which is Consistent with the ANOVA test. The likelihood of being

financially knowledgeable increases as the students‟ fathers and mothers are employed.

The coefficients for general financial knowledge, saving and borrowing knowledge,

investment knowledge and insurance knowledge and the entire survey are negative and

significant at the 0.05 and 0.1 levels. This indicates that the family education is a

predictor for financial literacy.

This finding is consistent with the findings of (Lusardi, Mitchell and Curto, 2010; Li,

2009; and Mandell, 2008)

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 5.10.9. Residence

There is significant evidence in the likelihood of being financially literate based on

residence. Consistent with the ANOVA test the results from the respondents as shown in

table 5.30 respondents who spent most of their time in towns are more likely to obtain

high score than respondents who do not spent most of their time in towns in the financial

literacy test. Being resident in capital town increases the likelihood (probability) of being

financially literate by in general financial knowledge, saving and borrowing knowledge,

investment knowledge and insurance knowledge. The overall financial literacy survey

shows that respondents who spent most of their time in towns are more likely be

financially knowledgeable than respondents who do not spent most of their time in towns

respondents is significant at 0.1 level of significance. This result tells us residence is a

predictor of financial literacy level.

5.10.10. Personal account

Consistent with the ANOVA test the results from the respondents as shown in table 5.31

respondents who maintain financial account and who do not maintain any financial

account doesn‟t show significant difference in the level of their financial knowledge.

Having financial account doesn‟t increases the likelihood (probability) of being

financially literate in general financial knowledge, saving and borrowing knowledge,

investment knowledge and insurance knowledge.

Gender, Field of study, Year of study, income, experience, fathers and mothers‟

education level, residence and fathers and mothers‟ occupation are found to be

explanatory variables for financial literacy among the university students in Ethiopia.

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 Table 5.31 Logistic regression analysis result for financial literacy

General Saving & Investment Insurance Financial

borrowing literacy
Gender -0.333 -0.256 -0.581 -0.947 -1.045
Field -1.233 -.550 -1.290 -1.770 -1.678
Year of study1 -1.945 1.921 -1.945 -1.662 -1.151
Year of study2 1.158 -1.281 -1.009 .971 -1.180
Income1 -0.199 0.138 0.351 0.472 -.094
Income2 -.866 -.211 -.168 -.350 -0.772
Income3 -0.450 -0.260 0.193 -0.238 -0.904
Income4 -.195 -.103 -0.078 -0.512 -.752
Experience1 0.499 -0.443 1.429 -0.386 0.316
Experience 2 -.146 -.053 0.764 -0.704 -0.366
Experience3 0.616 0.784 -0.381 -.016 -0.947
Fathers education1 .224 -.305 -.947 0.081 -0.521
Fathers education2 -0.048 0.383 -0.770 -0.494 -0.019
Fathers education3 0.184 -0.520 -1.106 -0.301 -0.588
Fathers education4 -0.632 -1.579 -2.146 -.609 -1.659
Mothers education 1 0.332 -0.052 -0.408 -0.275 -0.150
Mothers education 2 0.532 -.571 0.315 -1.276 -0.330
Mothers education 3 0.375 0.137 0.027 0.885 0.112
Mothers education 4 1.155 1.355 -0.503 -1.126 1.414
Fathers occupation 1 0-.668 -.840 -.489 -1.964 -1.293
Fathers occupation 2 -0.497 -0.623 0.288 -1.573 -0.747
Mothers occupation 1 -0.757 -0.589 -0.063 0.000 -1.293
Mothers occupation 2 -0.489 0.051 -0.083 0.227 -0.747
Residence -0.081 0.034 -0.286 0.399 0.171
Financial account -0.065 0.825 -0.049 -0.574 0.350
Constant 0.126 0.425 0.403 0.253 2.048
-2 log likelihood 422.909 401.172 405.101 358.180 352.536
Over all chi-square 105.146 111.514 109.241 165.337 156.574
2
R 0.321 0.343 0.336 0.471 0.457
Correct classification 53.1 73.8 59.9 56.3 80.4

Source: Developed for the research from field work 2018

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 CHAPTER SIX

RELATIONSHIP BETWEEN FINANCIAL LITERACY LEVEL AND

PERSONAL FINANCIAL OPINIONS, DECISIONS AND

PRACTICES

6.1. Introduction

In this section the respondents‟ personal opinions, decisions and personal financial

management practice were examined. In the first part students‟ opinion on financial

issues is examined using five questions, second part students‟ decisions regarding

financial matters and thirdly students‟ personal financial management practice.

6.2. Financial opinions

In this section five questions were asked to the students using 5-point Likert scale. The

questions were about adequate financial records, expense and income balance, holding

adequate life insurance and non life insurance and planning and implementing regular

program. The results of the survey are presented in table6.1. The numbers1, 2, 3, 4 and 5

represents for very unimportant, unimportant, not sure, important and very important

respectively.

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 Table 6.1 Percentage score of respondents’ personal financial opinion

No Opinion 1 2 3 4 5 Total
1 Maintaining financial records 2.4 14.1 12.6 53.7 17.3 100
2 Spending less than your income 1.6 11.3 15.4 51.9 19.9 100
3 Maintaining adequate life insurance 0.3 13.6 13.1 55.2 17.8 100
4 Maintaining adequate non-life insurance 4.2 12.6 15.4 52.6 15.2 100
5 Planning and Implementing regular
3.9 14.7 20.4 43.5 17.5 100
investment program
Average 2.4 13.5 15.4 51.4 17.5 100

Source: Developed for the research from field work 2018

On average the respondents‟ opinion on the question of the importance of maintaining

adequate record were 2.4% very unimportant, 14.1% unimportant, 12.6% not sure, 53.7%

important and te remaining 17.3% very important. Majority of the respondents, about

71% of the respondents think that maintaining adequate financial record as important.

Most of the respondents have good judgment on keeping adequate records regarding

financial matters. This shows that, keeping adequate track of income and expense as well

as financial transactions is important.

The second statements were about the importance of incurring less than income. For this

statement 1.6%, 11.3%, 15.4%51.9% and 19.9% of the respondents indicates as very

unimportant, unimportant, not sure, important and very important respectively. Most

respondents (71.8%) view incurring less than their income as important and very

important.

The third statement were on the importance of maintaining adequate life insurance, and

0.3% thinks it is very unimportant, 13.6% as unimportant,13.1% as not sure and the

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remaining 73% as important or very important. Majority of the respondents views that

maintaining life insurance is important.

The fourth statement was on importance of maintaining non life insurance. For this

statement 4.2%, 12.6%, 15.4%, 52.6% and 15.2 % of the respondents indicates as very

unimportant, unimportant, not sure, important and very important respectively. About

68% of the respondents view maintaining non life insurance as important and very

important.

The last statement was on the importance of planning and implementing regular

investment program. On average the respondents‟ opinion were 3.9% very unimportant,

14.7% unimportant, 20.4% not sure, 43.5% important and the remaining 17.5% very

important. Majority of the respondents view the statement as important. About 61% of

the respondents think that planning and implementing regular investment program as

important

On the five statements the average opinion result of the respondents were, 2.42 very

uniportant13.3% unimportant, 15.4% not sure, 51.4 important and 17.5 very important.

Majority of the respondent view that maintaining adequate track, spending less than

income, maintaining life and nonlife insurance and planning and implementing regular

investment program as important and very important.

6.3. Financial decisions

In this section the students were asked questions which measure the decision making

ability. The questions were a multiple chose question and the correct and incorrect

response percentage is shown in table 6.2.This part is basically done to check the decision

making ability of the students on saving and planning to improve their financial wealth.

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 Table 6.2.Decision making abilities of the respondents

No DECISIONS Correct Incorrect Total

1 Safest place for money to save 53.7 46.3 100
2 Planning for emergencies 31.9 68.1 100
3 Improving financial wealth 44.5 55.5 100
mean correct score 43.4

Source: Developed for the research from field work 2018

Based on the above table 6.2 on the first question students were asked to identify safest or

risk free plus with some return to keep their money. On average 53.7% of the respondents

answer correctly and the remaining 46.3% of the respondents provided wrong answer.

This indicates about 54%of the students decides correctly on how to place their money

safely and 46% doesn‟t decide correctly on the same question. The decision making

ability of students‟ regarding this issue is low.

The second test was about planning for emergencies. On this issue majority of the

respondents (68.1%) decide wrongly and the remaining 31.9% of the students decide

correctly. Regarding this issue the students‟ decision is very poor.

With regards to the third decision, which is about how the students can improve their

financial wealth, 44.5% of the respondents decide correctly and 55.5% of the respondents

decide incorrectly. Here also the students‟ decision is very poor.

On the overall three issues the mean correct score is 43.4%, which is below average. This

indicates the ability of the students on decision making regarding financial matters is very

low.

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6.4. Personal financial management practices

This section examines the students‟ personal financial management practices. The

question to be addressed here is, do students have sound financial management practices.

To determine whether the students have sound financial management practice or not five

basic issues were used. A 5-point likert scale is used to measure the responses. The

responses was represented by 1,2,3,4 and 5 for never, rarely, often, very often and 5 for

always respectively. The results are presented in table6.3.

Table 6.3 Personal financial management practices

No Personal financial management practice 1 2 3 4 5 Total

1 Setting money each month for savings 16.5 39.3 24.9 16.8 2.6 100
2 Set aside money each month for future
19.4 34.6 27.5 17.3 1.3 100
needs
3 Compare prices before purchase 20.2 32.2 26.7 16.2 4.7 100
4 Use spending budget 16.2 33.2 32.2 139 4.5 100
5 Keep track of Expenses 19.9 29.6 36.1 9.4 5 100
Average 18.4 39.8 29.5 39.7 3.6 100

Source: Developed for the research from field work 2018

As shown in table 6.3 above, regarding setting money for savings each month, 16.5%

responded never, 39.3% responded rarely, 24.9% responded often, 16.8% responded very

often and the remaining 2.6% responded always. Majority of the respondents (about

65%) do not set money for savings each month. About planning and setting money each

month for future needs, most of the respondents responded rarely followed by often. In

percentage 19.4 responded never, 34.6 responded rarely, 27.5often, 17.3 very often and

1.3 always. This indicates that most of the students don‟t set money for future needs.

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Concerning comparing prices of items before making the purchase transaction, 20.2%

responded never, 32.2% responded rarely, 26.7% responded often, 16.2% responded very

often and the remaining 4.7% responded always. Only about 21% of the respondents try

to compare the prices before purchase. This indicates the students were weak in

comparing prices.

Regarding the use of a spending plan, 16.2% do not use a spending plan, 33.2% rarely

use a spending plan, 32.2% often use a spending plan, 13.5% use a spending plan very

often and the remaining 4.5% always use a spending plan. This indicates that only 18%

spends their expenses using a spending plan.

In this section finally the students were asked about their practice on keeping records of

their financial issues, 19.9% never keeps record of their expense, 29.6% responded they

keep records rarely, 36.1% responded often, 9.4% very often and % always. Here also the

students practice concerning keeping daily records of their financial issues is very low.

On the five questions regarding personal financial management practice on average,

18.4% responded never, 29.6% responded rarely, 29.5% responded often, 14.7%

respondent very often and the remaining 3.6 responded always. This indicates that

majority of the students personal financial management practice is very weak.

6.5. Relationship between financial literacy level and respondents personal opinion

In this section the impact of the students‟ financial literacy on their financial opinion is

examined. Mainly in this part of the study a question about how financial knowledge

influences the opinions regarding financial issues is addressed. The financial opinions on

which students were asked to give their opinion were maintaining financial records,

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controlling their income and expense, maintaining life and non life insurance and

planning and implementing investment. The students were grouped in to three as students

with high financial knowledge which scores eighty and above, students with medium

financial knowledge which scores sixty up to seventy nine and students with low

financial knowledge which scores below sixty in the financial literacy questions. The

results are shown below in tables. In the tables, the numbers1, 2, 3, 4 and 5 represents for

very unimportant, unimportant, not sure, important and very important respectively.

6.5.1. Financial literacy and maintaining adequate financial record

As shown in table 6.4 below the opinion of the students to maintain a record of financial

transactions, 59.1% of students with high financial knowledge thinks that is important

and the remaining 40.9% gives a very important opinion on the same. The students with

medium financial knowledge think maintaining adequate record is very unimportant

(1.6%), unimportant (6.5%), not sure (11.3%), important (54.8%) and very important

(25.8%). However, 2.7%,16.8%,13.7%,53%, and 13.7% of students with low financial

knowledge thinks that maintaining adequate record is very unimportant, unimportant, not

sure, important and very important respectively. Majority of those students with high

financial knowledge views maintaining adequate financial record as important and very

important as compared to those students with medium and low financial knowledge. This

indicates financial literacy has a positive impact on maintaining adequate financial record

opinion of the students.

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Table 6.4 Financial literacy level and maintaining adequate financial record

Students financial knowledge 1 2 3 4 5 Total

High Frequency 0 0 0 13 9 22
Percentage 0 0 0 59.1 40.9 100
medium Frequency 1 4 7 34 16 62
Percentage 1.6 6.5 11.3 54.8 25.8 100
Low Frequency 8 50 41 158 41 298
Percentage 2.7 16.8 13.7 53 13.7 100

Source: Developed for the research from field work 2018

6.5.2. Financial literacy and spending and income

Table 6.5 shows the respondents opinion on spending less than their income.

The results indicates that 4.5%% of students with more financial knowledge view

spending less than income as notsure,36.4% as important and the remaining 59.1% as

very important. the students with medium financial knowledge thinks spending less than

income 4.8% as unimportant,9.7% as notsure,53.2% as important and 32.3% as very

important. The results of the table also shows students with low financial knowledge

thinks spending less that income 2% as very unimportant,13.5% as unimportant,17.4%as

not sure 52.7% as important and the remaining 14.4% as very important. Relatively,

those students with high financial knowledge gives better opinion as compared to those

students with low financial knowledge and students with low financial knowledge and

those students with medium financial knowledge gives good opinion as compared to

those students with low financial knowledge. This indicates financial literacy has an

impact on maintaining adequate financial record opinion of the students.

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 Table 6.5 Spending less than your income

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 0 1 8 13 22
Percentage 0 0 4.5 36.4 59.1 100
medium Frequency 0 3 6 33 20 62
Percentage 0 4.8 9.7 53.2 32.3 100
Low Frequency 6 40 52 157 43 298
Percentage 2 13.5 17.4 52.7 14.4 100

Source: Developed for the research from field work 2018

6.5.3. Financial literacy and maintaining life insurance

Based on table 6.6 the respondents‟ opinion on importance of maintaining life insurance,

the results indicates that 4.5%% of students with more financial knowledge view

spending less than income as notsure,36.4% as important and the remaining 59.1% as

very important. the students with medium financial knowledge thinks spending less than

income 8.1% as unimportant,9.7% as notsure,59.7% as important and 22.6% as very

important. The results of the table also shows students with low financial knowledge

thinks spending less that income 0.3% as very unimportant,15.8% as unimportant,14.4%

as not sure 55.8% as important and the remaining 13.7% as very important. Relatively,

those students with high financial knowledge gives better opinion as compared to those

students with low financial knowledge and students with low financial knowledge and

those students with medium financial knowledge gives good opinion as compared to

those students with low financial knowledge. This indicates financial literacy has an

impact on maintaining adequate financial record opinion of the students.

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 Table 6.6 Maintaining adequate life insurance

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 0 1 8 13 22
Percentage 0 0 4.5 36.4 59.1 100
medium Frequency 0 5 6 37 14 62
Percentage 0 8.1 9.7 59.7 22.6 100
Low Frequency 1 47 43 166 41 298
Percentage 0.3 15.8 14.4 55.8 13.7 100

Source: Developed for the research from field work 2018

6.5.4. Financial literacy and maintaining life insurance

As shown in table 6.7 regarding the importance of maintaining non-life insurance

,13.6%, 31.9% and 55.5% % of students with high financial knowledge thinks

maintaining non-life insurance cover as not sure ,important and very important

respectively. the students with medium financial knowledge thinks maintaining non life

insurance 3.2% as very unimportant, 4.8% as unimportant,11.3% as notsure,62.9% as

important and 17.7% as very important. The results of the table also shows students with

low financial knowledge view maintaining non life insurance 4.7% as very

unimportant,15.1% as unimportant,16.4% as not sure 52% as important and the

remaining 11.7% as very important. Comparatively, those students with high financial

knowledge gives better opinion as compared to those students with low financial

knowledge and students with low financial knowledge and those students with medium

financial knowledge gives good opinion as compared to those students with low financial

knowledge. This result indicates that financial literacy has a positive impact on students

opinion.

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 Table 6.7 Maintaining adequate non life insurance

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 0 3 7 12 22
Percentage 0 0 13.6 31.9 55.5 100
medium Frequency 2 3 7 39 11 62
Percentage 3.2 4.8 11.3 62.9 17.7 100
Low Frequency 14 45 49 155 35 298
Percentage 4.7 15.1 16.4 52 11.7 100

Source: Developed for the research from field work 2018

6.5.5. Financial literacy and planning and implementing investment program

As shown in table 6.8 regarding the importance of planning and implementing investment

programs ,18.2%, 18.2% and 63.6% % of students with high financial knowledge thinks

as not sure ,important and very important respectively. the students with medium

financial knowledge thinks planning and implementing investment program 3.2% as

very unimportant, 8.1% as unimportant,17.7% as notsure,43.5% as important and 27.4%

as very important. The results of the table also shows students with low financial

knowledge view maintaining non life insurance 4.4% as very unimportant,17.1% as

unimportant,21.1% as not sure 45.3% as important and the remaining 12.1% as very

important. Comparatively, those students with high financial knowledge gives better

opinion as compared to those students with low financial knowledge and students with

low financial knowledge and those students with medium financial knowledge gives

good opinion as compared to those students with low financial knowledge. This result

indicates that financial literacy has a positive impact on students‟ opinion.

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 Table 6.8 Planning and implementing regular investment program

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 0 4 4 14 22
Percentage 0 0 18.2 18.2 63.6 100
medium Frequency 2 5 11 27 17 62
Percentage 3.2 8.1 17.7 43.5 27.4 100
Low Frequency 13 51 63 135 36 298
Percentage 4.4 17.1 21.1 45.3 12.1 100

Source: Developed for the research from field work 2018

As shown in table6.9 regarding the five statements on the importance of keeping financial

record, spending less than income, maintaining life insurance, maintaining non life

insurance and planning and implementing investment program 8.1%, 36.4% and 55.5%

% of students with high financial knowledge thinks as not sure ,important and very

important respectively. the students with medium financial knowledge thinks 1.6% as

very unimportant, 6.6% as unimportant,11.9% as notsure,54.5% as important and 25.3%

as very important. The students with low financial knowledge view 2.8% as very

unimportant, 15.7% as unimportant, 15.7% as not sure 51.1% as important and the

remaining 13.1% as very important. Comparatively, those students with high financial

knowledge gives better opinion as compared to those students with low financial

knowledge and students with low financial knowledge and those students with medium

financial knowledge gives good opinion as compared to those students with low financial

knowledge. The Pearson Chi- square result is 374.201a and P value result is 0.024 which

is statistically significant at 5% significance level. This implies that the level of financial

knowledge has a positive impact on students‟ financial opinion. Therefore, the hypothesis

that there is positive significant relationship between financial literacy level and financial

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opinion is accepted. This is result is consistent with the findings of Chen and Volpe

(1998).

Table 6.9 Relationship of financial literacy level and personal financial opinions

No Students financial knowledge 1 2 3 4 5 Total

1 High 0 0 8.1 36.4 55.5 100
2 Medium 1.6 6.6 11.9 54.5 25.3 100
3 Low 2.8 15.7 16.7 51.7 13.1 100

Source: Developed for the research from field work 2018

Pearson Chi- square=374.201a and P value= 0.024 which is less than 5%

6.6. Relationship of Respondents' Financial Knowledge on their decisions

In this section the impact of the students‟ financial literacy on their financial decision is

examined. Mainly in this part of the study a question about how financial knowledge

influences the decisions regarding how they can keep their money safely, how they can

set money for emergencies and how they can improve their financial health are

addressed. The students were grouped in to three as students with high financial

knowledge which scores eighty and above, students with medium financial knowledge

which scores sixty up to seventy nine and students with low financial knowledge which

scores below sixty in the financial literacy questions. The results are shown below in

tables.

6.6.1. Relationship of financial literacy choosing safe place to keep money

As shown in table 6.10 below the decision of the students how to keep their money

without risk 95.5% of students with high financial knowledge answers the question

correctly and the remaining 4.5% incorrectly. The students with medium financial

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knowledge answered the same question 66.1% correctly and 33.9% incorrectly. However,

48% and 52% of students with low financial knowledge answered the question correctly

and incorrectly respectively. Majority of those students with high financial knowledge

decides the correct decision on how to keep money safely as compared to those students

with medium and low financial knowledge. This indicates those respondents with high

financial knowledge makes better decision than those students with low financial

knowledge. So, there is positive impact of financial knowledge on the decision to keep

money safely.

Table 6.10 Financial literacy level and safest place to keep money

Students financial knowledge Correct Incorrect total

High Frequency 21 1 22
Percentage 95.5 4.5 100
medium Frequency 41 21 62
Percentage 66.1 33.9 100
Low Frequency 143 155 298
Percentage 48 52 100

Source: Developed for the research from field work 2018

6.6.2. Relationship of financial literacy level and decision on setting money for

emergency

As shown in table6.11 below the decision of the students how to set money for

emergencies, 77.3% of students with high financial knowledge answers the question

correctly and the remaining 22.7% incorrectly. The students with medium financial

knowledge answered the same question 41.9% correctly and 58.1 % incorrectly.

However, 26.5% and 73.5% of students with low financial knowledge answered the

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question correctly and incorrectly respectively. Comparatively, those students with high

financial knowledge gives better decision as compared to those students with low

financial knowledge and students with low financial knowledge and those students with

medium financial knowledge gives good decision as compared to those students with low

financial knowledge. This indicates that financial literacy level has positive effect on the

decision with regard to how to set money for emergency.

Table 6.11 Financial literacy level and keeping money for emergency

Students financial knowledge Correct Incorrect total

High Frequency 17 5 22
Percentage 77.3 22.7 100
medium Frequency 26 36 62
Percentage 41.9 58.1 100
Low Frequency 79 219 298
Percentage 26.5 73.5 100

Source: Developed for the research from field work 2018

6.6.3. Relationship of financial literacy level and how to improve financial wealth

As shown in table 6.12 below the decision of the students how to improve financial

wealth, 63.6% and 36.4% of students with high financial knowledge answers the question

correctly incorrectly respectively. The students with medium financial knowledge

answered the same question 40.3% correctly and 59.7 % incorrectly. 26.5% and 73.5%

of students with low financial knowledge answered the question correctly and incorrectly

respectively. Comparatively, those students with high financial knowledge gives better

decision as compared to those students with low financial knowledge and students with

low financial knowledge and those students with medium financial knowledge gives

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good decision as compared to those students with low financial knowledge. This

indicates that financial literacy level affects positively the decision on how to improve

financial health.

Table 6.12 Financial literacy level and how to improve financial wealth

Students financial knowledge Correct Incorrect total

High Frequency 14 8 22
Percentage 63.6 36.4 100
medium Frequency 25 37 62
Percentage 40.3 59.7 100
Low Frequency 131 261 298
Percentage 43.9 56.1 100

As shown in table6.13 show the decision making capability of the respondents on how to

choose the safest place for keeping money, how to set money for emergencies and how to

improve financial wealth. The students with high financial knowledge answered the

questions 78.8% and 21.2% correctly and incorrectly respectively. This result indicates

majority of the students with high financial knowledge gives the right decision. The

students with medium financial knowledge answered the same question 49.4%correctly

and 50.6% incorrectly. However, the students with low financial knowledge answered the

question 23.5% correctly and 76.5% incorrectly. This result show those students with low

financial knowledge makes wrong decision regarding financial issues. The Pearson Chi-

square result is 230.878a and P value result is 0.000 which is statistically significant at

5% significance level. This implies that the level of financial knowledge has a positive

impact on students‟ financial decision. Therefore, the hypothesis that there is positive

significant relationship between financial literacy level and financial decision is accepted.

This is result is consistent with the findings of Chen and Volpe (1998).

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 Table 6.13 Relationship between financial literacy level and personal decision

No Students financial knowledge Correct Incorrect Total

1 High 78.8 21.2 100
2 Medium 49.4 50.6 100
3 Low 23.5 76.5 100

Source: Developed for the research from field work 2018

Pearson Chi- square=230.878a and P value= 0.000 which is less than 5%

6.7. Relationship between financial literacy level and personal financial

management practice

In this section the impact of the students‟ financial literacy on their personal financial

practices is examined. Mainly in this part of the study a question about how financial

knowledge influences the practices regarding financial issues is addressed. The financial

practices on which students were asked to give their opinion were importance of setting

money each month for saving, setting money for future needs, comparing prices before

making purchase transactions, using spending budget and kipping record of personal

expenses. For this section of analysis purpose the students were grouped in to three as

students with high financial knowledge which scores eighty and above, students with

medium financial knowledge which scores sixty up to seventy nine and students with low

financial knowledge which scores below sixty in the financial literacy questions. The

results are shown below in tables. In the tables, the numbers1, 2, 3, 4 and 5 represents for

Never, Rarely, Often, Very Often, and Always respectively.

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6.7.1. Financial literacy level and saving practice

Table 6.14shows the students‟ personal financial management practices on

setting aside money each month for savings. On average 9.1%, 9.1%, 54.5% and 27.3%

of students with more financial knowledge think rarely often, very often and always

respectively to set money each month for saving. The students with medium financial

knowledge view as 9.7%, 22.6%19.4%,30.6% and 6.5% as never, rarely often, very

often and always for the same statement. Regarding the students with low financial

knowledge, 19.1%% never, 45% rarely, 24.8% often and 11.2% very often set money for

saving. Comparatively, the practices of the high financially literate students are better

than that of the students with medium and low financial knowledge and the practices of

the medium financially literate students are better than that of the students with low

financial knowledge. This implies that the students with high financial knowledge are

more likely to be with a good saving practice. So, there is a positive impact of financial

literacy on saving practice.

Table 6.14 Financial literacy level and Setting money each month for savings

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 2 2 12 6 22
Percentage 0 9.1 9.1 54.5 27.3 100
medium Frequency 6 14 19 19 4 62
Percentage 9.7 22.6 19.4 30.6 6.5 100
Low Frequency 57 134 74 33 0 298
Percentage 19.1 45 24.8 11.2 0 100

Source: Developed for the research from field work 2018

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6.7.2. Financial literacy level and setting money for future needs

Table 6.15 shows the student‟s personal financial management practices on

setting money for future needs. On average 13.6%, 18.2%, 45.5% and 22.7% of students

with more financial knowledge think rarely, often, very often and always respectively to

set money for future needs. The students with medium financial knowledge view as

6.4%, 37.1%, 24.1% and32.2% as never, rarely often and very often for setting money for

future needs. Concerning the students with low financial knowledge, 23.5%% never,

35.6% rarely, 28.8% often and 12.1% very often to set money for future needs. It is

clearly shown that, the practices of the high financially literate students are better than

that of the students with medium and low financial knowledge and the practices of the

medium financially literate students are better than that of the students with low financial

knowledge. This implies that the students with high financial knowledge are more likely

to be with a good saving practice. So, there is a positive impact of financial literacy on

setting money for future needs practice.

Table6.15 Financial literacy level and setting money for future needs

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 3 4 10 5 22
Percentage 0 13.6 18.2 45.5 22.7 100
medium Frequency 4 23 15 20 0 62
Percentage 6.4 37.1 24.1 32.2 0 100
Low Frequency 70 106 86 36 0 298
Percentage 23.5 35.6 28.8 12.1 0 100

Source: Developed for the research from field work 2018

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6.7.3. Financial literacy and comparing prices before purchase

As show in table 6.16 the student‟s personal financial management practices on

comparing prices of items before making purchase transactions, The students with high

financial knowledge view as 9.1%, 36.4%,27.3% and27.3% as rarely, often, very often

and always to compare prices of goods and services before making purchase transactions.

The students with medium financial knowledge view as 14.5%, 24.2%,37.1% and 17.7%

and 6.4% as never, rarely often , very often and always on comparing prices before

purchase.. Concerning the students with low financial knowledge, 22.8%% never, 34.2%

rarely, 23.8% often, 15.1% very often and 2.9% always for comparing prices before

purchasing goods and services.. the practices of the high financially literate students are

better than that of the students with medium and low financial knowledge and the

practices of the medium financially literate students are better than that of the students

with low financial knowledge. This implies that the students with high financial

knowledge are more likely to be with a good saving practice. So, there is a positive

impact of financial literacy on comparing prices of items before making a purchase even

or occurrence.

Table 6.16 Financial literacy levels and compare prices before purchase

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 2 8 6 6 22
Percentage 0 9.1 36.4 27.3 27.3 100
medium Frequency 9 15 23 11 4 62
Percentage 14.5 24.2 37.1 17.7 6.4 100
Low Frequency 68 106 71 45 8 298
Percentage 22.8 34.2 23.8 15.1 2.9 100

Source: Developed for the research from field work 2018

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6.7.4. Financial literacy and using a spending plan

The results shown in table6.17 On the student‟s personal financial management

practices to use a spending plan or budget for events, the students with high financial

knowledge views as 9.1%% rarely, 27.3% often, 40.9% very often and 22.7% always. In

the other side the students with medium financial knowledge views as 6.4% never,

32.2%% rarely, 33.9% often, 24.2% very often and 6.4% always to use a spending

budget. Regarding the students with low financial knowledge 19.5%% as never,35.2%

as rarely, 32.2% as often, 9.7% as very often and 2.9% as always to use a spending

budget. Comparatively, the practices of the high financially literate students are better

than that of the students with medium and low financial knowledge and the practices of

the medium financially literate students are better than that of the students with low

financial knowledge. This implies that the students with high financial knowledge are

more likely to be with a good saving practice. So, there is a positive impact of financial

literacy on using a spending budget for personal events..

Table 6.17 Financial literacy level and spending budget

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 2 6 9 5 22
Percentage 0 9.1 27.3 40.9 22.7 100
medium Frequency 4 20 21 15 4 62
Percentage 6.4 32.2 33.9 24.2 6.4 100
Low Frequency 58 105 96 29 8 298
Percentage 19.5 35.2 32.2 9.7 2.9 100

Source: Developed for the research from field work 2018

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6.7.5. Financial literacy and record keeping

table 6.18 on the student‟s personal financial management practices to keep personal

financial record shows that the students with high financial knowledge views as 9.1%

rarely, 31.8% often, 31.8% very often and 27.3% always. The students with medium

financial knowledge view as 8.1%, 21%,50%,11.3% and 9.7% as never, rarely, often,

very often and always to records of personal financial transactions relating to expenses.

In the other side, the students with low financial knowledge view 32.3% as

never,30.9% as rarely, 33.6% as often, 7.4% as very often and 2.3% as always to keep

records of expenses. Comparatively, the practices of the high financially literate students

are better than that of the students with medium and low financial knowledge and the

practices of the medium financially literate students are better than that of the students

with low financial knowledge. This implies that the students with high financial

knowledge are more likely to be with a good saving practice. So, there is a positive

impact of financial literacy on keeping records of personal transactions relating to

expenses.

Table 6.18 Financial literacy level and record keeping

Students financial knowledge 1 2 3 4 5 total

High Frequency 0 2 7 7 6 22
Percentage 0 9.1 31.8 31.8 27.3 100
medium Frequency 5 13 31 7 6 62
Percentage 8.1 21 50 11.3 9.7 100
Low Frequency 82 92 100 22 7 298
Percentage 32.3 30.9 33.6 7.4 2.3 100

Source: Developed for the research from field work 2018

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The above table 6.20 shows the financial practices of the respondents on the

importance of setting money each month for saving, setting money for future needs,

comparing prices before making purchase transactions, using spending budget and

kipping record of personal expenses.

The students with high financial knowledge thinks 10% as rarely, 24.5% as often, 40%

as very often and 25.5% as always on the importance of basic financial management

practices. 9%, 27.5% and 32.9% 23.3% and 5.8 of students with medium financial

knowledge thinks as not sure, important and very important respectively. the students

with low financial knowledge thinks 23.3% as very unimportant, 36.2% as

unimportant,28.5% as notsure,11.1% as important and 1.5% as very important.

Comparatively, those students with high financial knowledge view better financial

management practice as compared to those students with low financial knowledge and

students with low financial knowledge and those students with medium financial

knowledge thinks better on financial management practices as compared to those

students with low financial knowledge. The Pearson Chi- square result is 1048.823a and

P value result is 0.000 which is statistically significant at 5% significance level. This

implies that the level of financial knowledge has a positive impact on students‟ personal

financial management practice. Therefore, the hypothesis that there is positive significant

relationship between financial literacy level and personal financial management practice

is accepted. This is result is consistent with the findings of Chen and Volpe (1998).

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 Table 6.19 Relationship between financial literacy level and personal financial
management practice

No Students financial knowledge 1 2 3 4 5 Total

1 High 0 10 24.5 40 25.5 100
2 Medium 9 27.5 32.9 23.3 5.8 100
3 Low 23.3 36.2 28.5 11.1 1.5 100

Source: Developed for the research from field work 2018

Pearson Chi- square=1048.823a and P value= 0.000 which is less than 5%

187 | P a g e
 CHAPTER SEVEN

SUMMARY, CONCLUSSION AND RECOMMENDATIONS

7.1. Introduction

Financial literacy is very important life ability for all the people regardless of any

difference. This study examines financial literacy of university students in Ethiopia by

investigating the knowledge of student‟s in general financial issues, saving and

borrowing, investment and insurance. This survey is the first study conducted in Ethiopia

by collecting data from four public universities. The extensive literature on studies in

financial literacy primarily focuses on financial knowledge in general issues, saving and

borrowing, investment, insurance and the relationship of financial literacy and personal

financial opinion, decision and practices.

7.2. Summary of the findings

The analysis part of the study has four sections. The first section of the research focuses

on the demographic characteristics to assess the determinants of financial literacy level

among the students. The second part on statistical test to see whether there is significant

differences among the students based on gender, education, income, experience and

exposure to finance issues. The third section focuses in determining the explanatory

variables for financial literacy using binary logistics model. The final part examines the

relationship between financial literacy level and the students‟ personal financial opinion,

decisions and practices.

The research finds that the overall average percentage correct score for general financial

knowledge, savings and borrowing, investment, and insurance of the students is 47.3%

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which indicates that the students‟ financial knowledge is below average. This means

students have inadequate knowledge (low financial knowledge) in general financial

knowledge, saving and borrowing, investment and insurance. Only 5.8% of the

respondents have high financial knowledge, 78.8% of the students failed the exam which

shows low financial knowledge, and 16.2% of respondents are grouped under medium

financial knowledge. Thus the finding shows that there is low financial knowledge in

university students in Ethiopia. This is consistent with previous studies such as Chen and

Volpe (1998, 2002) and Lusardi, Mitchell and Curto (2009). The main reasons that may

create low financial knowledge of university students in Ethiopia are; lack of finance

courses in the curriculum in the non business and economics students and low exposure

to finance issues.

The other major finding of this study is, there are significant differences in the financial

literacy level of the respondents based on their basic demographic and financial exposure

characteristics. There is significant difference among the respondents based on gender

which results that males are more financially knowledgeable than females. This finding is

consistent with studies of Volpe (1999, 2002), and Lusardi, Mitchell and Curto (2010).

There is also significant difference among the students based on their field of study which

indicates that business and economics students are more financially literate than non

business and economics students. This result finds to be consistent with research findings

of Lusardi and Mitchell (2007b), Chen and Volpe (2002, 1998). This may be because of

business and economics students study courses that are finance in nature or related to

finance issues. So, it is obvious that they will be more financially knowledgeable as

compared to those students who do not study finance courses. The results on year of

189 | P a g e
study, shows that there is significant difference among the students based on their year of

study. Third year students are more financially knowledgeable than first year and second

year students. This is consistent with the findings of Chen and Volpe (2002, 1998). This

study also finds that there is significant difference among the students based on their

work related experience. Those students with more work of experience are observed to be

more financially literate as compare to those students who donot have work related

experience or with little experience. This is consistent with the findings of Chen and

Volpe (1998).

Regarding to the family education background, there is significant difference among the

students based on their family (mother and father) education level. It is found that those

students with families which have high education level are more financially literate than

those students which their families are having low education level or no education at all.

The impact of mother education is consistent with the findings of Lusardi,Mitchell and

Curto (2010). The employment status of the family also has an effect on the literacy level

of the students. Those students who have employed family are found to be more

financially knowledgeable than those students whose families are unemployed. It is found

that those students who lived most of their live in capital town are more financially

literate as compared who lived most of their life in rural areas. This may be because of

those students who lived in towns have access to finance issues. Surprisingly, there is no

significant difference between the students who have financial account and those who do

not have. The other finding is that most of the students about (47.6%) believe school is

the means to learn or improve about financial knowledge. Demographic characteristics

such as gender, field of study, year of study, personal income, and work related

190 | P a g e
experience and exposure to finance issues are the main variables that cause significant

differences in the financial literacy level of university students in Ethiopia. This means

that these variables significantly influence the financial literacy of students in Ethiopia.

The findings on the relationship of financial literacy level and personal financial opinion,

decision and practices is summarized below.

The findings from the logistic regression results as, gender, education, income,

experience, family education level, residence, family occupation and financial account

are found to be explanatory variables for financial literacy level among the university

students in Ethiopia.

The opinion on the importance of keeping financial record, spending less than income,

maintaining life insurance, maintaining non life insurance and planning and

implementing investment program viewed by those students who have better financial

knowledge is better as compared to those students with low and medium financial

literacy level. Financial literacy level has positive significant effect on decision making

capability of the students. Those students with high financial knowledge views better

financial opinion as compared to those students with medium and low financial

knowledge on how to choose the safest place for keeping money, how to set money for

emergencies and how to improve financial wealth. The financial practices of the

respondents on the importance of setting money each month for saving, setting money for

future needs, comparing prices before making purchase transactions, using spending

budget and kipping record of personal expenses is found to have significant relationship

with the financial literacy level of the students. These results are consistent with the

studies of Chen and Volpe (2002)

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7.3. Conclusion

Financial literacy is the knowledge of individuals in finance and the ability to use that

knowledge by the individuals to improve their financial opinions, make well financial

decisions and improve their personal financial management practices. This study

examines the financial literacy level among university students in Ethiopia and the

relationship of the financial literacy level and personal financial opinions, decisions and

practices.. The main issues raised and assessed in this study are the students knowledge in

general finance matters, saving and borrowing, investment and insurance and relationship

between financial literacy level and the students personal financial opinions, decisions

and practices. For the purpose of the stated objective of the study descriptive and

explanatory research designs were applied and a sample of 397 students was selected

using purposive and stratified sampling techniques from four public universities in

Ethiopia. The study concluded that the overall financial literacy level of the students is

low or the students in public universities in Ethiopia are found to be financially illiterate.

Even though, the financial literacy level of the students is low there are significant

differences in the financial literacy levels based on demographic and exposure to finance

variables. gender, field of study, year of study, income, work related experience, family

education level, family employment status, residence are found to be determinants of

financial literacy level in university students in Ethiopia. The researcher also concludes

that there is positive significant effect of financial literacy levels and the students‟

personal financial opinions, decisions and management practices in Ethiopian university

students.

192 | P a g e
7.4. Recommendations

Based on the findings of this study, the following recommendations forwarded. The

recommendations are for policy makers and for future studies.

7.4.1. Recommendations for policy makers and universities

1. The results show that those from business and economics field and with high year

of study scores high in the financial literacy survey. This is probably because of

the courses they study that there are many courses related to finance in business

and economics field. The government of Ethiopia through the ministry of

education should introduce course related to finance even for non business and

economics students. Not only in higher education or university/college level but

also, students should take some basic finance courses starting from high school

level. Even the students‟ chooses school as a means to improve or learn their

financial knowledge. Bruhn et al. (2013) evaluate a comprehensive financial

education program for high school students across six states in Brazil and reported

that the financial education program increases student financial knowledge

.Moreover, their results show significant effect on knowledge, financial autonomy,

intention to save, savings and spending behavior of the students. Therefore, I

recommend that, to improve financial knowledge of the students finance based

courses should be designed and implemented as part of the curriculum for the

university students.

2. The study results that female students are more financially illiterate than males.

For this reason short term and long term trainings should be arranged regularly

which gives higher priority to females.

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3. The Government of Ethiopia in cooperation of other sectors should develop a

policy on financial literacy and assign some sector with the responsibility of giving

short term trainings for the youth. The policy should develop a working plan to

improve financial literacy using different strategies which may be short term or

long term.

4. The result of the study finds school as the main way to improve financial

knowledge. Therefore, the university authority should introduce like workshop,

seminar or trainings to introduce basic financial issues. Especially those non

business and economics students should be considered with a high priority because

their knowledge in lower as compared to those non business students.

5. One of the major find of the study was females were less financially literate than

males. The teachers in universities should encourage females to participate and

improve their financial knowledge. The students should also consider financial

knowledge as a very important part of their study since they are going to make

decisions independently in the near future.

6. For promoting and coordinating financial education, the national, regional, local

public and private initiatives should raise awareness about financial knowledge

and the need to improve financial understanding about saving investment and

insurance. Financial literacy can only ensure individuals are informed and

empower to make financial decisions.

194 | P a g e
7.4.2. Recommendations for future studies

The study recommends the following for future researchers;

1. The study shows males are more financially literate than female students, for

further studies it is recommended to investigate the reasons for this and relate

financial literacy with saving habit and investment behavior.

2. Since the study is done for the first time in Ethiopia, Future studies may include

other variables such as relating financial literacy level to other factors like

retirement preparedness. Other topics could be done like the role of financial

institutions on financial literacy, and impact of financial literacy on economic

development and so on.

3. The research is conducted on university students in Ethiopia. it may be conducted

on investors, employees or other individuals to assess their financial knowledge

and decision making ability on finance issues.

4. In this study, an attempt was made to examine financial literacy level among

university students in Ethiopia. The study is covers to four universities and four

dimensions in financial literacy. However, more areas of financial literacy can be

examined and cover all universities in Ethiopia.

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 APPENDIX - I
ANDHRA UNIVERSITY
COLLEGE OF ARTS AND COMMERCE
DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

First of all I would like to thank you for participating in the survey. The main purpose of

this study is to examine the financial literacy level among university students in Ethiopia.

The study is mainly for academic purpose and participants are assured confidentiality

with regard information provided by them. This survey is intended to measure university

student‟s knowledge of personal finance such as money management, saving, investment

and insurance. The results will be used to measure students financial literacy level, help

students improve their knowledge and to provide policy recommendation for universities

revise their curriculum.

General instruction: please indicate your response to each question by selecting most

appropriate answer.

I. ABOUT YOUR SELF

1. Write the name of your university ________________________________

2. What is your age ____________________________

3. What is your year of study (class rank)?

A. First year

B. Second year

C. Third year

4. What is your gender?

A. Male

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 B. Female

5. What is your field of study at the University?

A. Business and Economics

B. arts, social science, language ,Sciences or Engineering (other than A )

6. If your answer for question number 5 is A or Business and Economics, what is

your department or specialization

A. Accounting

B. Management

C. Economics

7. Which of the following best describes your personal income (money that comes
into your hands for personal use) last year? Eg. From loan, salary, commission,
from family etc.
A. Below Br 2,500

B. Br 2,501 – 7,000

C. Br7,001- Br 23,500

D. Br23,501- Br70,500

E. Above Br 70,500

8. How many years of working experience do you have? Include full or part-time
experience, internship etc.
A. None

B. Less than 2 years

C. Two to less than 4 years

D. Four to less than 6 years

E. Six years or more

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 II. GENERAL PERSONAL FINANCE KNOWLEDGE

9. Personal finance literacy can help you?

A. Learn the right approach to invest for your future needs and Lead a financially

secure life through forming healthy spending habits.

B. Buy the right kind of insurance.

C. Do all of the above.

D. don't know

10. Personal financial planning involves

A. Establishing an adequate financial record keeping system.

B. Developing a sound yearly budget of expenses and income.

C. Preparing plans for future financial needs and goals.

D. All of the above.

E. Don‟t know.

11. A personal budget will help you

A. allocate future personal income towards expenses

B. prioritize your spending

C. monitor the sources of your income

D. all of the above

E. don't know

12. Which of these can be turned into cash easily?

A. Money in a fixed deposit account.

B. Money in a current account.

C. A car.

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 D. A computer.

E. Don‟t know.

13. Your net value of your asset is

A. The difference between your expenditures and income.

B. The difference between your liabilities and assets.

C. The difference between your cash inflow and outflow.

D. The difference between your assets and expenditures.

E. Don‟t know.

14. Imagine that the interest rate on your savings account was 10% per year and

inflation was 11.5% per year. After a year you will be able to

A. buy more than today with the money in this account

B. the same as today with the money in this account

C. less than today with the money in this account

D. buy more of some goods and less of others

E. don't know

III. YOUR KNOWLEDGE OF SAVINGS AND BORROWING

15. Which account usually pays the high interest?

A. Fixed Deposit

B. Savings Account

C. Current Account

D. Don't Know

16. If you guarantee a loan for a friend, then

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 A. You become responsible for the loan payments if your friend defaults

B. It means that your friend cannot receive the loan by himself

C. You are entitled to receive part of the loan

D. You are in a better position to earn a personal loan

E. Don't Know

17. If you invest Br.1,000 at 20% for a year, your balance in a year will be

A. Higher if the interest is compounded daily rather than monthly

B. Higher if the interest rate is compounded quarterly rather than weekly

C. Higher if the interest rate is compounded yearly rather than quarterly

D. Br.1,200 no matter how the interest is computed

E. Don't Know

18. Suppose you had a Br.100 in a savings account and the interest rate was 10 percent

per year. After 1 year, how much do you think you would have in your account?

A. more than a Br.110

B. exactly a Br.110

C. less than a Br.110

D. the same as your savings of Br.100

E. don't know

19. You need to borrow some money. Which of these sources is likely to charge a

higher interest on the loan?

A. Borrowing from the established Banks.

B. Borrowing from a private money lender

C. Borrowing from parents

220 | P a g e
 D. Don‟t know.

20. An overdraft

A. Occurs when you write a Br.1, 000 withdrawal cheques when you have Br.500 in

your account.

B. Is a stop-payment order written by the payee

C. Will result in fines.

D. All of the above.

E. don't know

21. The MOST important factor that a lender/bank uses when deciding whether to

approve a loan

A. Marital Status

B. Education and Occupation

C. Bill-paying record and income

D. Age and gender

E. Don't Know

IV. YOUR KNOWLEDGE OF INVESTMENTS

22. Which of these is a short-term investment?

A. Shares

B. Treasury Bills

C. Bonds

D. Mortgage

E. Don't Know

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23. A type of professionally managed collective investment vehicle that pulls money

from many investors to purchase securities is known as

A. Stock fund

B. Bond fund

C. Mutual fund

D. Mortgage fund

E. Don't know

24. It is less likely to lose all your money if you invest in a single stock (shares)

compared to investing the money in a wide range of stocks (shares).

A. True

B. False

C. Don't Know

25. If an investment offers a very high return, it is likely to be of high risk.

A. True

B. False

C. Don't Know

26. A high-risk and high-return investment strategy would be most suitable for

A. An elderly retired couple living on a fixed income.

B. A middle-aged couple needing funds for their children's education in two years.

C. A young married couples without children.

D. All of the above because they all need high return.

E. None of the above because they are equally risk averse.

222 | P a g e
 V. YOUR KNOWLEDGE OF INSURANCE

27. Car insurance companies determine your insurance premium based on

A. age of the insured and driving record

B. record of accidents

C. type and age of vehicle

D. All of the above

E. don't know

28. The main reason to purchase insurance is to

A. protect you from a loss recently incurred

B. provide you with excellent investment returns

C. protect you from sustaining a catastrophic loss

D. protect you from small incidental losses

E. don't know

29. Choose the type of insurance coverage that covers the replacement of a stolen car

A. liability

B. comprehensive

C. collision

D. Third party

E. don't know

30. Health insurance provides

A. Insurance against illness or bodily injury.

B. insurance coverage for medicine and visits to the doctor

C. Insurance for hospital stays and other medical expenses.

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 D. all of the above

E. don't know

31. Life insurance products include the following EXCEPT

A. Children welfare plan

B. Funeral plan

C. Retirement insurance plan

D. Theft insurance plan

E. Don't Know

32. A home made of wood will be more expensive to insure than a comparable brick

structure.

A. True

B. False

C. Don't Know

33. Third party insurance will

A. Cover your liability to others only.

B. Cover for damage to yourself.

C. Cover for damage to others and yourself

D. Cover damage to your vehicle.

E. Don't know

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VI. YOUR PERSONAL FINANCE OPINIONS, DECISIONS AND PRACTICE

A. PERSONAL FINANCE OPINION - Tick as appropriate using × using the

scale items numbered from question number 34 to 38.

Opinion Very unimportant Not important Very

unimportant sure important
34. Maintaining adequate
financial records
35. Spending less than your
income
36. Maintaining adequate
life insurance coverage
37. Maintaining adequate
non-life insurance
coverage
38. Planning and
implementing a regular
investment program
A. PERSONAL FINANCE DECISIONS

39. You have saved Br. 12,000 for your university expenses by working part time. Your

plan is to start university next year and you will need all of the money you have

saved. Which of the following is the safest place for your university money?

A. locked in wardrobe at home

B. bank

C. corporate bond

D. treasury bills

E. none of the above

225 | P a g e
40. Many people put money aside to take care of unexpected expenses. If you want to

put money aside for emergencies, in which of the following forms would it be of

LEAST benefit to you if you needed it right away?

A. invested in a down payment of the house

B. current account

C. stocks

D. savings account

E. treasury Bills

41. You have just graduated from university and found a job earning Br.28, 000 per

year. You will pay Br.600 per month for five years for student loans(cost sharing).

What should you do to improve your financial health?

A. Cut expenses and use your savings to pay down debt

B. Keep the same spending pattern as in the past

C. Apply for a consumer loan for a new car

D. Eliminate debt by filing personal bankruptcy

E. Use your earnings to pay for a holiday abroad

226 | P a g e
 A. PERSONAL FINANCIAL MANAGEMENT PRACTICES - Tick as

appropriate using × using the scale items numbered from question number 42

to 46.

Practice Never Rarely Often Very Always

often
42. I regularly set aside money each
month for savings
43. I set aside money for future
needs/wants
44. I compare prices when shopping for
major expenses
45. I use a spending plan or budget
46. I always keep track of my
expenditure and income

VII. EXPOSURE TO FINANCIAL AND MONEATARY ISSUES, Tick as

appropriate using ×

47. Which of the nine regions or two Administrative states of Ethiopia have you lived
most of your life?

Tirgrai [ ] Afar [ ] Amhara[ ] Oromia[ ]

Somali [ ] Benishangul Gumuz[ ]

Southern Nations Nationalities and People Region (SNNPR) [ ]

Gambella [ ] Harari [ ]

Addis Ababa City administration [ ] Dire Dawa city council [ ]

48. Have you lived most of your life in the Capital Town of the region in Q48 above?

Yes [ ] NO [ ]

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49. What is the highest level of schooling your father has completed?

None [ ] high school or low [ ] Diploma [ ]

Bachelor's degree [ ] Masters or doctorate [ ]

50. What is the highest level of schooling your mother has completed?

None [ ] high school or low [ ] Diploma [ ]

Bachelor's degree [ ] Masters or doctorate [ ]

51. What kind of financial accounts do you have?

None [ ] savings [ ] current account [ ] fixed deposit [ ] bond [ ]

Other(s) (specify):…………………………………………...........................

52. Father's main occupation currently or before retirement

Unemployed [ ] Self Employed [ ] Employee of an organization/somebody [ ]

53. Mother's main occupation currently or before retirement

Unemployed [ ] Self Employed [ ] Employee of an organization/somebody [ ]

54. How often did your family (parents/guardian) discuss finances in the house?

Never [ ] Rarely [ ] Often [ ] Very Often [ ] Always [ ]

55. Where do you like to learn/increase your financial knowledge?

Parents [ ] Friends [ ] School [ ] Books [ ] Media [ ] Job [ ] Life experience [ ]

Financial institutions [ ] Other(s):…………………….

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 APPENDIX -II

Variable inflation factor

variable inflation factor Model Collinearity Statistics

Tolerance VIF

Class mark .958 1.044

Gender .890 1.123

Field of Study .838 1.193

Personal income in a year .833 1.200

Work experience .809 1.235

Residence in the capital .776 1.289

town

Father's Education level .870 1.149

mother's Education level .819 1.221

type of financial account .717 1.395

Father's main occupation .774 1.291

mother's main occupation .890 1.124

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 A STUDY ON FINANCIAL LITERACY LEVEL AMONG
UNIVERSITY STUDENTS IN ETHIOPIA

(With Reference to Selected Universities)

A Thesis submitted in the partial fulfillment of the requirement

for the award of the degree of

DOCTOR OF PHILOSOPHY
IN
COMMERCE AND MANAGEMENT STUDIES

By

KINFE YOWHANNES ARAYA

Under the guidance of

Prof. J. RAVI, M.Com, M.B.A., Ph.D.
Department of Commerce and Management Studies
Andhra University
Visakhapatnam -530003

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY, VISAKHAPATNAM – 530 003
ANDHRA PRADISH, INDIA
2019
 A STUDY ON FINANCIAL LITERACY LEVEL AMONG
UNIVERSITY STUDENTS IN ETHIOPIA

(With Reference to Selected Universities)

A Thesis submitted in the partial fulfillment of the requirement

for the award of the degree of

DOCTOR OF PHILOSOPHY
IN
COMMERCE AND MANAGEMENT STUDIES

By

KINFE YOWHANNES ARAYA

Under the guidance of

Prof. J. RAVI, M.Com, M.B.A., Ph.D.
Department of Commerce and Management Studies
Andhra University
Visakhapatnam -530003

DEPARTMENT OF COMMERCE AND MANAGEMENT STUDIES

ANDHRA UNIVERSITY, VISAKHAPATNAM – 530 003
ANDHRA PRADISH, INDIA
2019
 CHAPTER SEVEN

SUMMARY, CONCLUSSION AND RECOMMENDATIONS

7.1. Introduction

Financial literacy is very important life ability for all the people regardless of any

difference. This study examines financial literacy of university students in Ethiopia by

investigating the knowledge of student‟s in general financial issues, saving and

borrowing, investment and insurance. This survey is the first study conducted in Ethiopia

by collecting data from four public universities. The extensive literature on studies in

financial literacy primarily focuses on financial knowledge in general issues, saving and

borrowing, investment, insurance and the relationship of financial literacy and personal

financial opinion, decision and practices.

7.2. Summary of the findings

The analysis part of the study has four sections. The first section of the research focuses

on the demographic characteristics to assess the determinants of financial literacy level

among the students. The second part on statistical test to see whether there is significant

differences among the students based on gender, education, income, experience and

exposure to finance issues. The third section focuses in determining the explanatory

variables for financial literacy using binary logistics model. The final part examines the

relationship between financial literacy level and the students‟ personal financial opinion,

decisions and practices.

The research finds that the overall average percentage correct score for general financial

knowledge, savings and borrowing, investment, and insurance of the students is 47.3%

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which indicates that the students‟ financial knowledge is below average. This means

students have inadequate knowledge (low financial knowledge) in general financial

knowledge, saving and borrowing, investment and insurance. Only 5.8% of the

respondents have high financial knowledge, 78.8% of the students failed the exam which

shows low financial knowledge, and 16.2% of respondents are grouped under medium

financial knowledge. Thus the finding shows that there is low financial knowledge in

university students in Ethiopia. This is consistent with previous studies such as Chen and

Volpe (1998, 2002) and Lusardi, Mitchell and Curto (2009). The main reasons that may

create low financial knowledge of university students in Ethiopia are; lack of finance

courses in the curriculum in the non business and economics students and low exposure

to finance issues.

The other major finding of this study is, there are significant differences in the financial

literacy level of the respondents based on their basic demographic and financial exposure

characteristics. There is significant difference among the respondents based on gender

which results that males are more financially knowledgeable than females. This finding is

consistent with studies of Volpe (1999, 2002), and Lusardi, Mitchell and Curto (2010).

There is also significant difference among the students based on their field of study which

indicates that business and economics students are more financially literate than non

business and economics students. This result finds to be consistent with research findings

of Lusardi and Mitchell (2007b), Chen and Volpe (2002, 1998). This may be because of

business and economics students study courses that are finance in nature or related to

finance issues. So, it is obvious that they will be more financially knowledgeable as

compared to those students who do not study finance courses. The results on year of

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study, shows that there is significant difference among the students based on their year of

study. Third year students are more financially knowledgeable than first year and second

year students. This is consistent with the findings of Chen and Volpe (2002, 1998). This

study also finds that there is significant difference among the students based on their

work related experience. Those students with more work of experience are observed to be

more financially literate as compare to those students who donot have work related

experience or with little experience. This is consistent with the findings of Chen and

Volpe (1998).

Regarding to the family education background, there is significant difference among the

students based on their family (mother and father) education level. It is found that those

students with families which have high education level are more financially literate than

those students which their families are having low education level or no education at all.

The impact of mother education is consistent with the findings of Lusardi,Mitchell and

Curto (2010). The employment status of the family also has an effect on the literacy level

of the students. Those students who have employed family are found to be more

financially knowledgeable than those students whose families are unemployed. It is found

that those students who lived most of their live in capital town are more financially

literate as compared who lived most of their life in rural areas. This may be because of

those students who lived in towns have access to finance issues. Surprisingly, there is no

significant difference between the students who have financial account and those who do

not have. The other finding is that most of the students about (47.6%) believe school is

the means to learn or improve about financial knowledge. Demographic characteristics

such as gender, field of study, year of study, personal income, and work related

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experience and exposure to finance issues are the main variables that cause significant

differences in the financial literacy level of university students in Ethiopia. This means

that these variables significantly influence the financial literacy of students in Ethiopia.

The findings on the relationship of financial literacy level and personal financial opinion,

decision and practices is summarized below.

The findings from the logistic regression results as, gender, education, income,

experience, family education level, residence, family occupation and financial account

are found to be explanatory variables for financial literacy level among the university

students in Ethiopia.

The opinion on the importance of keeping financial record, spending less than income,

maintaining life insurance, maintaining non life insurance and planning and

implementing investment program viewed by those students who have better financial

knowledge is better as compared to those students with low and medium financial

literacy level. Financial literacy level has positive significant effect on decision making

capability of the students. Those students with high financial knowledge views better

financial opinion as compared to those students with medium and low financial

knowledge on how to choose the safest place for keeping money, how to set money for

emergencies and how to improve financial wealth. The financial practices of the

respondents on the importance of setting money each month for saving, setting money for

future needs, comparing prices before making purchase transactions, using spending

budget and kipping record of personal expenses is found to have significant relationship

with the financial literacy level of the students. These results are consistent with the

studies of Chen and Volpe (2002)

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7.3. Conclusion

Financial literacy is the knowledge of individuals in finance and the ability to use that

knowledge by the individuals to improve their financial opinions, make well financial

decisions and improve their personal financial management practices. This study

examines the financial literacy level among university students in Ethiopia and the

relationship of the financial literacy level and personal financial opinions, decisions and

practices.. The main issues raised and assessed in this study are the students knowledge in

general finance matters, saving and borrowing, investment and insurance and relationship

between financial literacy level and the students personal financial opinions, decisions

and practices. For the purpose of the stated objective of the study descriptive and

explanatory research designs were applied and a sample of 397 students was selected

using purposive and stratified sampling techniques from four public universities in

Ethiopia. The study concluded that the overall financial literacy level of the students is

low or the students in public universities in Ethiopia are found to be financially illiterate.

Even though, the financial literacy level of the students is low there are significant

differences in the financial literacy levels based on demographic and exposure to finance

variables. gender, field of study, year of study, income, work related experience, family

education level, family employment status, residence are found to be determinants of

financial literacy level in university students in Ethiopia. The researcher also concludes

that there is positive significant effect of financial literacy levels and the students‟

personal financial opinions, decisions and management practices in Ethiopian university

students.

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7.4. Recommendations

Based on the findings of this study, the following recommendations forwarded. The

recommendations are for policy makers and for future studies.

7.4.1. Recommendations for policy makers and universities

1. The results show that those from business and economics field and with high year

of study scores high in the financial literacy survey. This is probably because of

the courses they study that there are many courses related to finance in business

and economics field. The government of Ethiopia through the ministry of

education should introduce course related to finance even for non business and

economics students. Not only in higher education or university/college level but

also, students should take some basic finance courses starting from high school

level. Even the students‟ chooses school as a means to improve or learn their

financial knowledge. Bruhn et al. (2013) evaluate a comprehensive financial

education program for high school students across six states in Brazil and reported

that the financial education program increases student financial knowledge

.Moreover, their results show significant effect on knowledge, financial autonomy,

intention to save, savings and spending behavior of the students. Therefore, I

recommend that, to improve financial knowledge of the students finance based

courses should be designed and implemented as part of the curriculum for the

university students.

2. The study results that female students are more financially illiterate than males.

For this reason short term and long term trainings should be arranged regularly

which gives higher priority to females.

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3. The Government of Ethiopia in cooperation of other sectors should develop a

policy on financial literacy and assign some sector with the responsibility of giving

short term trainings for the youth. The policy should develop a working plan to

improve financial literacy using different strategies which may be short term or

long term.

4. The result of the study finds school as the main way to improve financial

knowledge. Therefore, the university authority should introduce like workshop,

seminar or trainings to introduce basic financial issues. Especially those non

business and economics students should be considered with a high priority because

their knowledge in lower as compared to those non business students.

5. One of the major find of the study was females were less financially literate than

males. The teachers in universities should encourage females to participate and

improve their financial knowledge. The students should also consider financial

knowledge as a very important part of their study since they are going to make

decisions independently in the near future.

6. For promoting and coordinating financial education, the national, regional, local

public and private initiatives should raise awareness about financial knowledge

and the need to improve financial understanding about saving investment and

insurance. Financial literacy can only ensure individuals are informed and

empower to make financial decisions.

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7.4.2. Recommendations for future studies

The study recommends the following for future researchers;

1. The study shows males are more financially literate than female students, for

further studies it is recommended to investigate the reasons for this and relate

financial literacy with saving habit and investment behavior.

2. Since the study is done for the first time in Ethiopia, Future studies may include

other variables such as relating financial literacy level to other factors like

retirement preparedness. Other topics could be done like the role of financial

institutions on financial literacy, and impact of financial literacy on economic

development and so on.

3. The research is conducted on university students in Ethiopia. it may be conducted

on investors, employees or other individuals to assess their financial knowledge

and decision making ability on finance issues.

4. In this study, an attempt was made to examine financial literacy level among

university students in Ethiopia. The study is covers to four universities and four

dimensions in financial literacy. However, more areas of financial literacy can be

examined and cover all universities in Ethiopia.

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