Effect of Financal Literacy on Financial Decisions Among Women in Mombasa County, Kenya

Abstract

The study focused on the effect of financial literacy on financial decisions among women in Mombasa County, Kenya. Financial literacy plays a vital role in sound financial decision-making and affects the individual’s financial well-being and societal economic growth and development. The financial markets are expanding every day with technology and globalization; the customer credit services have also expanded posing a challenge to individuals especially those with low financial literacy levels. The financial environment is becoming complex everyday with uncertainties rocking financial markets. Making sound financial decision is attributed to high financial literacy coupled with possession of comprehensive and reliable information. The objective of the study was to examine the effect of financial literacy on financial decisions. The study was founded on Goal Setting Theory, Prospect theory and Financial Behavior Theory. The independent variable of the study was financial literacy, control variables were growth of the financial sector, demographic factors and investment capital while financial decisions was the dependent variable. To achieve the objective of the study, descriptive research design was applied. Data was collected among 200 women across Mombasa County by use of questionnaires. The study adopted stratified random sampling. The response rate was 70.5%. Shapiro-Wilk test, Durbin-Watson test of Multi-collinearity and Heteroscedasticity were checked before carrying out regression analyses. Demographic factors had correlation coefficients of 0.334 with financial literacy, 0.094 with investment capital and 0.338 with financial sector growth. Financial literacy had correlation coefficients of 0.119 with investment capital and 0.192 with growth of financial sector. Investment capital had a correlation coefficient of 0.271 with growth of financial sector. All the p-values were less than 0.05 implying that they were significant. The study established that, financial literacy has a positive significant effect on financial decisions. Demographic factors had correlation coefficients of 0.334 with financial literacy, 0.094 with investment capital and 0.338 with financial sector growth. Financial literacy had correlation coefficients of 0.119 with investment capital and 0.192 with growth of financial sector. Investment capital had a correlation coefficient of 0.271 with growth of financial sector. Demographic factors, financial literacy, investment capital and growth of financial sector were found to have p-values of less than 0.01 implying that, they are statistically significant at 99% confidence level. R2 was 0.460 while adjusted R2 was 0.176, implying financial literacy predicted a variance of 17.6% at 95% confidence level on financial decisions. The study was limited in scope with data being collected on sample size of 200 women in a population of 598046 women. To enhance the replicability of the results, a greater sample size should be considered. Other determinants of financial decisions such as psychological factors, which influence behavior and attitudes, risk tolerance and socioeconomic factors, should be considered for further study. The study recommends collaboration among government and other stakeholders to engage in financial literacy awareness among women and enact policies that favor sound financial decisions.

Keywords: Demographic Factors, Financial Literacy, Financial Attitude, Financial Knowledge, Financial Decisions, Growth of Financial Sector and Investment Capital.