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07030248044ABSTRACT
This research work is on the impact of financial literacy on economic development in Nigeria. The main objective of this study is to empirically examine the impact of financial literacy on economic development in Nigeria. This research work made use of secondary data which were obtained from the Central bank of Nigeria Statistical Bulletin (2020). The data were collected for a period of thirty-three years (1990-2020). The Ordinary Least Square Regression Technique was employed in the analysis of the data. Findings revealed that financial literacy has significant impact on economic development Nigeria. Findings also revealed that financial literacy is significantly related to economic development in Nigeria. This is due to the fact that Good financial literacy skills will build the capacity to better understand and manage financial risk, and take advantage of increased competition and choice in financial sectors and thereby bring about increased income vis a vis economic development. It is recommended that, government should incorporate financial literacy education across persons, subject matter and levels. This could be done for primary, secondary and tertiary levels of education or basic adult education.
CHAPTER ONE
INTRODUCTION
In developing nations, the focus has moved from short-term economic growth to long-term sustainable development. The involvement of all economic sectors, particularly the financial sector, fosters growth and lessens inequality in these nations. The importance of financial inclusion to these countries' inclusive economic growth and sustainable development is evident from the fact that it continues to be a global hot topic (Sadakkadulla, 2007; Subbarao, 2010).
Over 50% of adults worldwide do not have access to the financial world. The impact is greater on people in less developed economies, where 60% of people lack access to basic financial services. This results in increased exclusion from appropriate financial structure, which limits the potential for inclusive growth globally (Frisby, 2014). Financial exclusion has been shown to be a threat to the growth of any economy, which exacerbates social exclusion. McKinnon and Shaw (1973) went into more detail about the threats that a repressive financial system poses to the economies of developing nations and came to the conclusion that repression is detrimental to economic growth. In Nigeria's financial industry, the idea of financial inclusion has recently undergone a significant change. Financial inclusion, put simply, is the act of banking the "unbanked." This entails giving those people access to the means via which their informal financial transactions are conducted.]
According to Shankar (2011), financial literacy entails expanding access to the financial system at a low cost. To achieve poverty reduction and remove obstacles to rural residents' economic engagement in less developed economies, financial literacy is regarded as essential.Financial literacy is still a fascinating topic in both rich and developing countries, and it has attracted a lot of attention lately given how quickly the financial landscape is changing. According to the OECD (2005), financial literacy is the ability and confidence of consumers and investors to understand financial products and concepts as well as to appreciate financial risks and opportunities, make wise decisions, know where to turn for assistance, and take other practical steps to improve their financial well-being (Miller et al., 2009). Consumers who are empowered and educated about finance in a way that is applicable to their daily lives and allows them to use this information to evaluate products and make well-informed decisions. It is generally believed that having more financial understanding will aid in overcoming current challenges in advanced credit markets.
Consumers who are financially literate are better prepared for difficult economic times by using risk-reduction techniques including saving money, diversifying their holdings, and getting insurance. Financial literacy makes it easier to make decisions that will promote livelihoods, economic growth, stable financial systems, and the decrease of poverty. Examples include timely bill payment and good debt management. Additionally, it gives one more power over their financial future, more efficient access to financial products and services, and less vulnerability to aggressive merchants or dishonest scams. Financial regulators must raise the effectiveness and caliber of financial services in the face of an educated populace. This is due to the competitive pressures created by financially savvy consumers who compare options, ask the relevant questions, and negotiate better with financial institutions to deliver more transparent and suitably priced services. In order to make the best choices, consumers can assess and compare financial items such bank accounts, savings alternatives, credit and loan options, payment methods, investments, and insurance coverage (Frisby, 2014).
As its name suggests, financial literacy is crucial to efforts to increase an organization's level of success as a whole (Bernheim, 2008). Additionally, it helps businesses achieve their objective of making a decent profit. As a result, over the centuries, the level of financial literacy in our country has been a major factor in the success or failure of its businesses. According to Greenspan (2002), financial literacy aids in equipping people with the knowledge they need to establish household budgets, start savings strategies, and make wise investment choices. When that knowledge is applied correctly, households can satisfy their financial responsibilities through careful planning and resource allocation that maximizes utility. According to Hilgert, Hogarth, and Beverly (2003), self-beneficial financial conduct and financial knowledge seem to be directly associated. The efficacy of financial education in raising financial literacy is called into question by Lyons, Palmer, Jayaratne, and Scherpf (2006).
In a study of Dutch people, Van Rooij, Lusardi, and Alessie (2007) found that households with low financial literacy are more likely than others to rely on friends' financial advice and are less likely to invest in stocks. A growing body of research demonstrates that those with less financial literacy are more likely to experience difficulties managing their debt, saving money, and using credit, as well as being less likely to make long-term plans. In order to enhance consumer protection, public awareness, and the maintenance of market confidence, regulators of financial services have a responsibility to assist consumers of financial services in making educated financial decisions. On the other side, financial markets are weakened when there is an information gap between financial service providers (FSPs) and potential customers. Additionally, it deprives customers of the chance to understand all of their rights and obligations, potential financial hazards, and other information pertaining to the financial goods. Consumers and FSPs both benefit from financial knowledge. Because they utilize financial services responsibly, which supports the stability of the financial markets, financially literate consumers offer less of a risk to the financial system. They also save more money and contribute to overall economic growth and development. It is based on this background that the present study seeks to examine the impact of financial literacy on the economic development in Nigeria from 1999 to 2020.
1.2 Statement of the Problem
The issue this study attempts to solve has to do with how difficult it is for the phenomena of financial literacy to function as a tool for economic growth. First, it involves the haphazard use of the term "financial literacy"; second, it relates to the perception that financial literacy involves two separate systems (the information system and the human behavior system), meaning that it is not viewed as a single all-encompassing process; and third, it involves the gap between complex financial and economic information, on the one hand, and the decision-makers' understanding of it. The intricacy of the financial literacy construct in relation to its function in economic development is the specific focus of the research challenge. The reality that the majority of current financial literacy programs place more of an emphasis on financial literacy at the consumer level than in connection to the economy exacerbates the issue.
The ability to make financial decisions in an economy requires a particular type of financial literacy, even though it is understood that decision-makers in organizations are also consumers in their personal capacity. Therefore, it is vital to ascertain the decision-makers' view of the financial literacy construct before financial literacy education for decision-makers in an economy can be considered.
According to studies on financial literacy, many, if not most, consumers lack the knowledge and skills needed to make critical financial decisions in their own best interests (Perry, 2008). Additionally, experts concur that financial literacy appears to be closely tied to financially advantageous behavior (Hilgert et al., 2003). However, there are concerns about how well financial education works to increase financial literacy (Lyons et al., 2006). In order to make Nigeria a key economic participant by 2030, the Central Bank of Nigeria (CBN) has undertaken numerous reforms. The lack of access to financial services is mostly caused by poverty and illiteracy. Accordingly, thisresearch aims to attempt and examine the impact of financial literacy on the economic development of Nigeria from 1999 -2020.
The main objective of this study is to empirically examine the impact of financial literacy on economic development in Nigeria economy. The specific objectives of the study are as follows:
Research Questions
The research questions, which would guide this study are as follows:
Research Hypothesis
The hypothesis that will guide through this research is:
Hypothesis One
H1: There is a significant effect of financial literacy on the economic development in Nigeria.
Hypothesis Two
Financial literacy has significant relationship with economic development in Nigeria.
1.6 Significance of the Study
The quality of research work lies on the relevance to the society being studied. The importance is the ability to draw a relationship between financial literacy and economic development in Nigerian economy, whether financial literacy has significant impact on Nigeria economic development.
Again, this research will be of immense value to the different sectors of the economy (both public and private) most especially individuals.
In conclusion, the study would be of immense help to the government, monetary authority, individuals, economists, students, planners, financial analysts, stock brokers and others who might be interested in researching into the field in the future, by shedding more light into the widely held view about the relationship between financial development and economic development.
1.7 Research Methodology
The analysis that will be made in this study shall be based on macroeconomic data in Nigeria economy. Due to the linearity nature of the model formulation, Ordinary Least Square (OLS) estimation method would be employed in obtaining the numerical estimates of the coefficients in the model using E-views.
Two multiple regression models shall be used in the estimation. The model shall seek to investigate the effect of financial literacy on economic development in Nigeria economy. This is a follow up on the objectives of study stated earlier.
1.8 Scope and Limitations of the Study
The economy is a large component with lot of diverse and sometimes complex parts; this research work will only look at a particular part of the economy (the education sector). This work cannot cover all the facets that make up the education sector, but will look at the financial literacy as being used by the government for the stabilization and attaining economic development.
The empirical analysis and estimation covers the period between 1999 and 20202. This restriction is unavoidable because of the non-availability of some data.
The main limitation of this study is time constraint. The time allotted for the completion of this research is not adequate based on recent and contemporary happening with respect to the impact of financial literacy on the development of Nigeria economy.
The data for this study would be obtained mainly from secondary sources; particularly from Central Bank of Nigeria (CBN) publications such as the CBN Statistical Bulletin, CBN Annual Reports and Statements of Accounts, and National Bureau of Statistics publications.
This study shall be divided into five chapters. The first chapter provides the background of the subject matter justifying the need for the study. Chapter two presents related literature concerning financial literacy and economic development. The research methodology, which includes the theoretical framework, sources of data, model formulation, estimation techniques etc, are stated in chapter three while data presentation, analysis and interpretation of regression result were made in chapter four. Concluding comments in chapter five reflects on the summary, conclusion, recommendations and suggestion for further studies based on the findings of the study.
1.10 Definition of Terms
Financial Literacy: Financial literacy is the ability to understand basic accounting and finance concepts as well as its application, the ability to use such knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.
Economic Growth: This refers to the increased over time of an economy’s capacity to produce those goods and services needed to improve the well-being of the citizens in increasing number and diversity. It is the study of the process by which productive capacity of the economy is increased over time to bring about rising level in national income.
Economic Development: This is a multi dimensional process involving the provision of basic needs, acceleration of economic growth, reduction of inequality and unemployment, eradication of poverty as well as changes in attitude, constitution and structure in the economy.
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