Impact of Financial Literacy on Individual Savings Behavior: Evidence from the Western Province in Sri Lanka

Abstract

Even though, Sri Lanka is a developing country, educational statistics depict that primary, secondary and tertiary school enrolments are significantly greater than most of the other developing countries in the world. Meanwhile, the saving ratio of the country shows a downward trend over the years. Thus, the positive relationship expected between financial literacy and savings might not stand in the Sri Lankan context. This may be due to the lack of intention to savings. Therefore, this study investigated the relationship between financial literacy and individual savings behavior in the Sri Lankan context by considering the mediation effect of intention to saving. The research was conducted using primary data, collected via a structured questionnaire distributed among 206 respondents who are executive level employees both from government and private sector organizations. A Structural Equations Model (SEM) was used when analyzing the hypothesized mediation effect. The result of the study reported that there is a direct positive relationship between financial literacy and individual saving behavior while intention to saving is a positively significant mediator in the above relationship. Thus, findings of the study further confirm that financial literacy creates an intention to saving, which eventually leads to a higher saving ratio.