A Changing Social Aspect Across Economies: Role of Education in Engineering Financial Inclusion

Financial inclusion is a critical component of inclusive growth, which guarantees the economic advancement of marginalized communities. However, lack of education impedes the achievement of the Sustainable Development Goal Agenda 2030 of becoming financially inclusive. This paper explores the significance of education in achieving Financial Inclusion across Low, Middle, and High-Income economies over the time period 2011 to 2021. Prior study by Arora (2012) has studied the importance of Education to achieve Financial Inclusion in Asian Economies by taking Primary Enrollment Ratio. However, this study contributes to the literature by providing the insights on the significance of education at all levels by creating the education index using PCA method. Further, this study is a comparative approach to explore the role of the education to include financially excluded individuals to into the formal financial system. The study has been conducted using various econometric techniques such as baseline regression model, Method of Moment Quantile Regression and IV-2SLS. Moreover, the Financial Inclusion Index has been developed using Two-Stage Principal Component Analysis. Our results demonstrate the positive relation between Education and Financial Inclusion in Middle- and High-Income economies, whereas, negative relationships have been observed in case of the Low-Income economies. The underlying cause of this issue is that individuals in low-income countries, despite having education, lack financial literacy. Moreover, the constrained financial capacity of low-income economies presents a substantial obstacle to the delivery of high-quality education. Furthermore, a shortage of funds and an inadequate supply of financial services may be contributing factors to Low-Income Economies' failure to become financially inclusive. Consequently, it is imperative for authorities to step up and assume the role of providing financial education through awareness programs. In addition to incorporate a core aspect about the use of financial services into the educational curriculum at various levels of education, as well as consumer protection awareness. This study is limited to explore the link between education and financial inclusion relying upon the secondary data that excludes degrees of financial literacy and is solely reliant on data available for education, i.e., primary, secondary and tertiary enrollment ratios. Future studies are suggested to explore the risks and rewards of the Financial Inclusion Initiatives.