Financial Literacy and Formal Saving-Investment Behavior: Evidence from Pakistan

Financial inclusion and financial literacy play a pivotal role in saving and investment accumulation. The saving-to-GDP ratio vis-à-vis the investment-to-GDP ratio is very low in less developed economies. This study examines the role of financial literacy in formal saving and investment behavior in Pakistan. We use a unique A2F Access-to-Finance nationwide survey to investigate this relationship. Using the full-matching instrumental-variables technique, we find that financially literate individuals make significantly higher formal savings and investments than financially illiterate individuals. Similarly, they are more likely to borrow from banks for investment purposes. The results are statistically consistent using instrumental variable techniques. The focus on financial literacy programs can increase financial inclusion, which can stimulate economic development and welfare in the country.