institutional framework under the theory of institutions and ﬁnancial literacy, especially in developing
economieswhere there is great need for ﬁnancial literacy among the poor.
Keywords Financial education, Institutional framework, Analysis of moment structures,
Financial decision, Fluid intelligence, Microﬁnance deposit-taking institutions, Developing economies
Paper type Research paper
Currently, with the increasing efforts toward scaling-up the level of ﬁnancial inclusion,
especially in developing economies, ﬁnancial institutions have designed and developed
sophisticated ﬁnancial products(Lusardi and Mitchell, 2014; Organization for Economic Co-
operation and Development (OECD)/INFE, 2012). This means that consumers of such
products, particularlythe illiterate, require ﬁnancial knowledge and skills to understand and
make informed decisionsbefore consuming these products.
According to the OECD/INFE (2015),ﬁnancial literacy is a combination of awareness,
knowledge, skill, attitude, and behavior necessary to make sound ﬁnancial decisions to
achieve individualﬁnancial well-being. While North (1990) refers to institutionsas “the rules
of the game”of a society or “the humanly devised rules or constraints”that structures
political, economic, andsocial interaction. They are made up of the formal constraints (rules,
laws, and constitutions)and informal constraints (norms of behaviors, conventions, and self-
imposed codes of conduct) and their enforcement characteristics (North, 1991). Similarly,
Scott (2001) conceives institutions to “consist of regulative (legal), normative (social), and
cultural-cognitive elements that together with associated activities and resources, provide
stability and meaningto social life”.
The OECD/INFE (2012) observes that the poor are faced with growing challenges in
making ﬁnancial decisions and choices that often tend to complicate rather than simplify their
lives. This is supported by the fact that they require a lot of information and skills in choosing
among the growing number of ﬁnancial products and services available in the ﬁnancial
market. Agarwal (2007) and Porteous and Helms (2005) show that lack of awareness and
understanding of ﬁnancial products and services caused by ignorance and low levels of
ﬁnancial literacy has led to ﬁnancial exclusion of majority of the poor in developing countries.
Consequently, the World Bank (2009) suggests that ﬁnancial literacy, which helps
individuals to make wise and sound ﬁnancial decisions can improve the savings rates and
credit worthiness of the poor. Thus, as ﬁnancial literacy may be achieved through socialization
among the poor within the social arrangements, the institutional framework comprising of the
regulative, normative, and cultural-cognitive can help in setting up structures that may
promote ﬁnancial literacy (Scott, 2001). Particularly, the regulative framework can serve the
purpose of creating awareness about ﬁnancial literacy and designing basic monetary concepts,
which may help the poor to gain control of their personal ﬁnances (Bernheim et al., 2001).
Similarly, the shared beliefs among individuals in the same setting guided by the existing norm
can increase the likelihood of the poor to participate in ﬁnancial literacy programs. In addition,
Willis (2009) also observes that as individuals mature, cognition, especially ﬂuid intelligence,
can increase ﬁnancial knowledge and skills of individuals.
While several studies such as Lusardi et al. (2017),Lusardi and Tufano (2009a,2009b),
Lusardi and Mitchell (2014),Atkinsonand Messy (2012),Okello et al. (2017),Grohmann et al.
(2017),Skimmyhorn (2016),Klapper et al. (2015),Lusardi and Tufano (2015),Prina (2015),
Jamison et al. (2014),Xu and Zia (2012),Cole et al. (2011,2009), Van Rooij et al. (2011) and
Lusardi (2009) have examined the role of ﬁnancial literacy in helping individuals to make
wise and sound ﬁnancial decisions in both developed and developing economies, no