Essays on Financial Literacy and Poverty in Indonesia

  • Media Askar

Student thesis: Phd


This thesis consists of three related essays on financial literacy in Indonesia. The first essay investigates the significance of financial literacy and seeks to address whether the poverty level is explained by differences in individuals financial literacy. The study proposes a measure of financial literacy based on polychoric Principal Component Analysis (PCA) to address the limitations that have emerged from existing measures. The analysis is carried out employing the Ordinary Least Square (OLS) and the Instrumental Variable (IV) method, followed by the Propensity Score Matching (PSM) technique. The empirical findings suggest a significant association between financial literacy and poverty. The second study aims to assess the transmission channels through which financial literacy affects poverty. A simultaneous equation approach, which allows precise inferences to be made regarding the channels of influence from financial literacy to poverty is used for this purpose. The results reveal that financial literacy affects poverty by promoting the use of financial services and by increasing savings. On the other hand, insufficient financial literacy hinders poverty reduction by raising the probability of over-indebtedness. The overall indirect effect of financial literacy on poverty is robust to various robustness checks. The last essay focuses on the role of money attitude, which has received little attention in the literature. By employing a logistic regression technique and an average treatment effect estimation, this study aims to examine the impact of money attitude on the poverty level. It also offers an analysis of whether an interaction effect exists between money attitude and financial literacy. This essay has shown that persons with a healthier attitude towards money are more likely to avoid financial trouble. Furthermore, this empirical analysis reveals that the relationship between money attitude and financial struggle is not straightforward; instead, it is conditional upon the level of financial literacy and vice versa.
Date of Award1 Aug 2020
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorYin-Fang Zhang (Supervisor) & Osman Ouattara (Supervisor)


  • Overindebtedness
  • Financial Usage
  • Savings
  • Poverty
  • Financial Literacy

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