The Relationship Between Financial Literacy and Household Indebtedness in Sri Lanka

Abstract

This study focused on identifying and investigating the factors affecting household indebtedness and the relationship between financial literacy and household indebtedness in Sri Lanka. This study contributes to new knowledge through identifying the significant factors that impact the household indebtedness in Sri Lanka and identifying the impact and the relationship between financial literacy and household indebtedness in Sri Lanka. The data was collected through a questionnaire survey using the systematic probability sampling technique. The collected data was analyzed using SPSS and AMOS software. The study concludes that the most affecting factor for household indebtedness in Sri Lanka as income and the ethnicity as the least affecting factor. The regression analysis shows that there is a weak negative relationship between financial literacy and household indebtedness in Sri Lanka. The analysis also revealed that this weak negative relationship is could be attributed to the households’ weaknesses in managing their personal finances, poor financial planning behavior as well as the poor knowledge in key financial concepts. Lastly, the study concludes that there could be reasons other than the financial literacy that drive the household indebtedness in Sri Lanka to be considerably high.