Financial literacy and participation in the financial markets in Tanzania: An application of the logit regression model

Abstract

Background: Financial market participation is explained from the viewpoint of financial literacy, awareness, investors’ risk aversion, and cost of stock market participation but could not be successful. As a result, households’ lack of participation in the stock market remains a puzzle across the world.

Aim: The paper examines the factors determining the participation of individuals in the financial markets using the logistic regression model. Categorical data covering a sample of 484 were collected from individuals residing in Arusha, Tanzania.

Conclusion: Male and married individuals, as well as people with financial knowledge have a better chance of investing in the financial market despite their education level. Other variables such as risk attitude and level of income play a significant role in influencing individuals’ participation in the financial markets. The policy implication of these results is that increasing training, awareness of the benefits and operations of the financial markets will result in people opting to participate in the financial market, which will, in turn, lead to increased trading of financial assets and hence create a ripple effect to the economy.