Investigating the relationship between financial inclusion and financial health in South Africa

Abstract

Orientation: Financial inclusion (FI) and financial health (FH) are important for the country’s economic development, particularly upliftment of people from the lowerend of income distribution.

Research purpose: The study investigated the relationship between FI and FH in South Africa using FinScope data for 2011 and 2016.

Motivation for the study: Whilst there has been an emergence of South African studies on FI, there is a lack of research on FH and its relationship with FI.

Research approach/design and method: FI index and FH index were derived. The study estimates three regressions, the first in which FI is a dependent variable regressed on determinants, the second in which FH is the dependent variable regressed on FI and other determinants, and the third is a bivariate probit regression in which FI and FH are modelled co-jointly.

Main Findings: The proportion of people who were both financially included and enjoyed good FH increased from 45% to 57%. These people were middle-aged white men employed with post-secondary education. The econometric findings also suggested a significantly positive correlation between FI and FH.

Practical/managerial implications: These findings provide valuable information on the design of FI and FH initiatives that specifically focus on the needs of the under-privileged and assist in understanding and making informed decisions on the implementation and provision of appropriate FI and FH measures to targeted individuals.

Contribution/value-addition: This is the first South African study that examined both FI and FH with FinScope data.