The Impact of Financial Literacy and Transaction Costs on Bank Account Uptake and Use: A Randomized Controlled Trial in Ethiopia

Abstract: Expanding financial access and increasing savings among the poor have been propagated as means of attaining sustainable development outcomes. In line with this, methods of increasing supply as well as encouraging demand for formal financial services, and consequently savings, have been prevalent in academia as well as global development policy debate. Set in Ethiopia on one of the world's largest rose farms, with more than 8,000 employees who are largely unbanked, our study aims to investigate the impact of information initiatives and transaction costs in increasing demand for and use of bank accounts. More specifically, we conduct a randomized controlled trial to examine the impact of (i) a short, context-specific financial literacy training, (ii) a marketing/information session and (iii) reducing transaction costs to near zero, on bank account uptake and use. We find that our financial literacy training and information session had no effect on bank account uptake and use. Reducing transaction costs had an effect on bank account uptake and use. We conclude that, in the short time frame and specific context of our study, a reduction of transaction costs does indeed have an effect in encouraging financial inclusion and savings among the poor.