Sage Journals: Discover world-class research

Abstract

This article examines the differential impact of education on financial inclusion in rural and urban India, with a special focus on formal household savings. While education and financial literacy are key to improving financial inclusion, institutional differences between rural and urban areas may mediate their effectiveness. The study first develops a theoretical framework based on the concept of transaction costs to explain savings behavior, and then empirically investigates how educational attainment and banking infrastructure influence formal savings through their effect on transaction costs. The analysis draws on household-level data from the 70th (2013) and 77th (2019) rounds of the National Sample Survey Office-All-India Debt and Investment Survey. Findings from 2013 reveal that in rural areas, improved banking infrastructure enhanced formal savings among less-educated households, suggesting a higher marginal benefit for this group. In contrast, the less-educated urban households fared worse as financial infrastructure improved, implying a crowding-out effect. By 2019, however, a slow convergence emerged between education groups in urban areas, though it lagged behind the rural trajectory. These findings highlight the importance of regionally sensitive financial inclusion strategies. Specifically, strengthening agent-based models, such as India’s Common Service Centres, may promote digital financial access and foster equitable use of formal financial services in urban areas.

JEL Classification G2, G5, R2, G28

Keywords

Household savings financial inclusion banks transaction costs education India

Get full access to this article

View all access options for this article.

References

Agrawal

(2001). The relation between savings and growth: Cointegration and causality evidence from Asia. Applied Economics , 33(4), 499–513. https://doi.org/doi.org/10.1080/00036840122210

Aportela

(1999). Effects of financial access on savings by low-income people. In Microeconometric studies of how government programs affect labor supply and saving in Mexico [MIT Department of Economics Dissertation Chapter 1, pp. 14–53]. https://dspace.mit.edu/handle/1721.1/9514

Banerjee

A. V.

, & Duflo

(2007). The economic lives of the poor. Journal of Economic Perspectives , 21(1), 141–168. https://doi.org/10.1257/jep.21.1.141

Barro

R. J.

(1997). Macroeconomics (5th ed.). MIT Press.

Bertola

(1993). Factor shares and savings in endogenous growth. The American Economic Review , 83(5), 1184–1198. http://www.jstor.org/stable/2117555

Bertrand

, Mullainathan

, & Shafir

(2006). Behavioral economics and marketing in aid of decision making. Journal of Public Policy & Marketing , 25(1), 8–23. https://doi.org/10.1509/jppm.25.1.8

Chavan

(2007). Access to bank credit: Implications for Dalit rural households. Economic & Political Weekly , 42(31), 3219–3224.

Cole

, Sampson

, & Zia

(2011). Prices or knowledge? What drives demand for financial services in emerging markets? Journal of Finance , 66(6), 1933–1967.

Collins

, Morduch

, Rutherford

, & Ruthven

(2010). Portfolios of the poor: How the world’s poor live on $2 a day . Princeton University Press.

10.

Cragg

J. G.

(1971). Some statistical models for limited dependent variables with application to the demand for durable goods. Econometrica , 39(5), 829–844.

11.

Deaton

(1990). Savings in developing countries: Theory and review . Proceedings of the World Bank Annual Conference on Development Economics 1989, World Bank Economic Review Supplement, pp. 61–96.

12.

Demirguc-Kunt

, Klapper

, Singer

, Ansar

, & Hess

(2018). The Global Findex Database 2017: Measuring financial inclusion and the fintech revolution . World Bank Group.

13.

Demirgüç-Kunt

, Klapper

, Singer

, & Van Oudheusden

(2015). The Global Findex Database 2014: Measuring financial inclusion around the world (WPS 7255; Policy Research Working Paper). World Bank Group. http://documents.worldbank.org/curated/en/187761468179367706/The-Global-Findex-Database-2014-measuring-financial-inclusion-around-the-world

14.

Doss

, Swaminathan

, Deere

C. D.

, Suchitra

J. Y.

, Oduro

A. D.

, & Anglade

(2020). Women, assets, and formal savings: A comparative analysis of Ecuador, Ghana and India. Development Policy Review , 38(2), 180–205. https://doi.org/10.1111/dpr.12424

15.

di Giannatale

, & Roa

M. J.

(2016). Formal saving in developing economies—Barriers, interventions, and effects [IDB Working Paper Series, IDB-WP-766]. Inter-American Development Bank.

16.

Goedecke

, Guérin

, D’Espallier

, & Venkatasubramanian

(2018). Why do financial inclusion policies fail in mobilizing savings from the poor? Lessons from rural South India. Development Policy Review , 36(s1), O201–O219. https://doi.org/10.1111/dpr.12272

17.

GOI. (2020). Gendering human development—A working paper for computing HDI, GDI and GII for the states in India . https://mospi.gov.in/sites/default/files/publication_reports/ReportonGenderingHumanDevelopment.pdf

18.

IMF. (2024). Financial Access Survey . https://data.imf.org/en/datasets/IMF.STA:FAS

19.

Jeanneney

S. G.

, & Kpodar

(2011). Financial development and poverty reduction: Can there be a benefit without a cost? Journal of Development Studies , 47(1), 143–163. https://doi.org/10.1080/00220388.2010.506918

20.

Karlan

, Ratan

A. L.

, & Zinman

(2014). Saving by and for the poor: A research review and agenda. Review of Income and Wealth , 60(1), 36–78. https://doi.org/10.1111/roiw.12101

21.

Kumar

S. M.

(2013). Does access to formal agricultural credit depend on caste? World Development , 43, 315–328. https://doi.org/10.1016/j.worlddev.2012.11.001

22.

Kumar

, Madheswaran

, & Vani

(2021). Impact of educational attainment of the head of the household on their participation in the right-based workfare program with self-selection: A micro study on MGNREGA in Karnataka and ways forward. Journal of Educational Planning and Administration , 35(2), 109–105.

23.

Majumdar

, & Gupta

(2013). Financial inclusion in Hooghly. Economic & Political Weekly , 48(21), 55–60.

24.

Morawczynski

, Hutchful

, Rangaswamy

, & Cutrell

(2010). The bank account is not enough: Examining strategies for financial inclusion in India . Proceedings of the 4th ACM/IEEE International Conference on Information and Communication Technologies and Development. ACM, 2010. https://www.microsoft.com/en-us/research/publication/the-bank-account-is-not-enough-examining-strategies-for-financial-inclusion-in-india/

25.

NSSO. (2013). All India Debt and Investment Survey—2012-13, 70th round . Ministry of Statistics and Programme Implementation, Government of India. https://mospi.gov.in/

26.

NSSO. (2019). All India Debt and Investment Survey report, 77th round . Ministry of Statistics and Programme Implementation, Government of India. https://mospi.gov.in/

27.

Rajeev

, & Nagendran

(2025). Has farmer’s access to credit improved over time? An analysis of NSSO data. In Singh

, Jha

, Indira

, & Arunkumar

A. V.

(Eds.), Institutions and public policy for India’s sustainable development perspectives on governance, technology and finance . Routledge.

28.

Rajeev

, & Vani

B. P.

(2017). Financial access of the urban poor in India: A story of exclusion . Springer India. https://doi.org/10.1007/978-81-322-3712-9

29.

RBI. (n.d). Financial education and RBI . https://www.rbi.org.in/financialeducation/

30.

RBI. (2013). Report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households . https://rbidocs.rbi.org.in/rdocs/publicationreport/pdfs/cfs070114rfl.pdf

31.

RBI. (2016). Financial inclusion: Policy and progress. In Report on trend and progress of banking in India 2015-16 (pp. 35–41).

32.

Rosenzweig

M. R.

(2001). Savings behaviour in low-income countries. Oxford Review of Economic Policy , 17(1), 40–54.

33.

Saravanabhavan

, & Rajeev

(2024). Financial inclusion in India: How far do grassroot institutions matter? Journal of International Development , 36(5), 2318–2341. https://doi.org/10.1002/jid.3897

34.

Sharma

, Giri

, & Chadha

(2016). Pradhan Mantri Jan Dhan Yojana Wave III Assessment . Microsave. https://www.microsave.net/files/pdf/PMJDY_Wave_III_Assessment_MicroSave.pdf

35.

Sinha

, & Azad

(2018). Can Jan Dhan Yojana achieve financial inclusion? Economic & Political Weekly , 53(13), 165–172.

36.

Von Pischke

J. D.

(1978). Towards an operational approach to savings for rural developers. Savings and Development , 2(1), 42–57.

37.

Wilson

W. J.

(1987). The truly disadvantaged: The inner city, the underclass, and public policy . University of Chicago Press.

38.

Zhou

, Yang

, & Gan

(2023). Education and financial literacy: Evidence from compulsory schooling law in China. The Quarterly Review of Economics and Finance , 89, 335–346. https://doi.org/10.1016/j.qref.2022.09.006

Supplementary Material

Please find the following supplemental material available below.

For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.

For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.

0.00 MB

0.07 MB