Financial literacy, financial inclusion, income diversification, and household welfare: a case of Soroti District, Uganda

Abstract

This research aimed to explore the relationship between financial literacy, financial inclusion, income diversification, and household welfare in Soroti District. The study used a purely quantitative approach, collecting data from 173 respondents using a survey questionnaire method. The results showed that financial literacy, income diversification, and financial inclusion affect household welfare. Income diversification partially mediates the relationship between financial literacy and household welfare, financial behavior and household welfare, and financial inclusion and household welfare because both direct and indirect relationships between independent variables, constructs and dependent variable existed. However, income diversification did not mediate the relationship between financial knowledge and household welfare. The study recommends a practical approach to financial literacy in Soroti District, focusing on skills like budgeting and debt management. It emphasizes financial inclusion, targeting underserved populations and reducing transaction costs. Supporting entrepreneurship and promoting diverse economic activities can enhance household welfare and resilience to economic uncertainties. The study contributes to the literature on household welfare in a developing country by advancing the Public Goods Theory of Financial Inclusion, suggesting that delivering formal financial services to the entire population and ensuring unrestricted access to finance should be considered a public good. Future studies could use a mixed study approach, extend the study to other parts of the country, take a longitudinal approach for long-term analysis, and use income diversification to moderate the relationship between financial inclusion, financial literacy, and household welfare.