FACULTY OF BUSINESS

DEPERTMENT OF ACCOUNTING AND FINANCE

FIN 444: RESEARCH PROJECT

The Effects of Financial Literacy on Consumer Spending and

Investment Habits: The case of Gaborone, Botswana

NAME: Kaone Motlatshiping

ID: 201901424

SUPERVISOR: MR Ishmael Radikoko

MAY 2023

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Table of Contents
ABSTRACT.................................................................................................................................................. 3
BACKGROUND INFORMATION ............................................................................................................. 4
PROBLEM STATEMENT ........................................................................................................................... 5
OBJECTIVES ........................................................................................................................................... 5
HYPOTHESIS .......................................................................................................................................... 6
SCOPE OF THE STUDY ......................................................................................................................... 6
CONCEPTUAL CLARRIFICATION ...................................................................................................... 6
LITERATURE REVIEW ......................................................................................................................... 8
METHODOLOGY ..................................................................................................................................... 12
RESEARCH DESIGN ............................................................................................................................ 12
POPULATION ....................................................................................................................................... 13
SAMPLING AND SAMPLING SCHEME ............................................................................................ 13
INSTRUMENTS..................................................................................................................................... 14
PROCESSING OF DATA ...................................................................................................................... 14
ETHICAL CONSIDERATIONS ............................................................................................................ 15
CHAPTERIZATION .............................................................................................................................. 16
DATA ANALYSIS ................................................................................................................................. 17
DISCUSSION ......................................................................................................................................... 27
STUDY LIMITATIONS ............................................................................................................................ 32
CONCLUSION ........................................................................................................................................... 32
RECOMMENDATIONS ............................................................................................................................ 33
REFERENCES ........................................................................................................................................... 34
APPENDICES ............................................................................................................................................ 36

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ABSTRACT

Financial literacy is the ability to evaluate the new and complex financial instruments and make

informed judgement in both choice of instruments and extent of use that would be in their own

best long-term interest (. Cohen, Sebstad,, & .Stack,, 2006). The concept of financial literacy is

crucial to an individual’s financial wellbeing as it helps one to make value maximizing financial

decisions that would benefit them in both the short and long run periods. Studies has shown that

being financial literate can be very beneficial given a wide range of problems. Being financial

literate can help one to reduce level of debt through financial management and control. One can

also plan for a better future mostly common on pension holders planning for life after retirement.

In addition, being financial literate can help having access to financial services and one can be

able to participate in the financial markets. Furthermore, one level of literacy can help cushion

against inflation effects.

The aim of this study was to find the effects of financial literacy on consumer spending and

investing habits. This was due to the underlying conditions that people find themselves in with in

increasing level if debt, poverty and high unemployment rates. It aimed at finding whether

people are financially literate and if they had the needed skills to improve their financial

wellbeing. A questionnaire was used as a method of data collection with the Statistical Package

for Social Sciences (SPSS) used as the tool for data analysis. In conducting this research, it was

found, from the given respondents, there was almost equal respondents who were financially

literate, but most people who were financial literate were those who acquired higher learning. In

addition most people do not save or use a budget as a way to reduce their expenses and

accumulate more disposable income. Furthermore, a lot of people normally do not track their

financial transactions and do not seek financial help from professionals. This underlying findings

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normal are as a result of poor financial knowledge that outline lack of knowledge on how

beneficial financial literacy tools are.

BACKGROUND INFORMATION
Individuals' consumer purchasing and investment behaviors are greatly influenced by their level

of financial literacy. Consumer spending is the way people allocate their money to different

goods and services, whereas investment habits are the choices made when allocating money to

financial assets in order to earn future returns. Individuals' decisions in these areas are strongly

influenced by their level of financial literacy, which has an impact on their financial well-being

in the long run. According to (Kumaran, 2013), those who are more financially literate tend to

make more responsible and informed purchasing decisions. They are more likely to make and

stick to budgets, manage debt well, and choose products carefully. People that are financially

educated see the benefits of putting needs over wants, doing price comparisons, and looking for

the best deal. Additionally, they are more likely to practice long-term budgeting and save money

for objectives in the future.

Individuals with little financial literacy, however, could have bad habits when it comes to

investing and spending on consumer goods. They could have trouble sticking to a budget, spend

excessively on useless things, rack up a lot of debt, and exhibit impulsive buying tendencies.

They could not completely comprehend the effects of their financial decisions or be able to

evaluate investment opportunities without a solid foundation in financial literacy. This ignorance

can make it more difficult to develop money and achieve financial stability as well as increase

one's exposure to financial scams (Capuano & Ramsay , 2001).

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PROBLEM STATEMENT
There is a lack of thorough knowledge regarding the connection between financial literacy and

people's spending and investing habits, despite the significance of financial literacy in making

educated decisions about consumer spending and investing. Many people have trouble efficiently

managing their money, which results in poor investing and spending decisions. This information

gap raises questions regarding the long-term financial stability of people and the health of the

economy as a [Link] light of high debt levels in Botswana, ever increasing poverty and high

levels of unemployment, this study is expected to find the degree to which consumers

incorporate financial literacy in the day-to-day spending and investment decision.

Furthermore, most of the research has been focusing more on financial literacy at school level

and whether or not schools provide personal financial practices. Also, there has been limited

research on financial literacy levels of Batswana and how well they are equipped with financial

skills and knowledge. This gives an opportunity to explore a more broader space, targeting all

people in the community, on how people are able to comprehend financial skills and concepts

and their uses.

OBJECTIVES
The purpose of this research is to:

 To find the effects of financial literacy on consumer spending and investment

habits.

 To find out to what degree are people familiar with financial skill and tool and

their uses.

 To discuss the significance of financial literacy across different life aspects.

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  To explore and discuss financial literacy interventions by different economic

stakeholders of Botswana

HYPOTHESIS
 People spend their money impulsively without any thought and better planning guided by

financial literacy.

 People have little to no knowledge on different financial skills and knowledge.

 There is poor financial education, and lack of support from relevant bodies as main

drivers of the economy in promoting financial literacy.

SCOPE OF THE STUDY

With the already worsening state of affairs of the economy, there has been increasing poverty

levels, high debt and unemployment rates. There is a need for financial literacy in order to help

people minimize these already worse situations. In this view, the purpose of this research is to

find out to what degrees consumers incorporate such financial skills and knowledge in their

spending and investing decisions. The study will be restricted and limited to Gaborone as the

sample size since it is the main hub of Botswana.

CONCEPTUAL CLARRIFICATION

Financial Inclusion

(Chibba, 2009) viewed financial inclusion as an important means to tackle poverty and

inequality, and to address the millennium development goals. It is the process of providing

affordable and suitable financial service to the poor and underserved in order to ensure an

inclusive economic growth and development.

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Poverty

Poverty has both economic and non-economic components, such as not having enough money

for necessities like food, clothing, shelter, and education. Both material and non-material

deprivation, which has a negative impact on participation, self-esteem, and other psychosocial

hurdles, are considered to be forms of poverty (Raditloaneng, 2002).

Investment

The act of putting money, effort, time, etc. into something to make a profit or get an advantage.

It is a long-term current commitment from Pula to generate payments in the future to make up

for when the money is committed, the anticipated inflation rate and the uncertain future flow of

funding.

Spending and Consumption

The total money spent on final goods and services by individuals and households for personal

use and enjoyment in an economy.

Unemployment

Not working for a wage. Unemployment does not mean complete absence of work, but rather a

temporary or permanent absence of work for a wage (Raditloaneng, 2002).

Money

This is an asset used as a medium of exchange for goods and services.

Financial Education

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(Parker, Yoong, & Hung, 2009) Define Financial education as the process by which people

improve their understanding of financial products, services and concepts, so that they are

empowered to make informed choices, avoid pitfalls, know where to go for help and take other

actions to improve their present and long-term financial well-being."

LITERATURE REVIEW
The concept of financial literacy has caused many debates in trying to determine the

fundamentals that correctly defines financial literacy (. Cohen, Sebstad,, & .Stack,, 2006) Define

financial literacy as the ability to evaluate the new and complex financial instruments and make

informed judgement in both choice of instruments and extent of use that would be in their own

best long-term interest. This describes the importance and amplitude to which financial literacy

is to the individual and that in making choices they should not only look to satisfy short-term

interest but do so in having a wider and longer outlook. ( Hilgert, Hogarth, & Beverly , 2003)

Simply define financial literacy as “knowledge”. This is through the context that with knowledge

there is a level of cognitive ability, comprehension and understandability of individuals

regarding financial tools, skills and products. Given multiple definitions, (Parker, Yoong, &

Hung, 2009) have given an approach to the definition stating that the concept is both cognitive

driven and output driven. The approach encompass four domains, which are financial

knowledge, financial skills, financial behavior and financial capability.

Cognitive Driven Approach  Financial Knowledge Domain

 Financial Skills Domain

 The Behavior and Attitude Domain

Output Driven Approach  Financial Capability

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Importance of Financial Literacy

According to (Capuano & Ramsay , 2001), the importance and significance of financial literacy

is categorized into three parts: personal benefits, financial system and economy benefits and

community benefits.

Financial literacy plays a significant role on consumer’s personal life. There is increased savings

and retirement planning. This is vital to many savers as this ensures that there is enough money

to sustain cost of living after retirement. Financial literacy provides a crucial role in one’s

personal finances and wellbeing. This spans out to credit management, risk management and

overall personal financial management. A study on financial literacy and management of

personal finance, a review of relevant literature, indicated that even though there is shortage of

literature, people with somewhat a level of literacy have more responsibility toward their

personal finance. This goes a long way in the individual having more savings, less debt and more

participation in the financial markets (Kebede, Dr Kaur, & Dr. Kuar, 2015).

On a study on analysis of survey data from customer relationship managers in Kenya (Alex &

Amos, 2014) has concluded that financial education to children and their parents contribute to an

increasing savings account indicating the purpose of financial literacy. Even though there is a

positive impact, in the case of Botswana, schools are lacking in providing financial education. In

spite the fact that there are business subjects in the schools’ curriculum, they do not provide a

more comprehensive way in teaching students personal finance and how it would benefit them in

the future (Solomon, Nhete, & Sithole, 2018).

(Behrman, Bravo, & Mitchel, 2011) Has suggested that in investing in financial literacy, is

widely beneficial to all parties of the economy, be it individuals, firms and government. The

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study shows that financial literacy can amplify household wealth and wellbeing, which in the end

leads to economic involvement and ultimately economic growth. Studies have also added that

financial literacy can play a part in insuring a well and stable economy. This is an argument

brought by (Klapper, Lusardi, & Panos, 2012) that financial literacy cushions an individual to

withstand macro-economic shocks. A regression analysis showed that in Russia, after the

financial crises, high level of financial literacy was related with high spending capacity and high

amount of unspent income. (Sophie , Mark , & Adrian, 2013) Has also highlighted that a result

of financial crisis could be due to a result of poor personal finance decisions. This is on the

argument that lack of financial skills leave a person exposed to fraud and Ponzi schemes that

ultimately lead to loss in investment. This is because people lack the skill to critically assess and

analyze different investment opportunities that will help them make differentials between a good

and transparent investment from a bad one.

Community Benefits

The main benefit of financial literacy to the community is that it paves the way for financial

inclusion, where the less privileged have access to financial services with the viewpoint of

promoting economic development and prosperity for all. In addition, it goes a long way in

equipping people with the skills and knowledge to better understand government financial

policies, rule and regulations.

Financial Literacy Knowledge and skills

As stated before, financial literacy is one of the most important concepts that individuals need to

align themselves with in order to have sufficient financial lives. Therefore, there is a need for one

to understand several skills that would not only provide good financial health but also equip one

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with long lasting knowledge for the future. (LUSARDI, 2015) Outline three dimensions

pertaining to financial skills and Knowledge:

The first domain is content domain, which outlines the basic knowledge to understanding

financial literacy. They include money and transactions, planning and managing finance, risk and

reward, financial landscape (LUSARDI, 2015). This is the main core of attaining a high level of

financial literacy that would increase competitiveness and financial intelligence of individuals.

Money and transactions include knowing what money is and its related transactions. This further

indicates the need to know the concept of inflation and how it affects purchasing power of

money. With a given sense and understandability of what truly money is and what it can do for a

person, there is an already established level of know how pertaining to financial literacy.

Secondly, there is a need to for individuals to start planning and managing their finances

efficiently. Planning and managing of ones finances include creating a budget, debt management

and investing for the future. Budgeting involves calculating ones income and how to spend that

income at a given point in time. It goes a long way in helping a person to save more and avoid

unnecessary spending. Debt management goes a long way in assessing ones debt levels and

establishing a plan, that will help an individual keep their debt levels under control and

eventually getting rid of it. In planning for the future, one needs to take into consideration, the

risk and rewards pertaining to different savings and investment products. This is because people

are risk averse and are always trying to attain high rewards with less risk, understanding such

risks will go a long way in helping a person make better savings and investment decisions.

The second domain is the process, it entails the strategies and assessment of different products

thus it is essential to decision making (LUSARDI, 2015). This domain is complimentary to that

of content as that a person may know several financial skills but such skills are determined by

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the applications and processes put forth in making well-informed financial decisions. Processes

include identifying financial information, analyzing information in a financial context, evaluating

financial issues and applying financial knowledge. There is a need for people to know the basics

to financial statement especially the balance sheet that indicates assets, liabilities and equity and

how they relate. Additionally, consumers need to understand basic finance concepts such as

discounting and compounding interest, liquidation, simple interest and diversification.

Furthermore, consumers need to understand taxations and its different forms and to what extent

it affects them.

The last domain is the context domain, which evaluates the situations to which the applied

knowledge and skills are applied. They are decision made in relation to family, education,

individual and society.

METHODOLOGY
This study intends to find the effects of financial literacy in spending and investment habits of

consumers. The methods and procedures to be used are outlined in this chapter under the given

headlines: Research Design, Sampling and Sampling Scheme, Population, Procedure of Data

Collection, Processes and Source Documents.

RESEARCH DESIGN
The study will use both quantitative and qualitative data analysis approach. The mixing of the

two methods is used in order give a more robust analysis of the problem at hand and give a better

understanding of the situation. It also provide checks and balances that will reduce discrepancies

when conducting the study and give a more satisfying analysis rather than using the methods

individually. This model is known as the QUAN-QUAL model

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POPULATION
A population is described as the entire group in which we draw a conclusion (Reid, 2014). The

population of this study will be Gaborone the capital city of Botswana, with an estimated

population of 273 602, which includes employees, students and other agents of the economy.

SAMPLING AND SAMPLING SCHEME

Sampling is defined as is the selection of a subset of individuals from within a statistical

population to estimate characteristics of the whole population (Levy & Lemeshow, 2008). The

sample size of this research will be around 300 individuals located around rail park mall and

central business district, Gaborone, since is the busiest hub in the country with different

participants under consideration consisting of the consumers based in the city of Gaborone. A

smaller sample that would be representative of the population and reflect its characteristics is to

be considered. The sample from the population will be selected by probability sampling. The

population in consideration for being the sample for this study will be characterized by; sex; both

male and female, age; 18-45, employment status; employed, unemployed and self-employed,

Employment sector; Government and private.

n = (Z^2 * p * q) / E^2
Where:
n = sample size
Z = Z-score for the desired confidence level (standard value is 1.96 for 95% confidence level)
p = estimated proportion of the population with a particular characteristic (0.5 for maximum
variability)
q=1-p
E = margin of error as a proportion (0.05 for a 5% margin of error

n = (1.96^2 * 0.5 * 0.5) / 0.05^2

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n = 3.8416 * 0.25 / 0.0025

n = 0.9604 / 0.0025

n ≈ 384.16

INSTRUMENTS
This study will use a questionnaire as an instrument for data collection. The questionnaire will be

a self-administered questionnaire to meet the requirement of the study in trying to find out how

well do consumers incorporate financial literacy skills and knowledge in their everyday spending

and investing habits. Questionnaires’ will be administered in Gaborone most particularly at

shopping centers, malls and taxi ranks where there are a lot of people which fall under our

sample size. The use of a questionnaire is favored as it is easy to analyze data for reliability and

validity of the study. It is also time consuming and also preserves the anonymity and

confidentiality of respondents. The questionnaire will be in two parts. The first part will ask

general questions about personal information of the participants. The last part will be more

focused on the body, seeking views on financial literacy, finding out how well consumers are

equipped and aware of such financial knowledge. The questionnaire will include a series of

closed ended and open ended question that will make analysis more detailed and comprehensive.

PROCESSING OF DATA
Reliability

The reliability of the study will be checked using the Cronbach’s Alpha estimate. This is to

check for consistency of a measurement on whether the results can be reproduced under the same

conditions.

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Validity

The questionnaire will be checked for validity on whether the results will represent what is truly

intended to be measured. This provides the accuracy of a measurement.

Administration of instruments and Data collection

Data collection will be conducted using a questionnaire, provided to people in public most

preferably during lunchtime. The questionnaire will include written instruction on how to answer

different parts of the questionnaire and it will clearly explain the purpose of the study. The

subjects will anonymously answer questions, which would take about 10 to 15 minutes to

complete.

Data Analysis

The first part of this of analysis is the processing of input data, the tool that will be used is the
Statistical Package for Social Sciences (SPSS) as described by (McCormick & Selcedo, 2017).It
is a widely used statistical analysis tool as it provides advanced analytical tools and a friendly
user interface with a robust set of features to make analysis more comprehensive and easy to
interpret. Other data analysis methods include frequency distributions, percentages and graphical
representations to make it possible to interpret the actual patterns of responses to statements.
Also, as a way to extract meaning from our input data. Chi-Square goodness of fit test will be
used to test if our sample data is a true representation of our population (Plackett, 1971).

ETHICAL CONSIDERATIONS
The goal of this study is to provide a comprehensive understanding of financial literacy and how

consumers understand and incorporate financial literacy skills and knowledge in their everyday

spending and investing decisions. The researcher has the responsibility to follow relevant ethical

codes and principles to avoid violation of respondents confidentiality and anonymity.

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CHAPTERIZATION
The entire research work will run into four chapters. The first one on theoretical introduction,

second chapter is methodology , followed by chapter three-data analysis, findings and discussion

and lastly conclusions, recommendations and references on chapter four.

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 DATA ANALYSIS
Only 270 of the 300 questionnaires that were sent out were returned. Twenty of the 270 returned

surveys were improperly completed and were eliminated, leaving 250 still usable. Table 1 shows

that, of the 250 respondents who participated in the study, 103 (41.2%) were males while 147

(44%) were females. The most participants were of the age range 26-30 (32.8%), followed by

age range 30-35 at 74 (29.6) participants and 48 (19.2) and 46 (18.4) participants were of the age

range 18-25 and 40 and above respectively.

Respondents were of differing occupations, the mode of participants 83 (33.2%) being

unemployed, followed by employed individuals at 81 (32.4%) and lastly self-employed and

students at 54 (21.6%) and 32 (12.8%) respectively. From the 250 respondents, most people got

tertiary education evidently from the 120 participants, followed by junior school education 79

(31.6), senior school 38 (15.2) and primary education 13 (12.8).

TABLE 1: Demographic results

Characteristics Frequency Percent

Gender Male 103 41.2
Female 147 58.0
Total 250 100.0
Age 18-25 48 19.2
26-30 82 32.8
30-35 74 29.6
40 and 46 18.4
above
Total 250 100.0
Self- 54 21.6
Occupation employed
Employed 81 32.4
Student 32 12.8

Unemployed 83 33.2

Total 250 100.0

Educational Primary 13 5.2
Background

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 Junior 79 31.6

Senior 38 15.2

Tertiary 120 48.0

Total 250 100.0
TABLE 2: Participant’s knowledge and perceptions regarding financial literacy by gender
and age

Gender Age

Variables Responses Male Female Total 18-25 26-30 30-35 40 and above Total
Do you know about Yes 52 72 124 16 52 40 16 124
Financial Literacy?
NO 51 75 126 32 30 34 30 126
Total 103 147 250 48 82 74 46 250
If yes, where did School 20 39 59 9 25 21 4 59
you receive such
Radio 5 4 9 0 3 1 5 9
information?
Television 11 8 19 3 13 3 0 19
Friends 2 3 5 0 5 0 0 5
Books 13 18 31 4 5 15 7 31
News 1 0 1 0 1 0 0 1
Papers
Total 52 72 124 16 52 40 16 124
Can investing help Yes 28 49 77 9 29 30 9 77
get tax benefits
No 17 16 33 3 10 7 13 33
Not sure 58 82 140 36 43 37 24 140
Total 103 147 250 48 82 74 46 250
Can investing and Yes 46 61 107 16 42 39 10 107
saving can help
No 19 35 54 4 17 15 18 54
beat effects of
inflation Not sure 38 51 89 28 23 20 18 89
Total 103 147 250 48 82 74 46 250
Investing and Yes 79 119 198 35 73 60 30 198
saving enables
No 5 7 12 0 2 8 2 12
financial
independence and Not sure 19 21 40 13 7 6 14 40
freedom
Total 103 147 250 48 82 74 46 250
Investing helps Yes 54 75 129 19 52 44 14 129
generate wealth
No 9 8 17 3 3 6 5 17
Not sure 40 64 104 26 27 24 27 104

Total 103 147 250 48 82 74 46 250

Investing normally Yes 44 68 112 21 28 33 30 112
require a lot of
No 43 61 104 16 41 37 10 104
money
Not sure 16 18 34 11 13 4 6 34
Total 103 147 250 48 82 74 46 250
Yes 21 29 50 5 8 21 16 50

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 Investments are a No 65 95 160 32 58 49 21 160
scam and create
Not sure 17 22 39 11 15 4 9 39
loses
Total 103 146 249 48 81 74 46 249
Financial planning Yes 83 127 210 41 71 64 34 210
and control can
No 4 3 7 1 3 0 3 7
help lower
expenditure Not sure 16 17 33 6 8 10 9 33
Total 103 147 250 48 82 74 46 250
You require great Yes 51 78 129 29 34 34 32 129
skill and education
No 37 51 88 13 32 35 8 88
to plan for one’s
income Not sure 15 18 33 6 16 5 6 33
Total 103 147 250 48 82 74 46 250
Financial control Yes 54 82 136 21 55 46 14 136
and planning helps
No 6 5 11 4 4 1 2 11
reduce financial
risks Not sure 43 60 103 23 23 27 30 103
Total 103 147 250 48 82 74 46 250

Table 2 highlight the knowledge and perception of individual participants in relation to savings

and investments and financial planning and control. The underlying goal was to establish

whether participants were fully aware of their benefits. A cross tabulation of age and gender was

created to help make analysis easy. From the analysis, 124 participants answered yes to knowing

the concept of financial literacy, 52 being males and 72 being females. A total of 126

respondents split between, 51 males and 75 females, answered no indicating lack of knowledge

on financial literacy concept. Given the age range, 52 people between the ages 26-30 answered

yes to being familiar with financial literacy the most than those who answered no (34) age

ranging between 30-35.

Given the tax benefits of investing, most people, 140 participants, 52 males and 82 female,

where not sure about tax benefits of making investments. 77 people were aware of the resulting

tax benefits while only 33 people did not know. People aged between 26-30 were the most

common respondent who were not sure of the tax benefits. On the other hand 30 participants

aged between 30-35 knew about these benefits followed by only 10 respondents (the most) being

19
unaware of the underlying benefits. Of the total 250 participants most people believe investing a

saving do help in guarding against inflationary pressures. A total of 107 participants believe

there is somewhat benefits of investing in relation to inflation, followed by 89 people who

answered not sure and 54 respondents answering no. From the given totals, people of the ages

26-30 mostly perceive the benefits of investing and saving to inflation. In contrast, 18 people

aged 40 and above answered no while only 28 people aged 18-25 were not sure.

Most people believe that investment usually require a lot of money. This is given in the table

indicating that 112 answered yes, closely followed by 104 participants who do not believe that

investments require a great amount of income. Only 34 participants answered no sure to the

question. In addition, data generated shows that most people do know that investments are a

secure source of earning income. The majority of participants, 160, agreed that investments are

not a swindle or pyramid schemes. Only 50 participants think that they are indeed a way to lose

money.

TABLE 3: Participant’s spending habits by occupation, age and gender.

Occupation
Self-
Variables Response employed Employed Student Unemployed Total
What influence your Income 26 31 15 52 124
spending habits?
Lifestyle 2 10 8 4 24

Financial 10 22 8 7 47
goals
Family 14 13 0 16 43
responsibility

Location 2 3 0 2 7

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 Peer 0 2 1 2 5
Influence

Total 54 81 32 83 250

Age

18-25 26-30 30-35 40 and above Total

What influence your Income 31 39 47 7 124
spending habits?
Lifestyle 9 11 2 2 24
Financial 7 18 15 7 47
goals
Family 0 4 9 30 43
responsibility

Location 0 6 1 0 7
Peer 1 4 0 0 5
Influence
Total 48 82 74 46 250

Gender

Male Female Total

What influence your Income 48 76 124
spending habits?
Lifestyle 14 10 24

Financial 21 26 47
goals
Family 18 25 43
responsibility

Location 1 6 7
Peer 1 4 5
Influence
Total 103 147 250

Table 3 indicates spending habits in relation to occupation, age and gender. It is quite evident that

for most people, level of income is the main driver behind spending choices with 124 participants.

This is followed by financial goals family responsibility at 47 and 43 respondents respectively.

Few people (24) chose lifestyle as their spending choice and others specified location (7) and peer

influence (5) had significant role in making spending choices. From these results a total of 52

unemployed individuals, being the most respondents, voted income as a driver for their spending

choices. Also most unemployed people believe their spending choices are affected by family

dependence.

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Most people from the age range of 30-35 has specified income as main choice, followed by people

age 26-30. From the results, individuals of the age 40 and above mostly see family responsibilities

as a factor that affects their spending habits. Only a handful chose financial goals as a factor

affecting them. Individuals aged 26-30 (18) are more influenced by financial goals, this followed

by 15 individuals aged 30-35, and both people aged 18-25 and 40 and above each had 7

respondents.

According to gender groups, from the 124 participants who chose income, 48 were males and 76

were females. 26 females shown that they are driven by financial goals while 25 chose family

responsibility. For males, 21 were driven by financial goals with only 18 choosing family

responsibility.

TABLE 4: Reasons for lack of saving by occupation, age and gender

Occupation
Self-
Variables Response employed Employed Student Unemployed Total
If no, what reason Low income 5 2 6 34 47
affects your inability to
save? More 1 4 11 11 27
expenses
Debt 9 11 0 9 29

Mistrust on 1 0 0 0 1
financial
institutions
Family 11 8 0 16 35
dependence

Total 27 25 17 70 139

Age
40 and
18-25 26-30 30-35 above Total
If no, what reason Low income 18 10 14 5 47
affects your inability to
save? More 13 12 2 0 27
expenses
Debt 0 8 19 2 29

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 Mistrust on 0 0 0 1 1
financial
institutions
Family 0 3 13 19 35
dependence
Total 31 33 48 27 139

From these results, a total of 139 respondents answered no when asked if they save part of their

income. By occupation, one of the main reasons why people do not save is because of low

income. From the 47 individuals, most were unemployed people with 34 respondents. A total of

27 respondents do believe their lack of saving is caused by having more expenses while a 29

people believe is due to having debt. Only 1 individual had indicated to having mistrust on

financial institutions and 35 people chose family dependence factor as their reason for lack of

saving with most people being unemployed individuals.

Age groups has indicated that, most individuals (18) aged 18-25 have low income to save. They

also highlighted having more expenses as a reason to not save, indicated by 13 individuals. For

most of people, individuals age 40 and above (19) indicated that, inability to saving is affected

by family responsibilities. Age range 30-35 believe debt is the basis of their savings decisions.

TABLE 5: Reasons affecting inability to budget by gender, age and occupation

Gender
Male Female Total
If no, Lower 28 31 59
what income
reasons Inconsistent 18 18 36
affect inflow of
that income
decision?
High debt 9 21 30
It creates 6 7 13
limits
It takes time 1 1 2
and effort
Lack of 6 9 15
know how

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 Do not need 0 1 1
one
Lack of 2 8 10
commitment
Total 70 96 166

Age
40 and
18-25 26-30 30-35 above Total
If no, Lower 29 13 10 7 59
what income
reasons Inconsistent 8 7 14 7 36
affect inflow of
that income
decision?
High debt 0 8 21 1 30
It creates 0 8 5 0 13
limits
It takes time 1 0 1 0 2
and effort
Lack of 0 1 1 13 15
know how
Do not need 0 0 1 0 1
one
Lack of 0 8 2 0 10
commitment

Total 38 45 55 28 166

Occupation

Self-
employed Employed Student Unemployed Total
If no, Lower 7 7 19 26 59
what income
reasons Inconsistent 14 0 0 22 36
affect inflow of
that income
decision?
High debt 9 9 0 12 30
It creates 0 13 0 0 13
limits
It takes time 0 1 1 0 2
and effort
Lack of 1 3 0 11 15
know how
Do not need 0 1 0 0 1
one
Lack of 0 9 0 1 10
commitment
Total 31 43 20 72 166

24
Respondents were asked if they carry out budgeting duties. From the results 84 answered yes to

keeping a budget while 166 individuals answered no. The 166 participants were then asked the

reasons behind their decisions. A total of 59 people revealed lower income as the main reason,

36 respondents chose inconsistent inflow of income, 30 chose high debt. 15 individuals selected

lack of know how on creating a budget, 13 indicated that it creates limits while 2 individuals said

it takes time and 10 indicated lack of commitment.

From the 59 respondents, 28 males and 31 females responded to having lower income. Both

genders were equally affected by inconsistent income at 18 respondents each. More women, 21,

responded to having high debt obligations that affected their budgets. From the 15 individuals

who selected lack of knowhow, 6 were male while 9 were female. It is evident from our data that

most unemployed people and students selected lower income as the factor affecting their budget,

26 being unemployed and 19 being students. People who are self-employed, 14, chose

inconsistent income together with 22 unemployed individuals. The 13 employed individuals all

indicated that it creates limits, 12 selected high debt and with both self-employed and employed

selecting the same option with 9 respondents each.

The age range 18-25 had the most respondents 29, that indicated lower income levels, 13 were

aged 26-30, 30-35 has 10 respondents and only 7 were of the age range 40 and above. People

aged 30-35 indicated to having inconsistent income while in the same age group 21 had high

debt burdens. For people of the age range 40 and above, 13 individuals had no knowledge of

constructing a budget.

TABLE 6:

Occupation
Self-
Variables Response employed Employed Student Unemployed Total

25
 How often do you Hardly 16 7 17 56 96
track your transaction ever take
activities? note
Somewhat 16 15 5 6 42
take note

Fairly take 13 35 7 16 71
note
Always 9 24 3 5 41
take note
Total 54 81 32 83 250

Gender
Male Female Total
How often do you Hardly 46 50 96
track your transaction ever take
activities? note
Somewhat 9 33 42
take note
Fairly take 30 41 71
note
Always 18 23 41
take note
Total 103 147 250

Age
40 and
18-25 26-30 30-35 above Total
How often do you Hardly 29 22 24 21 96
track your transaction ever take
activities? note
Somewhat 7 15 15 5 42
take note
Fairly take 9 30 20 12 71
note
Always 3 15 15 8 41
take note
Total 48 82 74 46 250

The table shows the results of people on how often they track their transactions by occupation,

age and gender. It is to be observed that in overall, 96 of the participants hardly ever take note of

their transaction activities, 42 of the respondents somewhat take note, 71 fairly take note and 41

are aware of their transaction activities. By age, people aged between 18-25 mostly do not take

note of their transactions, this may be due to having less responsibilities and most commonly low

26
income to which they are able to frequently spend. In contrast, people of higher age range do

display some superior action on making sure their transaction records are in place.

The results shows that most unemployed people do not track their financial transactions, this

may be due to lower income levels and inconsistent inflow and outflow of income. Most of the

employed candidates do track their financial transaction. There is low activity among students

since they do not play a huge role in the financial markets due to their limited income.

DISCUSSION
The study was carried out to assesses the effects of financial education on consumer spending

and investment habits. The study was more focused in the on the public at large, trying to find

out how well people are knowledgeable about investing, financial control and planning skills.

Furthermore, emphasis was also put of factors affecting spending, budgeting and saving

decisions made by individuals. From the studies provided, most studies were limited to financial

educations provided in schools, excluding the public knowledge and especially in Botswana

where we have limited research on this underlying topic.

Knowledge and perception regarding investments, financial planning and control

From the given results, people who know about financial literacy were almost half compared to

those who did not know. Table 2 shows that out of the 250 respondents, 124 (49.6%) had

knowledge about financial literacy while 126 (50.4%) had no knowledge. The data shows that

from those who answered yes, most of them got their knowledge from schools, indicated by 59

respondents followed by book with 31 respondents. Most of these respondents indicated to have

acquired high educational learning from tertiary schools. 58 Individuals who responded yes to

knowing financial literacy had tertiary education and 59 acquired such knowledge from school.

27
(Lusardi & Mitchelli, 2007) have indicated that , from the study of financial literacy and

retirement preparedness, financial education depends on the level of education one has acquired.

Also, they have indicated that level of Financial literacy is affected by age group, gender and

qualification. They have indicated also that even though a person can have higher education

levels, one can still be financial illiterate. Given our results, it is quite evident that educational

level has a role to play in an individual’s level of financial education.

It is quite evident that financial literacy depend on the level of income one has. This may be

measured on the basis of employment or job occupation. It is highlighted in the data analysis that

most of the people who answered yes to knowing about financial literacy are employed

individuals. A total of 61 employed individuals are well aware of financial literacy and its

benefits. This knowledge may somewhat be influenced by kind of benefits and experience one

get from their working environments. Many working individuals are exposed to pensions,

payment of taxes and any other financial obligations that natural require knowledge. This will in

turn add to their level of financial education on the assumption that they need to be on alert

regarding these financial activities. Financial literacy helps one to plan better for their retirement,

accumulate more wealth near retirement age and be able to invest in stocks to prepare for life

after retirement. In addition, this helps in the case of acquiring loans, being financial literate can

assist one to make better decisions given different loan options.

In contrast, unemployed individuals have highlighted low financial knowledge. A total of 52

participants have answered no to lack of knowledge on financial literacy concept. This however

may have downside effects of making bad financial decisions. In addition, people stand a chance

of being tricked out of their income and most people who lack financial knowledge tend to

borrow at high rates since their decisions are not backed by critical analysis of the transaction at

28
hand. In a study conducted by (Lusardi & Mitchell, 2007), it showed that young aged people lack

financial education and economic dimensions. This may be probably caused by the fact that even

though Botswana education system provide business related subjects, it does not provide a fully

practical point view on personal financial management and economic principles. Information

provided from our analysis presents that, from the 48 individuals of the age range 18-25, only 16

individuals has answered yes to knowing about financial literacy while a total of 32 respondents

answered no.

Research from (Behrman, Bravo, & Mitchel, 2011), (Klapper, Lusardi, & Panos, 2012) and

(Sophie , Mark , & Adrian, 2013) has indicated benefits of being financial literacy. They

provided that financial literacy can help in times of financial shocks, help lower debt burdens,

guard against inflationary pressures and increase savings and investments. Given the underlying

results, most people had no knowledge of the most important benefits of financial literacy

derived from savings, investments, financial planning and control. Most people, 140, when asked

whether investments can earn them tax benefits, they answered not sure. Only 77 individuals are

knowledgeable on tax incentives and 33 did not know about these benefits of investing.

Additionally, investments can help reduce inflationary pressures. Making wise investments can

help individuals that are financially literate to invest in assets like stocks, real estate, and

commodities that increase in value over time. These investments have historically outperformed

inflation, generating returns that are higher than the rate of inflation. Individuals can shield their

money from the consequences of inflation by making investments in these assets. Given this

view, the data analysis presented outlines that most people do believe having wise and good

investments do provide a cushion against inflation. (Lusardi & Mitchell, 2007) believe that

people are only familiar with effects of inflation if they had firsthand experience. This may mean

29
that due to the recent inflation periods of Botswana, people are now aware of how this calamity

affect their financial wellbeing than when they had not experienced it.

Participants spending, budgeting and savings decisions

Financial literacy play an important role in helping individuals make better informed financial

decisions. This include making wise investment decisions, choosing better loan options, better

financial management decisions and the day to day spending activities. It is to the benefit of

individuals to make value-maximizing decisions that will ultimately solve their underlying

financial struggles and improve financial health and wellbeing. From the given data analysis,

spending decision are mostly based on income levels (124 respondents) compared to financial

goals with 47 respondents. In addition, family responsibility, at 43 respondents, tend to influence

consumer financial decisions. This decisions however, will tend to limit people in using their

money effectively to increase their wealth. For those who are more focused on financial goals,

they stand a better chance at attaining their financial goals. This is because they are able to

carefully think and manage their income in a way that will benefit their financial goals.

Saving money might give a person a safety net in case of crises or unforeseen costs. One can

prevent going into debt or needing to borrow money from friends or family by having money set

aside for such occasions. In addition, a person can eventually earn interest or investment returns

when they save money in a bank account or invest it. Doing this may increase money more

quickly which will help in achieving your objectives and feel successful. The results shows that

out of the 250 respondents, 111 have savings while 139 people responded to not having any

savings. One of the reasons of no savings is low income specified by 47 respondents, 29

respondents had debt burdens, 27 responded to having more expenses, 35 has specified to having

family responsibilities while only 1 has outlined to having mistrust on financial institutions. This

30
call for better financial education in way that will help eliminate such outlined reasons. Proper

financial planning and control will give better chances of attaining financial freedom and

independence. This in hand will mean that people will rid themselves of underlying financial

burdens and duties that limit their plans.

One way to improve effective money management and lessen poor personal financial

management is to use a budget (Henry, Weber, & Yarbrough, 2001). However, most people

around the world are not very interested in budgeting. Financial literacy can help shape attitudes

and behaviors of individuals towards savings and investments. Only 86 persons responded "yes"

to the question of using a budget, while 164 said "no" to the question. By occupation, the

majority of respondents (70) who chose no were unemployed, followed by 43 employed people,

31 self-employed people, and 20 students. Out of 48 responses, 38 respondents aged 18 to 25

gave a negative response, whereas 37 respondents aged 37 to 30 gave a positive response. 19

respondents who keep a budget were outnumbered by 59 respondents in the 30- to 35-year-old

age group who said no.

For most of young people the reason for not keeping a budget if influenced by having low

income related to their expenses (Henry, Weber, & Yarbrough, 2001). This reason is also

affected by the fact that young people do not have the experience and lack of responsibility as

compared to adults. This means that young people are more driven by lifestyle than long-term

financial goals compered to adults who have financial responsibilities to meet.

The analysis shows that a lot of people do not track their financial records and transactions. This

makes it challenging to successfully manage finances, make budgets, and make future plans

without adequate tracking. It could result in fragmented recordkeeping, difficulty spotting errors

or unlawful transactions, and difficulties with tax reporting. Additionally, without monitoring,

31
people and organizations might not pick up on inconsistencies or questionable transactions,

which leaves them more open to fraud, identity theft, and financial losses. Regular surveillance

makes it possible to quickly identify and reduce such hazards.

STUDY LIMITATIONS
In carrying out the study, I encountered difficulties in trying to recruit participants as most were

busy and unwilling to partake in the study. Also the study depended on self-reported/spoken data

which creates are room for biased results. Some participants did not know how to read and write,

and I had to read out questions, explain to them and write for them which was time consuming.

CONCLUSION
Investment and spending patterns among consumers are significantly influenced by financial

literacy. Higher financial literacy skills are associated with more responsible and well-informed

decisions being made regarding spending and investing. They are more likely to set spending

plans, efficiently handle debt, and create budgets. Financially literate people also have the

expertise and knowledge needed to evaluate risks, diversify their portfolios, and make wise

investment decisions.

From the study, it is highlighted that people with great knowledge on financial skills tend to act

in a way that improve their financial wellbeing. These people are shown to follow savings and

budgeting principles and are most likely to engage professionals in making value-maximizing

decisions. In contrast, the study has shown that for people with low financial literacy and skill

exhibit poor financial planning and control since they show the lack of commitment if following

and creating budgets and savings. These people also show poor management of tracking their

financial transaction thus increase their likely hood of spending more without proper decision

making.

32
The study on how financial literacy affects consumer spending and investment patterns

emphasizes how crucial it is to support financial education. Policymakers, educators, and

financial institutions can help people make better financial decisions and so improve their overall

financial well-being by promoting financial literacy. People can learn skills in budgeting, debt

management, and critical assessment of investment possibilities through extensive financial

education campaigns.

RECOMMENDATIONS
 People should start reading books that will enhance their financial knowledge

 Seminars and workshops must be held, especially by financial institutions and

professionals in order to educate the public on the need to have better personal financial

skills and management

 Schools must improve on their curriculums by proving personal financial skills that will

help students have a better understanding of finances after leaving school

 Practice budgeting and tracking of expenses by being better disciplined on carrying good

money management habits by creating a budget and tracking one’s transactions.

 People must seek professional help regarding financial decisions especially when

making choices on large capital funds.

33
REFERENCES
Hilgert, M., Hogarth, J., & Beverly , S. (2003). Household Financial Management: The connection
between knowledge and behavior,.

. Cohen, J., Sebstad,, M., & .Stack,, K. (2006). Assessing the Outcome of Financial Education Microfinance
Opportunities Washington DC, USA.

Alex , K., & Amos, A. (2014). “The Role of Financial Literacy in Promoting Children & Youth Savings
Accounts: A Case of Commercial Banks in Kenya. Research Journal of Finance and Accounting,
133-143.

Bank of Botswana. (2021). Household indebtedness survey report. Gaborone: Bank of Botswana.

Behrman, R., Bravo, D., & Mitchel, K. (2011). How Financial Literacy Affects Household Wealth
Accumulation. 2012 AER Papers and Proceedings.

Capuano , A., & Ramsay , I. (2001). Financial Literacy and Financial Behavior, Financial Literacy Project,
Melbourne Law Schoo.

Chibba, M. (2009). Financial Inclusion, Poverty Reduction, and the Millennium Development Goals.
European Journal of Development Research.

Henry, R. A., Weber, J. G., & Yarbrough, D. (2001). Money management practices of college students.
College Student Journal.

Kebede, M., Dr Kaur, N., & Dr. Kuar, J. (2015). Financial Literacy and Management of Personal Finance: A
Review of Recent Literatures. Research Journal of Finance and Accounting, 1-16.

Klapper, l., Lusardi, A., & Panos, G. (2012). “Financial Literacy and The Financial Crisis. National Bureau of
Economic Research, 1-55.

Kumaran, S. (2013). Financial Literacy, Financial Education: A Road Map to Personal Financial Well-Being
and Prosperity. International Research Journal of Finance and Economics, 133-143.

Levy, P. S., & Lemeshow, S. (2008). Sampling of populations : methods and applications. John Wiley and
Sons Inc.

Lusardi , A., & Mitchelli, O. (2007). Financial literacy and retirement . Business Economics.

LUSARDI, A. (2015). Financial Literacy Skills for the 21st Century: Evidence.

Lusardi, A., & Mitchell, O. (2007). Baby boomer retirement security: The roles of planning, financial
literacy, and housing wealth. Journal of Monetary Economics, 205-224.

Lusardi, A., & Mitchell, O. (2011). Financial literacy around the world: an overview. National Bureau of
Economic Research.

Lusardi, A., & Mitchell, O. (2011). Financial literacy around the world: an overview. National Bureau of
Economic Research.

Lusardi, A., & Mitchell, O. (2007). Baby boomer retirement security: The roles of planning, financial
literacy, and housing wealth. Journal of Monetary Economics.

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McCormick, K., & Selcedo, J. (2017). SPSS Statistics for data analysis and visualisation.

Parker, A., Yoong, J., & Hung, A. (2009). Defining and Measuring Financial Literacy.

Plackett, R. L. (1971). The Application of the Chi-Squared Test. . The Mathematical Gazette.

Raditloaneng, W. N. (2002). WOMEN, POVERTY AND LITERACY IN BOTSWANA: A CASE STUDY. 1-50.

Reid, H. (2014). Introduction to statistics : fundamental concepts and procedures of data analysis. Los
Angeles, California. SAGE JOURNALS.

Solomon, G., Nhete, T., & Sithole, B. (2018). The Case for the Need for Personal Financial Literacy
Education in Botswana Secondary Schools.

Sophie , V., Mark , F., & Adrian, F. (2013). Financial capability, money attitudes and socioeconomic
status: risks for experiencing adverse financial events. 344-349.

35
APPENDICES
QUESTIONNAIRE
Title: The Effects of Financial Literacy on Consumer Spending and
Investment Habits: The case of Gaborone, Botswana

My name is Kaone Motlatshiping, a student at the University of Botswana currently pursuing a

degree in Bachelors of Finance. The main purpose of this questionnaire is to gather information
regarding financial literacy as a drive to spending and investing behaviors’ of consumers. This
research comes as a requirement for the completion of my studies thus your contribution is
highly appreciated. Thank you in advance
To participate in this study you must have completed a consent form to confirm your willingness

to take part in the study.

I appreciate your participation in this important study

INSTRUCTIONS
 Please do not indicate your name
 Place a tick where appropriate next to the box for your best answer
 Place an answer where necessary

SECTION A: Demographics

[Link]:
Male Female

2. Age: 18-25 26-30 30-35 40 and above

3. Occupation:
Self-employed Employed
Student Unemployed

36
4. Educational Background:
Primary Senior
Junior Tertiary

SECTION B: Knowledge and Attitude

Knowledge
5. Do you know about Financial Literacy?
Yes No
6. If yes, where did you receive such information?
School Radio Television
Friends Books News papers
7. Please provide a tick to the answer of your best knowledge
Can investing help get tax benefits
Yes NO Not sure
Can investing and saving can help beat effects of inflation
Yes NO Not sure

Investing and saving enables financial independence and freedom

Yes NO Not sure
Investing helps generate wealth
Yes NO Not sure
You can plan for a better future through saving and investing
Yes NO Not sure
Investing normally require a lot of money
Yes NO Not sure
Investments are a scam and create loses
Yes NO Not sure
Financial planning and control can help lower expenditure

37
Yes NO Not sure
Financial planning leads to an increased income
Yes NO Not sure
You require great skill and education to plan for one’s income
Yes NO Not sure
Financial control and planning helps reduce financial risks
Yes NO Not sure

ATTITUDE
10. Do you save part of your income?
Yes, I do Yes, I once had No, I do not

11. If yes, how often do you save?

Once a month Twice a month Once in a while
12. What method of saving do you use?
Savings Account Piggy banks
Investing Other methods

13. If no, what reason affects your inability to save? (Tick all that apply)
Low Income Unemployment
More expense Family dependence
Debt No financial goals
Mistrust of financial institutions Other specific reasons

14. What influence your spending habits? (Tick where applicable)

Income Location
Lifestyle Marketing/ advertising
Financial goals Peer influence

38
Family responsibility

15. How often do you track your transaction activities?

Hardly ever take notice Fairly take note
Somewhat take note Always take note

16. Do you keep or use a budget?

Yes No

17. If no, what reasons affect that decision? (Tick where applicable)
Lower income than expenses
Inconsistent income from time to time
High debt
It creates limits
It take time and effort
Lack of know how
Do not need one
Lack of commitment

18. How often do you seek professional help regarding financial issues?
Rarely seek professional help
Sometimes seek professional help
Seek professional help all the time

SECTION C: Awareness

19. What is your level of interest on financial education?

39
Not interested Moderately interested
Have little interest Highly interested

20. What measures do you think should be put in place to improve our financial Knowledge and
skills?
Introduce Financial Educations in schools
Pass policies and laws
Hold awareness programs
Use mass media to spread awareness
21. Who do you think is responsible in providing financial education and literacy?
Schools Financial Institutions
Government Parents

40
41