Impact of Financial Literacy on Financial Inclusion
Nuryasman M. N. and Vincent
Department of Economic,Tarumanagara University, Jln.Tanjung Duren Utara, Jakarta Barat, Indonesia
Keywords: Financial Literacy, Financial Inclusion and Logistic Regression.
Abstract: This study was conducted with the aim to find out the impact of financial literacy and financial inclusion on
students of the Faculty of Economics, Tarumanagara University. Sampling method was done by stratified
random sampling using questionnaire with 472 respondents. Meanwhile, the data analysis technique used is
logistic regression analysis, with z-statistic test, F-test, and McFadden R-Square. The results of hypothesis
testing show that age has a significant influence on financial literacy, while gender, education, investment
experience, academic ability, and residence status have no significant effect on financial literacy. Other
findings are financial literacy and income have a significant effect on financial inclusiveness, while
financial information sources, distance to banks, and ownership of vehicles have no significant effect.
In the current era of globalization, finance certainly
has a very important role for the development of a
country in both developing and developed countries.
For that, the public needs to understand about the
finance itself according to a survey conducted by the
Financial Services Authority (OJK) in 2013. OJK is
a state institution that aims to establish an integrated
regulatory and supervisory system for all activities
in the financial services sector, whether in the
banking sector, the market sector capital, and non-
banking financial services sector.
The survey conducted by the OJK shows that the
financial literacy of the society is divided into 4
categories, namely: well literate (21.84%), sufficient
literate (75.69%), less literate (2.06%), not literate
0.41%). The survey shows, there are still people of
Indonesia who do not understand about financial
literacy. There are only small amount of Indonesian
people who have an understanding of financial
literacy so that the financial literacy of Indonesian
people need to be improved again. The financial
literacy owned by the community will have an
impact on the banking sector and capital market.
According to a World Bank survey conducted in
2010, Indonesians who were accessing the formal
financial sector accounted for 49%, while Bank
Indonesia findings in Household Balance Survey
2011 found 48% of households placed their money
in informal or formal financial institutions, or
around 52% of Indonesian households do not access
the existing financial system. This shows that there
are still Indonesian people who do not use the
products and services provided by the state financial
services. This is due to the inadequate knowledge of
finances held by the public. To that end, the
understanding of finance in Indonesia needs to be
improved again, so that the people of Indonesia can
use and access these financial products and services
Students as part of the community should have
sufficient knowledge and understanding related to
the financial system and its instruments and the
various factors that determine the level of
knowledge about the finance. Related to this matter,
the study focuses on various factors that determine
financial literacy and financial inclusion with the
respondents of faculty of economics students.
2.1 Financial Literacy
Cude et al., (2006) defines financial literacy as a
person's ability to read, analyze, manage, and
communicate about a person's financial condition
that affects material well-being.
Lusardi (2012) states that financial literacy is the
ability and knowledge of finances owned by a
person to manage or use some money. This is for
M.N., N. and Vincent, .
Impact of Financial Literacy on Financial Inclusion.
DOI: 10.5220/0008487600260031
In Proceedings of the 7th International Conference on Entrepreneurship and Business Management (ICEBM Untar 2018), pages 26-31
ISBN: 978-989-758-363-6
2019 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
improving their standard of living associated with
the behavior, habits, and influence of external
Mason and Wilson (2000) defined financial
literacy as the ability of an individual to acquire,
understand, and then evaluate the existing
information in making a decision by understanding
the financial risks that can be generated later on
when the decision is made.
From the above definitions, it can be concluded
that financial literacy is the ability of an individual
to read, understand, and analyze about the finances
used in making decisions and financial management
in certain situations in the future.
2.2 Financial Inclusion
Nasution et al., (2013) states that financial
inclusiveness is a process that ensures ease in access,
availability, and benefits of the formal financial
system for all economic actors.
According to Bank Indonesia (2014), inclusive
finance is also defined as a process of access to
financial services (savings, insurance, remittances,
and payments) and the timely and adequate credit
needed by small or low-income groups at an
affordable cost.
According to European Commission and World
Bank (2008) in Supartoyo and Kasmiati (2013),
financial inclusion is an activity that aims to
eliminate all barriers both in the form of price and
non-price to access the community in using and also
utilizing financial products and services.
From the above definitions, it can be concluded
that financial inclusion is a process or means to
facilitate the community in accessing and utilizing
financial services such as savings, insurance, etc.
Chen and Volpe (1998) in their study explained
that men are more understanding of financial literacy
than women. However, according to Krishna et al.,
(2007), it was found that women are more
understanding of financial literacy compared with
men. Meanwhile, according to research conducted
by Nidar and Bestari (2012) and Rita and Pesudo
(2014), one's gender does not affect one's literacy
about finances.
Meanwhile, according to Shaari et al., (2013) in
his study conducted on students in Malaysia with a
sample of 384 people, it was found that there was a
negative relationship between financial literacy with
age. Ansong and Gyensare (2012) found that age
affected the student's financial literacy.
According to Widayati (2012), university
learning has an important role in the process of
forming a student's financial literacy. Students living
in different economic environments have a different
understanding of finance, so an improvement in
financial education is required to minimize the
difference. Effective and efficient learning will help
students to have the ability to read, understand,
evaluate, and act in relation to their finances. The
early existence of good knowledge in the
management of finance expected students to have a
better and prosperous life in the future. Then, Nidar
and Bestari (2012) also explains that one's financial
knowledge affects one's financial literacy in the
Chen and Volpe (1998) said that students who
had experience related to taxes, insurance, and
investment were able to apply the knowledge they
had well.
Cude et al. (2006) explained that students with
high GPA will have better financial literacy. Shaari
et al. (2013) explained that students with high GPA
have fewer financial problems than students with
low GPA. Krishna et al. (2007) found that students
with a GPA < 3 had a higher level of financial
literacy than students with a GPA > 3. The study
stated that the level of financial literacy was not
determined by intellectual ability (analogous to the
GPA score) but more determined by the educational
background. Their financial literacy is learned from
educational institutions.
Keown, (2011) found that people who live alone
have a higher level of financial literacy than those
living with their spouses or parents. This is because
people who are living alone have a responsibility for
their daily financial transactions and other financial
decisions. However, according to Nidar and Bestari
(2012), residence does not affect a person's financial
Wachira and Kihiu, (2012) has conducted a study
on the effect of financial literacy on access to
financial services in Kenya in 2009. As a result,
access to financial services is not only influenced by
the level of financial literacy but also influenced
more by income level, distance from banks, age,
marital status, gender, size of household, and level
of education.
According to research conducted by Bhanot et
al., (2012) in north-eastern India, financial
information from a variety of sources helps in
increasing financial inclusion. Other findings
suggest that the distance from the post office is more
significant to the inclusion of finances than the
distance to the bank. This is because the people of
northeast India have low access to banks.
The research conducted by Bhanot et al., (2012)
Impact of Financial Literacy on Financial Inclusion
states that high income and high education have an
influence in improving the status of financial
inclusion, while ownership of vehicles has no
significant effect on financial inclusion.
Based on the literature review above, the
following questions can be asked: (1) do age,
gender, education, investment experience, academic
ability, and residence status affect a person's
financial literacy?, and (2) do financial literacy,
income, financial sources of information, distance to
the bank, and ownership of motor vehicles affecting
a person's financial inclusion?
3.1 Population, Sample, and Data
The population in this study was all students of the
Faculty of Economics Tarumanagara University
registered in the odd semester of academic year of
2016/2017. The number of students recorded in the
odd semester was 4,193 consisting of 2,032 students
majoring in Management and 2,116 Accounting
majors as many as 2,116 students.
Sampling method that was chosen in this
research was stratified random sampling which was
part of probability sampling technique with total
sample of 472 respondents. After dividing the
sample according to the level, the division of the
questionnaire was done to obtain data.
3.2 Operational Definition of Variables
The independent variables used in this study consist
of age(AGE), gender (JKN), knowledge (EDU),
investment experience (EIN), grade point average
(GPA), residence (TTG), financial literacy (LKF)
income (INC), financial information sources (SFI),
distance to bank (DFB), vehicle ownership (VHC),
while the dependent variable are financial literacy
(LKF) and financial inclusion (INF).
3.3 Analysis Method
This study uses logistic regression analysis model to
find out what factors influence financial literacy and
financial inclusion through research equation as
12 3 4 5 6 7 1
a a AGE a JKN a EDU a EIN a GPA a TTG
  
12 3 4 5 6 2
Several statistical tests were performed on the
models used in this study to answer the above
research questions, such as, partial test of each
independent variable through the z-test, F-test to see
the mutual influence of the independent variables on
the dependent variable, and to measure how much
the ability of the independent variables in explaining
the change of the tested variable by the coefficient of
determination (R
Based on the results of data processing, there are
some characteristics of respondents. The largest
respondents came from students in 2014 as much as
27% of 472 students. The least respondents were
from students in 2009, 2010, 2011 and 2012 as many
as 8 students (2%). From the 472 respondents, 218
people (46%) were from the Accounting department
and the remaining 254 people (54%) came from the
Management department.
According to the age, the respondents were
dominated by students of 20 years old (about 27%).
There was one participant, who was at least 16 years
old, and the rest vary between the ages of 17-21
years, while as many as 4% aged over 21 years.
The number of male students is more dominant
than female students with a ratio of 1: 0.80.
Based on the knowledge of finance, 70% of the
students of the Faculty of Economics Tarumanagara
University have an average level of financial
knowledge, while only about 1% of students have a
low level of knowledge. The rest have a high
financial knowledge. Almost 77% of the respondents
had a GPA above 3.
Meanwhile, from 472 students, about 9% had
invested in stocks and the rest invested in other
forms such as savings.
Approximately 353 students (75%) still live with
their parents with average income or allowance each
month ranging from Rp1 million to Rp 5 million and
there are 15 (3%) who have income or allowance
every month above Rp 5 million.
The average distance from student residence to
bank is about 3 km. Only about 18% (86) of students
stay in residence that has more than 3 km distance
from bank. Whereas of the 472 students who made
as respondents, about 53% (251 people) have motor
vehicles in the form of two-wheeled vehicles or four
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Looking at how or from which source the
respondent obtained financial information, about
48% (227 people) obtained financial information
from family, 3% from friends, about 33% (156
people) got it from lectures and 16% from printed
media. This reflects that more financial information
is obtained by students from word of mouth rather
than from the media. Therefore, it can be interpreted
that first, the socialization of finance for the
community, especially students through the media,
is not optimal. Second, the desire of the community
or students, especially in reading or seeking
information through the media, has not been
maximized. Thus, it will be more effective and
efficient if the information about finances is
disseminated through lectures or seminars and or by
word of mouth.
To know the various factors that determine the
financial literacy, especially among students of the
Faculty of Economics Tarumanagara University, an
analysis was conducted through logistic regression
with the following results.
Table 1: Financial Literacy Logistic Regression Analysis.
Variable Coefficien
z-Stat Prob.
C -6.234 1.607 -3.880 0.000
JKN -0.303 0.205 -1.480 0.139
AGE 0.238 0.077 3.082 0.002
GPA 0.308 0.197 1.561 0.118
TTG -0.007 0.224 -0.031 0.975
EIN 0.239 0.328 0.728 0.467
EDU 0.093 0.166 0.558 0.577
McFadden R-Squared 0.032
LR Statistic 20.170
Probability (LR Statistic) 0.003
Observation with Dependent Variable = 0 284
Observation with Dependent Variable = 1 188
From the results of table 1 above, it can be
explained that out of the 472 students of the Faculty
of Economics, about 188 students have understood
various things about finance. However, about 284
people have less understanding about finance. Thus,
it can mean that students, especially students of
Faculty of Economics Tarumanagara University,
still has limited understanding in various things
about finance, so it needs good action through
socialization through the media or lectures, and
information from mouth to mouth, so that their
understanding can be improved.
Other results that can be obtained from table 1
above is the financial literacy on the students of the
Faculty of Economics Tarumanagara University that
is determined by sex is opposite to each other, which
means that the understanding of students about
finance is lower for male students than female. This
finding is in line with the finding of Nidar and
Bestari (2012) and Rita and Pesudo(2014).
The same thing applies for the factor of
residence, where students who are living with
parents are more understanding about finance than
students who live alone. These results reinforce the
finding of Nidar and Bestari (2012). This condition
proves that the financial knowledge of students is
more dominantly obtained from parents than the
students themselves who seek it. This is contrary to
finding of Keown (2011), which states that people
who live alone are much more responsible in doing
financial transactions than when living with parents.
Age, GPA, investment experience and
knowledge have a positive effect on the
understanding of finance, which means that
increasing age, investment experience and
knowledge of a person will increase the
understanding of the financial or vice versa.
The higher the academic ability of a person
shown by the GPA increases his or her
understanding of finances or vice versa. The more
often a person engages in activities related to
investment, the more the understanding of finance
increases and the more knowledge an individual has
about the financial will increase his understanding as
To find out how much influence of each factor
that determines one's financial literacy can be done
through the following table.
Table 2: Odd Ratio Determinants of Financial Literacy.
Variabel Coefficien
Odd Ratio
JKN -0.303 0.739
AGE 0.238 1.269
GPA 0.308 1.361
TTG -0.007 0.993
EIN 0.239 1.270
EDU 0.093 1.097
From table 2 above, a person of male sex has a
lower financial understanding of about 73.90%
compared to female sex. Although statistically this
result is not significant, it can be explained that
women have a tendency to be more careful than men
in making an investment decision. Thus, it will
encourage women to learn and understand finances
before making a decision.
The age factor shows a positive influence on a
person's understanding of finances, where an
increasing age of a person will increase his or her
understanding of finance by about 1.269 times. This
study proves the finding of Ansong and Gyensare,
(2012) and is in contrary to the finding of Shaari et
al., (2013). The same applies to improving one's
Impact of Financial Literacy on Financial Inclusion
academic ability, if an increase in academic capacity
will increase financial literacy by about 1,361 times,
investment experience and financial knowledge will
increase by about 1.270 and 1.097 respectively. This
finding is consistent with the findings of Chen and
Volpe(1998); Nidar and Bestari (2012 and Widayati,
(2012). Another factor that determines a person's
understanding of finances is with whom one is
living. The findings show that someone who lives
with parent's financial understanding of about
99.30% is more likely to live alone. This condition
means that the financial understanding is more than
just obtained from parents. It is more to someone
who is looking for the meaning themselves.
Although statistically some factors have no
influence in determining one's literacy to finance,
but together, all the factors that exist in this research,
statistically have a significant contribution to one's
financial literacy, especially students. This is proven
by probability value LR Statistic which is smaller
from 5% (See table 1).
About 3.20% of a person's understanding of
finance is determined by sex, age, academic ability,
residence status, investment experience and financial
knowledge, while almost 96.80% is determined by
other variables that are not studied in this research.
Decisions made by a person in what form and
where the money saved will be placed is commonly
known as financial inclusion. Financial inclusion,
which is influenced by financial literacy, is also
determined by other factors such as income, distance
from residence to bank and ownership of motor
The results of research on various factors that
determine financial inclusion are shown in the
following table.
Table 3: Financial Inclusion Logistic Regression Analysis.
Variable Coefficien
z-Stat Prob.
C -2.193 1.021 -2.149 0.032
LKF 6.862 1.889 3.632 0.000
DFB -0.552 0.406 -1.358 0.175
SFI -0.256 0.248 -1.031 0.303
INC 1.448 0.338 4.282 0.000
VHC 0.574 0.345 1.662 0.097
McFadden R-Squared 0.148
LR Statistic 41.153
Probability (LR Statistic) 0.000
Observation with Dependent Variable = 0 41
vation with Dependent Variable = 1 431
Table 3 shows that 431 respondents (91.30%)
have banking accounts as financial means, so that it
can be interpreted almost all respondents have
utilized financial services, especially banking.
Overall financial literacy, distance to bank,
financial information, income, and motor vehicle
ownership have a statistically significant effect on
the utilization of financial services, as evidenced by
LR statistic probability values being smaller than 5%
at a 95% confidence level. But partially there are
several factors that are not statistically significant in
determining the utilization of financial services, such
as distance to banks and financial information.
How much influence each factor has on financial
inclusion can be shown in the following table.
Table 4: Odd Ratio Determinants of Financial Inclusion.
Variabel Coefficien
Odd Ratio
LKF 6.862 955.275
DFB -0.552 0.576
SFI -0.256 0.774
INC 1.448 4.255
VHC 0.574 1.775
Based on the results in table 4 above, the
financial inclusion of someone who has adequate
financial literacy is higher by 955,275 points than
those who have less adequate financial literacy. The
more you understand about finances, the person will
be better able to utilize various financial services in
financial management or vice versa. This finding is
in accordance with the result of Wachira and Kihiu,
(2012). Increasing one's income will further increase
the probability of someone taking advantage of
various financial services in managing their
finances. In this study, an increase in the probability
of using financial services will increase by about
4.255% if there is an increase in income. These
results are in line with the finding of Bhanot et al.
(2012). The influence of the financial information
factor in this study contradicts the findings of
Bhanot et al., (2012) where according to Bhanot,
financial information will make it easier for
someone to take advantage of various financial
services. However, in this study, financial
information negatively affects the use of financial
services. Similar results were also found for factors
of distance to banks and ownership of motor
vehicles to the use of financial services. In another
sense, the distance to the bank and the ownership of
a motor vehicle do not make a significant difference
to someone using financial services.
The utilization of financial services by a person
in this study, approximately 14.80% is determined
by financial literacy, distance to bank, financial
information, income and motor vehicle ownership,
while 85.20% is determined by other factors.
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The results of this study found several things, (1). A
person's age is statistically significant to financial
literacy, but gender, academic ability, residence
status, investment experience and financial
knowledge do not have a statistically significant
effect on one's understanding of finances, and (2).
Income and financial literacy are statistically
significant in determining the utilization of a
person's financial services, but factors such as
distance to the bank, financial information and
motor vehicle ownership have no statistically
significant effect on a person's financial inclusion.
This study suggests several things: (1) To improve
financial literacy, it is necessary to socialize various
things about finances such as understanding, types,
instruments and mechanisms and various positive
and negative impacts related to finance, so that
people feel more comfortable when making
decisions related to their finances, and (2) In relation
to financial inclusion, technology is needed to
provide convenience, comfort and security to the
community in placing its finances and increase the
number of financial institutions from the lowest
level to the highest that are easily accessible by the
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Impact of Financial Literacy on Financial Inclusion