Abstract
This study investigates the impact of financial literacy on household saving outcomes in the Wolaita Zone of Ethiopia. A sample of 217 households was used to collect the data. The findings demonstrated that the majority of respondents have overrepresented in informal saving mechanisms. Around 8.75% of households saved through formal means, including banks and microfinance institutions. Approximately 38.25% of respondents saved money through informal mechanisms such as saving association (Iqub and Iddir), at home, with relatives, lending, and purchasing fixed assets. Around 25.81% of respondents save in both formal and informal ways. The instrumental variable (IV) estimation method estimates the impact of financial literacy on household saving outcomes. Mean financial literacy at the district level and participation in financial training are used as financial literacy instruments. According to the findings, financial literacy has a positive and substantial impact on household saving outcomes. Furthermore, financial literacy increases formal savings but has little effect on informal savings. This result highlights the importance of financial literacy policy interventions in improving household saving outcomes and attracting people to formal saving modes.
