Financial Literacy and Its Impact on the Indebtedness of Households in Gampaha District, Sri Lanka

Financial markets have become more competitive, and the use of new financial technologies has increased dramatically. The current new and complex financial system has become extremely difficult to navigate, and errors and incompetence can have catastrophic results. Therefore, it is really important to understand the impact of financial literacy on household indebtedness since it could provide solutions for the reasons for debt in households. Sri Lanka is a country recording a higher literacy rate among the South Asia countries. Despite this, household debt continues to grow yearly, making it a major problem in the nation. In this study the survey method is used and primary data was collected using questionnaires. This research focuses on households in Gampaha District with a sample of 100 households by using convenience sampling methods. Financial literacy, with four aspects numeracy, money management, financial knowledge, and attitude was the independent variable, while household indebtedness was the dependent variable. Descriptive statistics, correlation, and regression analysis were used to analyze the collected data using SPSS software.  The findings highlighted that the numeracy and indebtedness have no significant impact on the indebtedness of households. Money management and the indebtedness pointed to a significant positive impact and the financial knowledge of households were found to have a significant negative impact on indebtedness of households and the financial attitude and the indebtedness of households emphasized a significant positive impact. The findings of this study are important for utilizing the financial literacy knowledge when dealing with debt providers and the debt agreements.