The relationship between debt-taking, charity-giving, and financial education on financial inclusion : the case of low-income households in Indonesia

Abstract

This study aims to investigate the link between debt-taking, charity-giving and financial education and their contribution towards achieving financial inclusion. This research is important since it involves various stakeholders including low-income households, the government and authoritative bodies, industry players including financial planners, social institutions and educators, to objectives of this research are to explore the driving forces that influences the perception of low-income households regarding consecutive debt-taking behaviour in Indonesia, to explore the driving forces that influence the perception of low-income households regarding regular charity-giving behaviour in Indonesia, to investigate the influence of regular charity-giving on consecutive debt-taking behaviour and conversely the influence of consecutive debt-taking on regular charity-giving behavior, to assess the effects of financial education on consecutive debt-taking behaviour and regular charity-giving behavior, to assess the effect of the selection of financial institutions by low-income households on consecutive debt-taking behaviour and regular charity-giving behaviour in the extent of financial inclusion and to formulate a financial education strategy taking into account debt and charity considerations among low-income households in Indonesia which is significant in overcoming the problem of financial inclusion. Questionnaires were utilised as tools to gather data primarily from six areas in Indonesia: Aceh, Jabodetabek, Yogyakarta, East Borneo, Central Sulawesi and Eastern Nusa Tenggara through the purposive sampling technique. Exactly 1800 questionnaires were distributed. However, only 1780 were used in the analysis through the cluster sampling technique. The research questions in this study were answered by using three different statistical methods including logistic regression to achieve the first and second objectives, the structural equation modelling (SEM) to achieve third, fourth, and fifth objectives, and the analytic network process (ANP) to achieve sixth objective. Consecutive debt-taking behaviour is proven to affect financial ratios and lifestyle satisfaction. Level of education, income, financial education, financial institutions and charity institutions significantly indirectly affect consecutive debt-taking behaviour. In the context of regular charity-giving behaviour, those socioeconomic demography factors are indirectly affecting the behaviour, except income. Meanwhile, consecutive debt-taking influences regular charity-giving behaviour negatively by performing the behaviour of taking debt consecutively. Apparently, regular charity-giving affects consecutive debt-taking behaviour negatively through intention towards regular charity-giving behaviour. This study suggests that financial education for low-income households in Indonesia should be conducted in formal education institution by using government funds and collaborating with financial institutions. Experts, comprising of financial educators, public figures, financial planners, social finance activists and regulators, choose women as top priority in general to be educated on financial inclusion. Finally, behaviour on taking debts is perceived to be the main targeted behaviour in conducting financial education. This study mainly contributes to financial education, especially for low-income households in managing their money. The Islamic perspective on regular charity-giving that is expected to overcome households’ financial difficulties is also demonstrated in this study, which is introduced as a shifting paradigm from a more taking to a more giving behaviour from low-income households. The models presented in this study are useful for users, especially future researchers, from around the world who are interested in the same research area.