Financial Literacy and the Demand for Financial Services in Remote Areas: Evidence from Indonesia

This paper investigates whether higher financial literacy boosts demand for financial services in Indonesia. Our empirical results document that individuals with higher financial literacy are associated with higher demand for bank credit. However, the positive impact of financial literacy on demand for bank credit is more pronounced for younger and highly educated population. Demand for bank credit is also higher for individuals located close to post offices, suggesting that the development of hybrid bank lending products integrated with post-office services might be worth considering. Moreover, individuals with higher financial literacy also tend to have formal savings account, although this effect is more pronounced for older population and population with higher degree of education. Finally, higher demand for formal financial services is positively driven by the availability of publicly disseminated information about formal financial services, highlighting the importance of widening public awareness programs on financial literacy and inclusion across Indonesia.