Financial Literacy and Financial Inclusion among Households in Rwenzori Sub-region, Uganda: The Mediating Role of Financial Self-Efficacy

Abstract

Financial inclusion is critical for enhancing economic development, poverty reduction, and household financial resilience; however, households in Uganda’s Rwenzori Sub-region continue to experience challenges in accessing, using, and benefiting from formal financial services. This study examined the relationship between financial literacy and financial inclusion among households in the Rwenzori Sub-region, Uganda, with a specific focus on the mediating role of financial self-efficacy. Guided by the Financial Literacy Theory of Financial Inclusion and Social Cognitive Theory, the study adopted a pragmatist paradigm and an explanatory sequential mixed-methods design. Quantitative data were collected from 399 household heads selected using stratified and simple random sampling techniques, while qualitative data were obtained from 12 key informants through semi-structured interviews. Data were analysed using descriptive statistics, Pearson correlation analysis, regression analysis, bootstrapped mediation analysis, and thematic analysis. The findings revealed that financial literacy significantly predicted financial inclusion (β = 0.583, p < 0.001) and financial self-efficacy (β = 0.548, p < 0.001), while financial self-efficacy significantly influenced financial inclusion (β = 0.462, p < 0.001). Mediation analysis established that financial self-efficacy partially mediated the relationship between financial literacy and financial inclusion (indirect effect = 0.253, 95% CI [0.181, 0.332]), indicating that financially knowledgeable households were more likely to participate in formal financial systems when they possessed confidence in their ability to make and implement financial decisions. Qualitative findings further revealed that household financial confidence, understanding of financial procedures, and decision-making autonomy shaped participation in formal financial services, although socio-cultural constraints, limited financial awareness, and accessibility challenges remained significant barriers. The study concludes that financial literacy contributes to improved financial inclusion among households in the Rwenzori Sub-region partly through strengthening financial self-efficacy. It recommends that policymakers, financial institutions, and development actors integrate financial education initiatives with confidence-building interventions, simplified financial service procedures, and household empowerment strategies to promote sustainable financial inclusion in the Rwenzori Sub-region.