Effect of Financial Literacy on Personal Financial Management Practices: Evidences from the Survey of Urban Dwellers in Addis Ababa, Ethiopia

The study was conducted to examine the relationship between level of financial literacy and personal financial management practices. Based on the analysis of primary data collected from 402 urban dwellers in Addis Ababa, Ethiopia, this study has showed that there is a positive relationship between financial literacy and financial behaviour. Financial literacy was measured using three indicators, namely: Financial knowledge, financial attitude, and confidence in personal financial decisions. After controlling the effects of demographic and socio-economic variables, the study found that financial attitude and confidence in financial decision making have a statistically significant positive effect on financial management behaviour of urban dwellers in Addis Ababa. Unlike the findings of other studies, this study didn't find statistically significant effect of financial knowledge. It is, therefore, suggested that financial education programs should be given more weight to financial attitude than financial knowledge. Moreover, the study suggests the need for comprehensive national studies to incorporate the context of rural population in order to support the ongoing financial literacy enhancement efforts in Ethiopia.