EFFECT OF FINANCIAL LITERACY ON THE SAVING BEHAVIOR OF HOUSEHOLDS IN MOMBASA COUNTY

The purpose of the study was to examine the effect of financial literacy on the saving behavior of households in Mombasa County. The research leveraged three key theories: Goal Setting Theory, Prospect Theory, and Financial Behavior Theory, to understand how financial literacy practices influence individuals' decisions to save. A descriptive research design was adopted, with data collected from 259 households using structured questionnaires. The analysis was performed using both descriptive statistics and a regression model to assess the relationship between financial literacy variables—debt management, budgeting practices, monitoring spending, and investment management—and saving behavior. The findings revealed that financial literacy has a significant positive impact on saving behavior. Among the variables, budgeting practices and debt management emerged as the strongest predictors of saving behavior. The study showed that households who actively engage in debt management, such as early repayment and understanding loan terms, are better able to save. Similarly, individuals who adopt comprehensive budgeting practices monitor their expenditures, and set financial goals tend to allocate more resources towards saving. Investment management and spending control also played key roles, albeit to a lesser extent. The study concluded that improving financial literacy significantly enhances households’ ability to save, with budgeting and debt management being the most influential factors. Households that diversify their investments and engage in prudent financial practices are more likely to achieve financial stability. Monitoring spending effectively and avoiding impulsive purchases further contributes to a household’s saving capacity. Financial literacy is, therefore, a crucial factor in promoting sustainable financial behavior and long-term wealth creation among households. Based on these conclusions, the study recommends that households in Kenya, particularly in Mombasa County, enhance their financial literacy through targeted education on debt management, budgeting, and investment strategies. Engaging in financial planning, saving groups and Saccos can further motivate consistent saving behavior. For policy makers, there is a need to implement national financial literacy programs that focus on these critical areas, ensuring that all citizens, regardless of education level or region, have the knowledge to make informed financial decisions. Future research should explore the influence of financial literacy on not only saving bahaviour but also the frequency of saving on households in Mombasa County.