Financial literacy and clean energy adoption in South Africa

Abstract

We examine the causal effect of financial literacy on clean energy adoption in South Africa. Our main estimates, in which we instrument for financial literacy with mathematics education received, suggest that a unit increase in financial literacy causes a 14.1 percentage point increase in the likelihood of adopting clean energy for cooking, heating or lighting. The magnitude of the size effect when clean lighting use is considered separately is similar to the composite measure, while the effect sizes for clean cooking and heating are much larger. The heterogeneity results suggest that the effect of financial literacy on clean energy adoption is larger in households with a male household head and in households located in rural areas. These findings are robust to alternative estimation methods, alternative identification methods that do not rely on an external instrument and ways of measuring financial literacy. We find that entrepreneurship, financial inclusion and generalized trust are channels through which financial literacy influences clean energy adoption. We conclude by suggesting policies for promoting financial literacy and each of the channels through which financial literacy affects clean energy use to enable households to make sustainable energy choices.