*3.3. Methodology*

In this paper, we estimate the following equations for indices related to financial literacy:

$$FL\_i = a\_0 + a\_1 Income\_i + X\_i a\_2 + \epsilon\_i \tag{1}$$

where *FLi* alternatively indicates the financial literacy, financial knowledge, financial behavior, and financial attitude score of individual *i*; *Incomei* is the natural logarithm of individual *i*'s household income; *Xi* is a vector of control variables; and *i* is the identically and independently distributed (i.i.d.) error term. The control variables include individual age, education level, gender, occupation, rural versus urban residence, and province. With regards to age, we divide the sample into three age groups: those under 30 years old, those over 30 years old but under 60 years old, and those over 60 years old. We use the group of over-60-years-old individuals as the base group. For educational level, we combine the categories into three groups: (i) those with some primary education or who have completed primary school (called the "some primary education" group)1; (ii) those with some secondary education or who have completed secondary school (called the "some secondary education" group); and (iii) those with at least some technical education or university-level education (called the "tertiary education" group). The last group is used as the base group. With regards to occupations, we combine those who are apprentices, unemployed workers (including voluntarily unemployed people), retired and disabled people, and students into one group of nonworking people and use this as the base group in this study. The remaining groups are self-employed people, salaried employees, and housewives.<sup>2</sup>

<sup>1</sup> None of the respondents has no primary education in either country.

<sup>2</sup> Housewives may also be viewed as nonworking people, but we still keep them as a separate group because they may play an important role in managing household finance.

### 3.3.1. Effects of Financial Literacy on Saving Behavior

To quantify the effect of financial literacy on saving behavior, the following equation is estimated:

$$Save\_i = \beta\_0 + \beta\_1 FL\_i + \beta\_2 Income\_i + X\_i \beta\_3 + \eta\_i \tag{2}$$

where *Savei* is a dummy variable, taking the value of one if the individual has any types of saving products and zero otherwise.<sup>3</sup> *FLi* is the financial literacy score, and *β*1 measures the effects of financial literacy on saving behavior. Other variables are defined the same as in Equation (1) and *ηi* is the i.i.d. error term.

### 3.3.2. Effect of Financial Literacy on Financial Inclusion

To quantify the effect of financial literacy on financial inclusion, the following equation is estimated:

$$FI\_i = \gamma\_0 + \gamma\_1 FL\_i + \gamma\_2 Income\_i + X\_i \gamma\_3 + \omega\_i \tag{3}$$

where *F Ii* is the financial inclusion score, *FLi* is the financial literacy score, and *γ*1 measures the effects of financial literacy on saving behavior. Other variables are defined the same as in Equation (1) and *ωi* is the i.i.d. error term.
