Money in dialogue: How financial conversations turn financial literacy into investment readiness among urban youth in Tanzania, a partial least squares structural equation modeling (PLS-SEM) approach

Although there is growing interest in enhancing financial inclusion in Sub-Saharan Africa, there is minimal youth involvement in investments, and this presents a glaring need gap in the economic empowerment of youth. It is crucial to understand how financial literacy can be translated into investment readiness, particularly in situations where investment opportunities and formal financial education are not evenly distributed, as is the case in Tanzania. Driven by the social learning theory, this research focused on the impact of financial literacy on the investment readiness of urban youth, placing much emphasis on the importance of financial socialisation as a mediator variable. A quantitative cross-sectional methodology, whereby the survey population consisted of the youth (aged 18-35) in Dar es Salaam, Arusha and Dodoma, was selected. Data were gathered using a stratified random-sampling technique on 387 respondents using a structured questionnaire and analysed using partial least squares structural equation modelling (PLS-SEM). It was found that financial literacy has a consistent prediction on financial socialisation and investment readiness. Financial socialisation was also found to have a significant direct impact on investment readiness and partially mediated the link between financial literacy and investment readiness, with the results supporting complementary mediation. These results point to the notion that financial literacy, in isolation, is less effective unless complemented with social processes of peer communication, family dynamics, and media. The paper finds that investment readiness is the result of cognitive and socially mediated learning. Suggested interventions include incorporating financial literacy into schools, establishing youth-led financial groups in schools and higher education institutions, providing youth-related financial training to parents and other community stakeholders, and developing youth-friendly investment products by financial institutions and fintech innovators. Together, these interventions have the potential to bridge the gap between financial literacy and real-life investment actions, which in turn would help achieve financial inclusion in Tanzania.