The nexus between parental financial literacy and child labor in Indonesia

Purpose As a country with the fourth-largest population in the world, Indonesia is not exempt from child labor issues. The phenomenon of child labor in Indonesia is closely linked with the role of parents as the main decision-makers in a household. This study aims to determine the relationship between parental financial literacy and child labor. Design/methodology/approach Financial literacy was measured through parental knowledge of lending institutions and their ownership of savings accounts. The sample in this study was limited to children aged 10–17 years in the 2014 Indonesia Family Life Survey (IFLS) dataset. To estimate the association between parental financial literacy and child labor, this study analyzes the likelihood of children participating in work activities using a bivariate probit model. Findings The statistical results showed that the two variables explaining parental financial literacy are negatively associated with the likelihood of a child engaging in labor activities. This inverse relationship suggests that if credit is available and parents already have savings or know where to borrow to cope with negative income shocks, they may not have to send their children to work. Social implications This empirical evidence corroborates the notion that policy interventions directed toward increasing financial literacy within households could serve as a potential strategy for mitigating the prevalence of child labor. Originality/value This study builds on the existing literature by providing empirical evidence on the role of parental financial literacy in mitigating child labor in Indonesia. Peer review The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-07-2024-0611