The effect of financial services utilization on financial health: Insights from the Ghanaian experience

Expanding access to financial services has been linked with improvement in welfare outcomes and has been touted as a tool for achieving sustainable development. Recent literature also links access to financial services to financial health and the achievement of personal goals. This study provides evidence to support a strong link between financial inclusion and the financial health of individuals, making several contributions to the literature. First, we use a nationally representative dataset to demonstrate the link between financial inclusion and financial health. Second, we employ the recursive bivariate Probit estimation technique to deal with the possible endogeneity that may emanate from unobserved heterogeneity and reverse causality. Third, we assess the impact of the diverse use of financial services—insurance, savings and credit— and the pathways from financial inclusion to financial health. Our results show that the usage of insurance, formal credit, as well as formal and informal savings, enhances the financial health of Ghanaians. We also find that using a variety of financial services significantly improves individuals' financial health. In addition, we adequately discuss the pathways from financial inclusion to financial health. Based on these findings, we make recommendations for policy and practice.