FINANCIAL LITERACY AND HOUSEHOLD CONSUMPTION DYNAMICS IN KENYA: A BEHAVIORAL ECONOMICS PERSPECTIVE ON EMERGING MARKET CONSUMER DECISION-MAKING

Abstract

This research examines the complex relationship between financial literacy and household consumption patterns within Kenya’s dynamic and fast-changing economy. Grounded in behavioural economics and employing structural equation modelling via partial least squares (PLS-SEM), the study investigates how financial literacy shapes Kenyan household spending decisions. Using a comprehensive dataset of 485 respondents drawn from diverse demographic groups across urban and peri-urban areas, the analysis explores the mediating and moderating mechanisms that underpin financial decision making. Findings indicate that financial literacy exerts a significant influence on household consumption dynamics through multiple pathways, including enhanced planning and budgeting capabilities, improved risk assessment, and more disciplined savings behaviour. Kenyan households with higher levels of financial literacy display more optimised consumption patterns characterised by greater savings propensity, more strategic allocation of expenditures, and reduced impulsive spending. The study also identifies important demographic moderators (age, income, and educational attainment) that strengthen or weaken the relationship between financial literacy and consumption choices. These results contribute to the literature on consumer behaviour in emerging markets and offer actionable implications for financial education and inclusion policy in Kenya. By integrating behavioural economics principles with empirical evidence from a transitional economy, the research provides a theoretical framework and policy guidance for designing targeted financial literacy programmes that promote healthier household consumption, greater savings, and improved economic resilience.