Financial Literacy and Investment Decisions amongst Small-Scale Tea Farmers in Bomet County, Kenya
Authors: Beatrice Chepngenoh  , Dr. Margaret Waruguru  
Published: February 2025

Financial literacy is becoming a major concern because of the financial complexity that has increased in the world economy. Lack of individual commitment to investment puts many households in a state where they cannot meet their short-term and long-term financial needs. However, many factors are known to influence investment decisions. The lack of financial literacy may hinder their ability to make sound investment decisions that could improve their economic status. Without proper financial knowledge, farmers might not be able to invest effectively in their farms, diversify their income sources, or save adequately for future needs. This mismanagement contributes to the persistently high poverty levels in the county. The main objective of this research was to determine how financial literacy affects small-scale tea farmer’s investment decisions in Bomet County. The specific objectives were to determine how small-scale tea farmers’ investment decisions are influenced by their knowledge of borrowing, budgeting, saving, and record-keeping. The target population for this study was small-scale tea farmers in the Bomet Central sub-county. Descriptive survey design was used to select the target population. Simple random sampling was employed in sample selection. The Statistical Package for Social Sciences Version 22.0 programme was used in data analysis. Data analysis involved both descriptive and inferential statistics, and the results of the analysis were presented in tables. A pilot study was conducted to determine the validity and reliability of the questionnaire. According to the reliability test results, the Cronbach alpha values were (α =0.882), (α=0.791), (α=0.0.877), (α=0.713) and (α=0.734) for saving literacy, borrowing literacy, budgeting literacy, record keeping literacy and investment decisions respectively. The result means that the questionnaire was reliable for data collection in the main study. Descriptive findings established that financial literacy, including saving literacy, affects investment decisions while borrowing literacy, budgeting literacy, and record-keeping literacy have no significant relationship. The correlation statistical results showed that the correlation coefficients were (r=0.191**; p=0.28), (r=-0.044**; p=0.614) (r=-0.007*; p=0.933), and (r=0.84**; p=0.340) for saving literacy, borrowing literacy, budgeting literacy, record keeping literacy .respectively. As per the results, the relationship between financial literacy and investment decisions was significant. Therefore, all the financial literacy affected the investment decisions of small-scale tea farmers. In regression analysis, the beta coefficients were (β=0.174; p=0.036) (β=-0.022; p=0.805) and (β=0.055; p=0.501) and (β=0.041; p=0.647) for saving literacy it has a positive effect while borrowing literacy, budgeting literacy has a negative effect, and record-keeping literacy shows a slightly positive effect.
The research hypotheses were tested at a 95% confidence level, and the analysis revealed that saving literacy had a significant positive effect on investment decisions, with a coefficient (β = 0.174) indicating a substantial influence. Conversely, borrowing literacy (β = -0.22), budgeting literacy (β = -0.055), and record-keeping literacy (β = 0.041) were found to have no significant effect on investment decisions. The study concluded that enhancing saving literacy is crucial for improving investment decisions among small-scale tea farmers, while the impact of borrowing, budgeting, and record-keeping literacy was less pronounced. The study recommended that all tea farmers should ensure that there is continuous enhancement of saving literacy as these programs should focus on teaching effective saving strategies, goal setting, and the benefits of maintaining savings for future investments, as well as implement training programs that teach practical budgeting skills, emphasizing the importance of financial planning and resource allocation.