The Role of Education in Shaping Quantitative Reasoning and Financial Literacy of Urban Tribal Street Vendors: A Field Study in Mizoram,India

Abstract

The paper discusses the relationship between cognitive ability and the level of education attained by urban street vendors on their financial literacy. A field study was conducted on 203 tribal street vendors in the northeastern Indian state of Mizoram. We asked six questions on mathematical ability (determining cognitive ability) and three each on financial and debt abilities (determining financial literacy). We then generated scores, namely math, financial and debt scores. The correct answer to each question was awarded a score of one, and a zero otherwise. We applied the ordered logit regression model. The results show that street vendors’ mathematical and financial abilities correlate. With an increase in educational attainment, there is a growth in cognitive ability, which positively affects the financial literacy of street vendors. The study attempts to draw a particular focus on an economically, socially and geographically unique set-up. Its findings contribute to understanding financial literacy in an understudied area and offer policymaking implications.

JEL Classifications: G53, G51, P25

Keywords

Cognitive ability education financial ability financial literacy ordered logit regression street entrepreneurs tribals

Introduction

Financial literacy is critical in a highly populated nation like India, mainly when most of its population is employed within the informal economy. Financial literacy among the self-employed, such as street vendors, has gathered significant attention in the informal economy. This is because street vending is a day-to-day business that requires knowledge of financial accounting, budgeting and saving (Lopus et al., 2019). This knowledge is said to be optimized when cognitive abilities increase through higher education levels (Bhowmik & Saha, 2011).

Education plays a significant role in the financial decision-making of street vendors. Most studies have reflected that the number of years in education positively affects better mathematical and financial aptitude abilities (Al-Jundi et al., 2020; Engström & McKelvie, 2017). Nevertheless, street vendors in many developing countries cannot afford education, narrowing their options to better knowledge of formal financial services (Al-Jundi et al., 2020).

To analyze the everyday decision-making ability of the street vendor, we surveyed an understudied area of Mizoram in Northeast India. Women in this state are more dominant in the informal self-employed and entrepreneurial economic activities than in other states in India (Lyngwa & Sahoo, 2022).

The study is driven towards inquiring about the financial literacy of the urban tribal street vendors, adding to the existing qualitative work on financial literacy. Therefore, in this article, we understand the cognitive ability and financial literacy achievements of the tribal street vendors in the urban informal economy by thoroughly investigating the association of these factors with the street vendors’ education and other socio-economic and business characteristics.

The results presented in this article highlight that education has a crucial role in determining cognitive ability and that cognitive ability positively correlates with financial ability and is significant for financial literacy. Further, narratives from the field highlight that trade unions played an active role in enhancing the financial knowledge of street vendors. We present that there is a profound need to understand the measurement of cognitive ability and financial ability among the tribal street vendors and provide policy suggestions discussing both strengths and limitations in influencing the financial behaviour of the street vendors.

The structure of the paper is as follows. The second section presents the literature review on how financial literacy matters to street vendors and the role of education on street vendors. The third section discusses the theoretical framework. The fourth section presents the methods. The fifth section reports the results, followed by the sixth section presenting the discussion and conclusion.

Literature Review

How Does Financial Literacy Matter to a Street Vendor?

Financial literacy has gained worldwide importance because of the increase in formal financial tools and digital transactions. Financial decisions are crucial to people’s economic behaviour (Lusardi & Mitchell, 2008). It aids in better wealth accumulation and savings (Jappelli & Padula, 2013). However, many individuals in the developed and developing economies lack financial literacy.

A US household data study observed that middle-aged borrowers were sound in financial knowledge. At the same time, younger and older individuals had a U-shaped pattern based on their financial mistakes (Agarwal et al., 2009). A positive and significant correlation between financial literacy and loan repayment was also documented in Ghana (Agyapong & Attram, 2019).

Financial literacy among the working-age population in India is critical. This is a matter of concern as most individuals need knowledge of loan repayment and saving habits (Lusardi & Mitchell, 2008, 2011, 2014). In the informal economy, the lack of financial knowledge questions the street vendor’s ability to make potential economic decisions and choices (Engström & McKelvie, 2017).

Financial literacy aids in better profits and management of enterprises for a street vendor. It helps them become less vulnerable when dealing with suppliers, consumers and middlemen. It also encourages them to make better decisions regarding cost and profit. An absence of financial literacy can cause an easy inclination towards informal moneylenders and unlicensed informal financial organizations that charge higher interest rates (Baidoo et al., 2018).

Many street vendors lack financial accessibility and services (Ramana & Muduli, 2019; Saha, 2011). Less educated street vendors often show reluctance to access formal banking services because they fear illegality in business operations. This factor acts as a disadvantage for them. They are unaware of their business’s varied loans and programmes, which makes them easily misled and trapped within the long-term loans and debts of the informal moneylenders (Saha, 2011).

In India, street vendors have been documented as ignorant of the current interest rates and the need for investment in working capital (Bhowmik & Saha, 2011). The lack of these benefits hinders their chances of better economic and social growth.

The understanding of financial literacy among street vendors can best be associated with a quote by Nobel Laureate Muhammad Yunus (2006). The quote suggests that it is not the seed that determines the growth of the bonsai tree. Instead, the soil’s base determines the tree’s growth (Engström & McKelvie, 2017). We can use this analogy to compare the economic growth of street vendors in the urban informal economy. Street vendors are often overshadowed by concerns of poverty and unemployment rather than stressing that good educational attainment, skills and financial literacy can help determine their long-term growth.

To the best of our knowledge, a limited study on understanding the financial decision-making of street vendors is highlighted. The literature review had caveats on the range of challenges, such as the importance street vendors give towards savings and long-term planning and whether street vendors were financially literate. These aspects need special consideration within the body of literature. In our study, we attempt to understand these issues.

The study does not aim to develop a theoretical model of financial literacy and cognitive ability. Instead, it seeks to develop an empirically useful and concise indicator for testing meaningful hypotheses. It is well known that a strong correlation exists between education, cognitive ability and financial literacy. For this reason, it becomes essential to review how education has been addressed in the extant literature before analyzing its impact on individuals’ cognitive abilities and financial literacy outcomes (Gaurav & Singh, 2012).

Financial Literacy and the Role of Education

Education plays an active role in the attainment of higher cognitive ability. In many developing countries, the educational levels are proportionately low due to increased population, poverty and higher rural-to-urban migration (Al-Jundi et al., 2020). Studies have emphasized the importance of cognitive abilities in grasping a better and unbiased approach towards understanding financial literacy (Lusardi & Mitchell, 2014).

Cognitive ability can further be divided into two categories: fluid and crystallized intelligence (Ozawa et al., 2022). The former determines the abilities one gains through an increase in education. In contrast, the latter determines the innate abilities achieved through skills passed on from generation to generation and through the increase in age. Workers have been observed to have better cognitive abilities, especially when they have fluid intelligence (Watrin et al., 2022).

The cognitive ability attained through increased years of education is also termed mathematical ability (Yu et al., 2017). Mathematical ability helps in better decision-making of financial and debt-related matters, especially concerning interest rates and inflation within the economy. Studies have observed that for a street vendor, only a basic primary level education is insufficient to generate higher incomes in the future, and there is no positive correlation for the same (Al-Jundi et al., 2020; Smith & Metzger, 1998). Educational attainment also determines the financial capabilities of an individual (Ramana & Muduli, 2019).

The financial capabilities of an individual help make financial literacy achievable. In a seminal work by Amartya Sen, capability is described as a power that an individual possesses to make basic socially minimum choices (Nussbaum & Sen, 1993). Capability also determines the ability of an individual to understand, value and practise the same for the well-being of their lives (Nussbaum & Sen, 1993).

The literature on education and financial literacy provides an extensive understanding towards analyzing the role of higher education and its positive effect on financial ability (Figure 1). They determine the positive association of the same and deliver a deeper understanding and support to our methodology, as discussed in the following section.

Theoretical Framework

Traditional economic models often assume that rational actors make optimal decisions based on complete information. However, the assumption is often observed to fail in capturing the decision-making behaviour, especially of street vendors in the informal set-up. The present study incorporates the framework of behavioural economics wherein concepts like bounded rationality (Simon, 1955), heuristics and cognitive biases (Kahneman & Tversky, 1979) and mental accounting (Thaler, 1985) offer a more in-depth and conceptually grounded analysis of street vendors’ financial behaviour.

Bounded rationality refers to the decisions that an individual makes based on information limits, cognitive capacity and time constraints. Street vendors, due to minimal education, financial knowledge and considerable uncertainty, are prone to make decisions that do not provide them with maximum utility. This creates a condition of heuristics, which are simple rules or mental shortcuts that provide an effective mechanism for navigating daily financial decisions. The concept of mental accounting helps us understand how vendors distribute their income into categories like festival savings, daily earnings and children’s school fees instead of treating money as fungible. This directly affects the behaviour of street vendors in terms of saving and spending. By adopting these insights into financial behaviour into the theoretical framework of this study, a clear understanding of the irrational yet adaptive financial strategies adopted by street vendors for their socio-economic aspects and institutional exclusions is analyzed.

Methods

Study Sample

The study is completed through primary data collection in the northeastern state of Mizoram. The state’s population comprises tribals with a significant religious dominance of Christianity. Mizoram ranks third in India’s literacy rate ranking (Census, 2011). The state has a dominant agricultural practice of ‘slash and burn’. Recently, with the increase in urbanization and adverse land crunch, most people have engaged in informal businesses, including street vending.

Our field study concluded with detailed information on 203 street vendors in the capital city, Aizawl. We used stratified sampling and divided street vendors based on vendor type, the goods they sold, the marketplaces and their marital status. Five major markets of the city were chosen. These market spaces were based on the literature on ‘street vendors and natural markets’ (Bhowmik, 2010). The markets were Treasury Square, Bara Bazaar, Thakthing, Khatla and Electric Veng.

We gathered information on sociodemographic status, entrepreneur characteristics and financial literacy. A structured questionnaire was formed with both closed- and open-ended designs. The questions on sociodemographic profile were adopted from the National Sample Survey 2017–2018, and the questions on entrepreneur characteristics and financial literacy were framed through contemporary literature (Lusardi & Mitchell, 2008, 2014, 2011; Martinez & Acevedo, 2018; Truong, 2018).

Each questionnaire took an average of 30–40 min with a single street vendor. Questions were asked in Mizo (local language) and are presented after translation, along with pseudonyms for each street vendor in this paper. It is to be noted that due to the outbreak of the COVID-19 pandemic, street vendors were restricted from accessing pavements for vending. Hence, due to the guidelines and restrictions of COVID-19, we had to limit our study. To add more insightful information from the field, we have reported a few results in the form of narratives aligned with our key variables. The narrations are presented to add more clarity to our results and discussion.

In Table 1, we observe the socio-economic and financial characteristics of the street vendors. Street vendors’ mean average age, 49.34, was observed to be the highest in Treasury Square and the lowest in Thakthing, 45.65. This may be attributed to the fact that most street vendors in Treasury Square were regular street vendors. They had access to the workplace and were less likely to be pulled out from their vending location. The tendency to stay in the same place for a long time encouraged better security among older adults.

Table 1.

Sociodemographic and Financial Characteristics.

Place of Vending	Age	Profit	Family Size	Gender	Years of Education	Bank Account	Loan
				Female = 1		Yes = 1	Yes = 1
				Male = 0		No = 0	No = 0
Treasury Square
Mean	49.34	6,467.39	4.521	0.673	6.63	0.891	0.130
SD (n = 46)	1.648	817.93	0.242	0.069	0.602	0.046	0.050
Bara Bazaar
Mean	46.04	4,927.55	4.775	0.755	6.551	0.795	0.061
SD (n=49)	1.958	597.66	0.289	0.062	0.626	0.058	0.034
Thakthing
Mean	45.17	6,952.5	4.375	0.775	6.1	0.8	0.2
SD (n = 40)	1.811	15,30.95	0.2812	0.066	0.676	0.064	0.064
Khatla
Mean	45.65	4,831.42	4.542	0.828	6.457	0.857	0.085
SD (n = 35)	1.868	654.09	0.323	0.064	0.688	0.060	0.048
Electric Veng
Mean	7.78	6,424.24	4.393	0.727	5.818	0.878	0.242
SD (n = 33)	2.419	1,530.95	0.339	0.078	0.703	0.057	0.075

Source: Field survey (2021–2022).

Note: SD is the standard deviation.

Street vendors in Thakthing often travel from villages to sell their goods, but they are not found in the exact location or market space. We also observed that the street vendors in Thakthing had a higher mean profit of 6,952.5 than other natural markets in the city (Table 1). This could be because it is one of Aizawl’s primary and most visited natural markets. The street vendors in Thakthing were mostly migrants or vendors who travelled from rural areas to the city. They primarily sold goods from their produce.

The street vendors in Bara Bazaar had a larger mean family size, 4.7. Bara Bazaar also comprised irregular and migrant street vendors. Females, accounting for a mean of 0.828, dominated the street vending market in Aizawl and were observed to be the highest in Khatla. They were active entrepreneurs in the city. This was unique to the contemporary observation of street vending in India, where males were significantly more dominant. Street vendors in Treasury Square had a higher mean year of education, 6.63, and access to bank accounts, 0.89. Their permanent vending place gave them better workplace security. Moreover, they were also associated with trade unions, which kept them updated.

Most of the street vendors in these markets had an intergenerational composition. A few claimed that they were graduates. However, they voluntarily carried out the occupation as their parents or grandparents followed it. In Electric Veng, we observed that 0.242 street vendors were observed to access the most loans. They were more aware of formal and informal financial services and were motivated to increase their business.

Assessment of Scores and Achievements

We divided the street vendors’ cognitive¹ and financial abilities into various categories. The questions on mathematical ability determine the cognitive ability of the street vendors, and the questions on financial ability and debt ability decide their financial literacy. Questions were then structured to test cognitive and financial abilities. Another dimension for capturing cognitive ability is probability ability. However, we have not applied this technique to the study. The questions for financial literacy were adopted from the contemporary work on financial literacy (Lusardi & Mitchell, 2008, 2011, 2014).

In this study, we have defined cognitive ability through a quantitative reasoning test that measures basic mathematical aptitude. Although cognitive ability encompasses mental functions such as memory, verbal skills and logical reasoning (Yu et al., 2017), the present study has, however, drawn inspiration from Gaurav and Singh (2012), who deliberately separated cognitive ability and financial ability to understand their distinct roles in financial literacy outcomes. Adopting their approach towards the study, we have also used separate indicators of cognitive ability (based on numeracy and logical reasoning) and financial literacy (based on knowledge of financial knowledge and decision-making skills). The present study focuses on mathematical aptitude as a proxy indicator. This was done to emphasize its significance in financial decision-making due to the practicality of field-based assessments.

The questions on mathematical ability had six questions on numerical skills. Likewise, we framed three questions for financial ability and three for debt ability. We set up the questions in a pattern. We placed simple questions at the beginning of the study and then progressed to more difficult ones. For each correct answer, we gave a score of one. For each wrong answer, we reported a zero. For instance, if the street vendors answered all questions correctly in the section on mathematical ability, they were given a score of 6/6. In case a question was answered incorrectly, the score was 5/6. Likewise, a similar pattern was also applied for questions on financial ability, where 3/3 determines that all answers are correct, and 1/3 or 2/3 decides either one answer is correct or two answers are accurate.

We created variables, math category, financial category and debt category, to determine this ranking into three orders (Table 2). The orders were placed as low, medium and high, where low is determined by zero and high is determined by one.

Table 2.

Generating Ordinal Outcome Variables from Continuous Test Scores.

Cognitive Ability		Financial Literacy
Math Category	Math Score	Financial Category	Financial Score	Debt Category	Debt Score
1. Low	0–0.33	Low	0–0.33	Low	0–0.33
2. Medium	0.33–0.66	Medium	0.33–0.66	Medium	0.33–0.66
3. High	0.66–1.00	High	0.66–1.00	High	0.66–1.00

Note: Here, the math category, financial category and debt category are ordinal and created from the scores of the continuous variable on the questions from math score, financial score and debt score.

Econometric Analysis

Raw scores for cognitive ability and financial ability were recorded; however, in our final analysis, we used the ordered categories (high, medium and low), which are derived from the distribution of scores through percentile-based thresholds. This categorization of variables offers a conceptual and practical difference between the ability levels, which provides a more policy-driven perspective than minor score variation. Therefore, we applied the ordered logit model to analyze our data, owing to the ordinal nature of our dependent variables, including the mathematical, financial and debt categories. Specifically, we represented the level of achievement in the score with the symbol J, as per Cameron and Trivedi (2022).

s^{*} = x_{i} β + ε_{i}

(1)

s = k if δ_{k - 1} \leq s_{i}^{*} < δ_{k} for k = 1, \dots, J; i = 1, \dots, N; δ_{0} = - \infty; δ_{k} = \infty

(2)

Here, s* is the unobserved latent variable of the ability of street vendors, and it progressively crosses higher thresholds.

Regarding the econometric analysis of ordered logistic regression, one fundamental assumption is that the outcome variable and achievement scores should be consistent across adjacent categories, implying identical odds between adjacent categories. This similarity between pairs of achievement levels and the outcome variable leads to using a single set of coefficients (Gaurav & Singh, 2012).

The proportional odds assumption, also called the parallel regression assumption, is a fundamental assumption of the ordered logistic regression model. It posits that the relationship between predictor variables and the outcome variable is constant across all levels of the outcome variable, meaning that the coefficients of the predictor variables remain uniform across all categories of the dependent variable. Consequently, we applied the Brant and Lagrange multiplier (LM) tests to avoid the potential violation of the proportional odds assumption (William, 2008). The statistical results presented in Table 6 confirm that the assumption is satisfied, thereby validating the use of ordered logistic regression for our data analysis. To adhere to the parallel regression assumption, we modelled each category separately using one model per achievement level, thereby avoiding diverse models depicting the relationship between each pair of the outcome variable (Grilli & Rampichini, 2021).

Results

We discuss our results in four major subgroups. First, we present the Pearson correlation test between the street vendors’ cognitive ability (math skills) and financial ability (financial and debt skills). We then discuss the questions asked to the street vendors on the field, testing their achievement scores and bookkeeping habits. Finally, we present the results from the ordered logit regression model.

Correlation of Cognitive Ability and Financial Literacy

We observed that all three variables are highly correlated with each other, and their coefficients are statistically significant. Debt and financial scores (63%) are observed to be highly related. The second highest correlation is observed between financial and math scores, followed by debt and math scores. However, these results do not determine the effect of the cognitive ability of street vendors on financial literacy (Table 3). It helps us understand the bivariate association of the variables. The influence and determinants of cognitive and financial ability on street vendors are discussed in the following subgroups of this section.

Table 3.

Pairwise Correlation of Cognitive Ability and Financial Literacy.

	Math Score	Financial Score	Debt Score
Math score	1
Financial score	0.4358***	1
Debt score	0.3511***	0.6385***	1

Notes: Identical scoring was employed to rank the variables, as provided earlier in Table 2. Here (***) indicate statistical significance at the 99% confidence level, with p <0.0001.

Street Vendors and Their Achievement Scores for the Test Conducted

To analyze the achievement scores in percentage and to determine the knowledge in financial literacy, we divided the question into the cognitive and financial ability of the street vendors. The questions asked of the street vendors were framed with prevailing literature on the same (Gaurav & Singh, 2012; Lusardi & Mitchell, 2008, 2011, 2014).

Cognitive Ability

The cognitive ability of the street vendors is calculated based on their knowledge of basic mathematical skills such as addition, subtraction, multiplication and division. We began with a simple numerical question and proceeded to difficult ones. Ninety-one per cent of the street vendors answered the question on addition (Table 4). The second most accurately answered question was on subtraction, with 73% accuracy. However, as we proceeded to ask more complex questions, we observed that the response rate to correct answers started declining, and towards the final question, the accuracy of correct answers dropped.

Table 4.

Percentage and Mean of Questions on Cognitive Ability and Financial Literacy Answered Correctly.

Sl No.	Description of Questions	Correct Answer (%)
	Cognitive ability
1.	Math score (mean 0.650)
1.1.	How much is 7 + 9?	90.64
1.2.	How much is 88 – 35?	73.40
1.3.	How much money do you have if you have ₹48 and someone gives you ₹58?	68.47
1.4.	Suppose you want to buy sweets that cost ₹37. You only have ₹100. How much change will you get?	68.47
1.5.	What is 3 × 6?	67.49
1.6.	What is one-tenth of 700?	22.66
	Financial literacy
2.	Financial score (mean= 0.160)
2.1.	Suppose you borrowed money from a moneylender of ₹100, and the rate of interest is 2%. How much would you owe?	14.29
2.2.	Suppose you need to borrow ₹500. Two people offer you a loan. One loan requires you to pay ₹600 in 1 month. The other loan requires you to pay ₹500 plus 15% interest for 1 month. Which loan represents the best deal for you?	23.65
2.3.	Imagine that you saved ₹100 in a savings account and earned an interest rate of 1% per year. If prices were increasing at a rate of 2% per year, after 1 year, would you be able to buy more than, less than or the same amount as today with the money in the account?	32.02
3.	Debt score (mean=0.087)
3.1.	Suppose you owe ₹1,000 to a bank, and the interest rate you are charged is 20% per year compounded annually. If you did not pay anything off at this interest rate, how many years would it take for the amount you owe to double?	0.49
3.2.	You borrow ₹3,000 from a moneylender. You pay a minimum payment of ₹30 each month. At an annual percentage rate of 12% (or 1% per month), how many years would it take to eliminate your debt if you made no additional new charges?	0
3.3.	You purchase a TV that costs ₹1,000. To pay for this, you are given the following two options: Pay 12 monthly instalments of ₹100 each. Borrow at a 20% annual interest rate and pay back ₹1,200 a year from now. Which is the more advantageous offer?	25.62

Note: These were the questions asked in the field survey. The mean here is limited to only a single component of the questions in Table 4 (math score, financial score and debt score). The answers to ‘do not know’ were also stated as wrong and were allotted zero.

Financial Literacy

We divided this section into two parts to analyze the street vendors’ financial ability. Questions were asked about financial transactions such as simple and compound interest rates, savings, borrowing and loans. We observed that 32% (Table 4) of the street vendors accurately answered the question (2.3). This shows that street vendors were aware of inflation and savings rates. They answered the question on borrowing and loans with 24% accuracy. Nonetheless, the least correct answer was on borrowing from the moneylenders and interest rates, with only 14% accuracy.

The preceding section (Table 4) discusses the questions on debt. Street vendors were asked three questions in this section. We observed that only some could answer the question of debt with moneylenders and interest rates. Question (3.2) on compound interest and loans from banks was also scarcely answered by only 0.49% of the street vendors. However, the question on purchasing a TV set with offers had 26% of the people answering it accurately, which is the highest in this section.

The questions in these two sections define the basic understanding of a street vendor’s knowledge of mathematical and financial abilities, determining their financial literacy. These questions reflect that most street vendors had good mathematical skills, yet many were naïve about moneylenders, borrowings and interest rates. On the contrary, street vendors were aware of savings and inflation rates. Although these questions give us a better understanding of the financial literacy of street vendors, they are insufficient to justify the role of education and accounting habits of street vendors. This is explained in the following sections of the paper.

Bookkeeping Habits of the Street Vendors

Bookkeeping habit facilitates financial literacy. It aids in acquiring financial knowledge and information about the individual’s savings, loans and other financial activities relating to their habit of budgeting (Reserve Bank of India, 2018). To understand the street vendors’ bookkeeping habits, we asked them whether they were recording profits, daily expenditures on business, household expenses and their place of record. This was done based on gender, vendor type and nature of the street vendors’ commodities. Results are presented in Figures 2 –5.

We observed that most women recorded their profits, daily expenditures in business and monthly household consumption (Figure 2). Women dominated the street vending business and were more visible on the city’s streets. They were observed in different types of vending, such as regular, irregular and mobile.

In the case of the type of vendor (Figure 3), we observe that the regular vendors kept a record of their profits and daily expenditure in business and household expenditure, as compared to the irregular and mobile vendors. It was also observed that regular street vendors had trade union associations and social security measures. The irregular and mobile vendors lacked this opportunity. It can be intuitively understood that with an active association and security in their business, they were better aware of the importance of bookkeeping.

Regarding the nature of the commodity, we observed that street vendors who sold non-Mizo non-perishable goods recorded daily profit (Figure 4). In contrast, perishable goods selling food vendors were active in keeping records for household and daily expenditures in business. Street vendors selling food items had to be cautious in their daily expenditure and profit from their business due to the nature of their business. They had to maintain records of their daily expenses and profit.

Concerning the place of record, we observed that most street vendors did not record their profits and expenditures (Figure 5). While some noted them in a register or a book, others stated that they recorded the same in their minds. To determine the impact of financial literacy on street vendors’ cognitive and financial abilities, we discuss this aspect in the next section by applying the ordered logit model.

Ordered Logit Model on the Financial Literacy and Cognitive Ability of the Street Vendors

To test the hypothesis regarding the impact of education on street vendors’ cognitive and financial ability, we used the ordered logit regression model (Table 5). However, due to the concerns of selection bias, we have performed a propensity score matching (PSM) test with kernel matching with a calliper (0.1) and common support to address issues of endogeneity between educational attained and cognitive capacity (Tables S2–S7 in the supplementary material).

The results state that vendors with secondary education have shown a beneficial effect (average treatment effect (ATT) on the treated variables where, ATT = = 0.43; p < .01), while those with only primary or higher secondary education had significantly lower cognitive scores than matched controls (ATT = –0.45 and –0.39, respectively; p < .01), as per ATT estimations. These results point to a heterogeneity in the relationship between education and cognition, which most likely reflects contextual disadvantages or variations in the quality of schooling. Therefore, the robustness of our findings is further supported by PSM, which helps address selection bias and offers deeper causal insight, even though the ordered logit model displays a positive overall correlation.

We analyzed six models based on cognitive and financial abilities (math, financial and debt category). This was done individually, along with the control variables. Table 6 presents the results in coefficients. In Model 1 (Table 6), when the mathematical ability is less than 0.73, it is categorized as low math skills; above 2.77, it is high. The intermediate score represents a medium level of math skill. A similar pattern is also followed for financial scores and debt scores.

We observed that in all six models, there was a highly significant association between cognitive and financial ability. This proves that with the increase in educational levels, financial literacy increases. The results suggest that with higher cognitive ability, there is a higher financial ability. This is attributed to the increase in formal educational levels.

Table 5.

Operationalization of Variables for Ordered Response Regression.

Variable Name	Description	Measurement
Education category (ref. = illiterate)	Determines the category of education attained	Ordinal
Math category (ref. = low)	Determines the category of cognitive ability	Ordinal
Gender	Determines the gender of the vendor	Binary; female = 1, male = 0
Household size	Number of people at home	Continuous
Household head	Whether the head of a household	Binary; yes = 1, no = 0
Bank account	Access to a bank account	Binary; yes = 1, no = 0
Trade union	Association with trade union	Binary; yes = 1, no = 0
Type of vendor	The type of vendor	Dummy; 1 = regular, 0 = irregular/mobile
Type of commodity	Type of commodity	Dummy; non-Mizo non-perishable goods = 1, other = 0
Experience in business	Years of experience in business	Mean
Migration	Whether the street vendor is migrated	Dummy; migrated = 1, not migrated = 0
Monthly profit	The profit earned by the street vendor in a month	log
House lived in	House lived in	Dummy; rented = 1, otherwise = 0
Bookkeeping (proxy record of daily expenses)	Whether the street vendor is recording their daily expenses in business	Binary; yes = 1, no = 0
Financial decisions at home	Whether the street vendor makes financial decisions at home	Binary; yes = 1, no = 0
Ownership of land and farm	Whether the street vendors hold any land or farm	Binary; yes = 1, no = 0
Loan anytime	Whether the street vendor has taken any loan	Binary; yes = 1, no = 0

Table 6.

Predictors on Cognitive Ability and Financial Literacy.

Variable Name	Cognitive Ability		Financial Literacy
	Math Category	Math Category	Financial Category	Financial Category	Debt Category	Debt Category
	M1	M2	M3	M4	M5	M6
Math category (ref. level = low)
Medium	–		1.141***(0.374)	–	0.621**(0.331)	–
High	–		2.289***(0.351)	–	2.241***(0.331)	–
Education level (ref. = illiterate)
Primary	1.086**(0.472)	1.214**(0.526)	–	–0.1005(0.475)	–	–0.731**(0.414)
Secondary	3.529***(0.427)	3.751***(0.516)	–	1.712***(0.398)	–	2.492***(0.463)
Higher secondary	4.697***(0.707)	5.429***0.757	–	3.622***(0.646)	–	4.408***(0.799)
Bookkeeping		–0.117(0.319)		0.301(0.306)		0.796**(0.321)
Gender		0.094(0.457)		0.040(0.418)		0.489(0.415)
Household size		–0.102(0.095)		0.038(0.089)		–0.090(0.080)
Household head		–0.130(0.371)		–0.071(0.385)		–0.373(0.352)
Migration		0.592**(0.333)		–0.305(0.328)		0.551*(0.342)
Type of house		–0.434(0.503)		0.231(0.498)		–0.078(0.513)
Vendor type		0.575**(0.346)		0.661**(0.368)		0.160(0.337)
Type of commodity		–0.395(0.375)		–0.201(0.333)		0.388(0.307)
Profit		0.464**(0.200)		0.184(0.162)		0.159(0.182)
Experience in business		–0.001(0.021)		–0.013(0.016)		0.018(0.017)
Trade union		0.559(0.481)		0.132(0.402)		–0.125(0.420)
Bank account		–0.396(0.444)		–0.305(0.328)		–0.207(0.367)
Financial decision-making		–1.022(0.753)		–0.321(0.436)		–0.681(0.631)
Loan anytime		–0.134(0.507)		–1.159**(0.481)		–0.384(0.412)
Ownership of land or farm		0.047(0.156)		–0.001(0.155)		0.014(0.152)
Wald χ²	88.53***	112.66***	43.36***	76.37***	46.20***	64.64***
Pseudo R²	0.2447	0.287	0.1002	0.1789	0.1136	0.1902
Cut-1	0.737	2.349	0.736	1.299	0.511	0.783
Cut-2	2.778	4.534	2.603	3.447	1.753	1.781
χ² and p value for LM test of proportionality of odds	5.19	18.88	3.43	19.63	12.66	23.81
χ² and p value for LM test of proportionality of odds	0.158	0.399	0.179	0.354	0.18	0.161
Brant test χ² and p value	3.81	17.28	2.05	11.35	8.46	21.48
Brant test χ² and p value	0.283	0.504	0.359	0.658	0.15	0.256

Note: The results are presented in coefficients, and robust standard errors are provided within parentheses in the table. The table presents the odds ratio of the same results as supplementary (Table S1). Here * is p ≤ 1, ** is when p ≤ .5 and *** is when p ≤ .001. The odds ratio and propensity score matching test are provided in the supplementary material.

Analyses of the Mathematical Ability

Models 1 and 2 discuss the street vendors’ cognitive ability (Table 6). It shows that educational attainment plays a crucial role in determining the mathematical ability of street vendors (M1). A street vendor who had attained primary level education was 10 times more likely to have better cognitive ability than an illiterate street vendor. On the other hand, street vendors with secondary education were 35 times more likely to have better cognitive abilities than a vendor with no formal education, and street vendors having higher secondary education were 46 times more likely to have better mathematical abilities than street vendors with no formal education.

The result determines that higher education is crucial in determining higher cognitive ability in an informal economy. The association can further be observed in Model 2, where higher educational attainment significantly correlates with higher cognitive ability in street vendors. This aligns with the contemporary literature on educational attainment and cognitive ability, which states that street vendors who attained primary-level education had better mathematical ability than street vendors who had no schooling at all (Al-Jundi et al., 2020; Bhowmik & Saha, 2011; Saha, 2011). Likewise, street vendors with secondary and higher secondary schooling were more likely to achieve better mathematical abilities than those with no education (Baidoo et al., 2018).

Other control variables like regular vendors, migration and profit have also significantly affected cognitive ability.

In Model 2, we observed that regular street vendors had higher cognitive abilities and achievement levels than irregular and mobile street vendors. Regular street vendors had better access to the market and knowledge of mathematical skills than irregular street vendors. They were often observed to have associations with trade unions. Regular street vendors also gave considerable importance to trade unions. On the other hand, the irregular street vendors were migrants from rural areas searching for a better standard of living (Truong, 2018). Regular street vendors reflected a fluid cognitive ability in their approach to their business (Smith & Metzger, 1998) as they had minimal primary-level schooling.

In India, most street vendors who are migrants seek better income opportunities in urban informal sectors and are associated with lower cognitive ability (Bhowmik & Saha, 2011). Nevertheless, our findings do not align with the contemporary literature on street vending and migrants. In Model 2, we observe that migrated street vendors had higher cognitive abilities than non-migrant ones. Their cognitive ability can be connected to the similarities in the businesses they practised in rural areas (Smith & Metzger, 1998). Hence, their cognitive ability can be determined as crystallized cognitive ability (Ozawa et al., 2022).

Migrant street vendors stated that they had been in the street vending business, farming or other traditional businesses before migrating to the urban areas. They documented that they chose the occupation due to a lack of education. Nevertheless, they frequently mentioned that the street vending business was a much more profitable business than agricultural practices. Lalawmpuia, a 42-year-old man selling clothes, stated:

I have migrated to Aizawl city to have a better livelihood. Agriculture is less profitable than street vending, so I like doing it. (Translated from the survey, 2021)

Profitability was the driving force motivating street vendors to migrate to urban areas (Lyngwa & Sahoo, 2025). This is also reported in Model 2 of Table 6. There is a plethora of evidence suggesting that with the increase in cognitive skills, the income and profit of the individual also increase (Agarwal et al., 2009). Street vendors are often observed to get into the street vending business due to the lack of education and skills, less financial knowledge required and easier entry options. Our study posits that with higher profits, street vendors are more likely to have higher cognitive abilities than street vendors with lower profits.

Other control variables, such as gender, household size, household head, type of house and owning land or farm, are insignificant across all the models. It was interesting to observe that with respect to gender and their financial abilities, women have often been associated with being weaker planners (Lusardi & Mitchell, 2008). However, women in Aizawl dominated the street vending business and were in higher numbers than men. Still, we found no significant association of gender with cognitive ability.

Analysis of the Financial Literacy

The literature on the financial literacy of street vendors suggests that most street vendors depend on moneylenders for capital or other loans. This makes them fall into huge debt traps (Bhowmik & Saha, 2011). Street vendors lack awareness of formal financial systems and avoid them due to cumbersome regulations. Their illegality also discourages them from coming forward and benefiting from formal financial services. However, with the increase in online transactions after the COVID-19 pandemic, they have shifted mainly towards digital payment platforms. This calls for stakeholders involved in digital payment platforms, mobile banking, micro finances, policymakers and trade unions at the grassroots level to collaborate and provide practical strategies for uplifting, empowering and enhancing a street vendor’s socio-economic well-being. These strategies can help provide street vendors with the requisite knowledge of formal financial services and impart skills in utilizing and managing financial resources (Nandru et al., 2021). To understand the financial ability (financial and debt abilities) of the street vendors, we present results between Models 3 and 6. We initially tested the role of cognition on the financial ability of the street vendors. We applied the variable math category in Models 3 and 5. We observe that cognitive ability is highly significant in financial literacy. In both models, we observe that with the increase in mathematical ability from medium to high, street vendors were more likely to have better knowledge of debt than street vendors with low mathematical ability.

The chances of better decisions and debt knowledge were high for street vendors with higher mathematical abilities. This shows that higher mathematical abilities encourage better debt-related decisions than those with lower mathematical abilities. Financial literacy is, therefore, determined by the role of education attained by street vendors. This aspect regulates the need and importance of providing math skills to the street vendors, followed by financial skills.

Financial skills, training and knowledge can enrich and aid in educating street vendors on essential aspects like financial usage, affordability, accessibility and risks associated with financial technologies. This will make them aware and uplift their socio-economic status and business growth (Nandru et al., 2021; Ramana & Muduli, 2019). Since street vending is a heterogeneous occupation, with most vendors operating at different hours and selling various goods, clustering them into groups will ensure that their time and money are not irrecoverable during business hours.

In addition, Models 4 and 6 reflect similar results, stating that street vendors were more likely to have higher financial and debt decision-making capacity as their educational attainment increased from illiterate to higher secondary. We replaced the educational attainment variable with the cognitive ability to avoid multicollinearity. The results prove a significant association and impact of educational attainment on street vendors’ cognitive ability. It suggests that a street vendor can gain more expertise in financial decision-making as an entrepreneur and emphasizes street vending as a regular activity. This, in turn, increases a street vendor’s financial capabilities.

During our field study, regular street vendors were observed to have access to permanent operating space and trade unions, which gave them better contact and awareness of financial services (Ramana & Muduli, 2019). This is also reflected in Model 4, where regular street vendors are more likely to have higher financial abilities than irregular street vendors. However, regular vendors were smaller in composition than irregular street vendors that had migrated. Nevertheless, despite their irregularity, migrated street vendors were more likely to have higher debt knowledge than non-migrants.

In Model 4, concerning loan repayment, we observe that with the decrease in loan repayment, the financial abilities of the street vendor also increase. Street vendors frequently depended on informal agencies (Saha, 2011). The knowledge of availing and accessing loans depicts higher financial abilities. A significant factor, as observed in the field, was the outbreak of the COVID-19 pandemic, after which many feared accessing loans as they could not recoup the losses experienced during the state-enforced lockdowns. This was also a time when trade unions played an essential role in providing financial and social awareness to street vendors.

While the regression analysis does not show a statistically significant effect of trade union membership on the selected outcome variable, this does not necessarily imply that trade unions are irrelevant or ineffective. Instead, the qualitative data gathered during fieldwork suggest that trade unions may influence vendor welfare through indirect and non-economic channels, such as increased visibility, collective negotiation power or emotional support, especially during times of crisis like the COVID-19 pandemic. Several respondents cited instances where union membership helped them resist eviction, access information on schemes or coordinate during market closures. These forms of support may not always translate directly into measurable improvements in income or financial literacy. Still, they represent essential dimensions of informal institutional functioning that are not fully captured in the regression model. This highlights the value of a mixed-methods approach in revealing the layered realities of street vendor livelihoods.

Despite being insignificant in all the regression models, trade unions have been crucial in providing accessibility to loans for street vendors. A 32-year-old woman named Lalrinpuii, who sells clothes, said:

Trade unions can help considerably in increasing the growth of the business. I know how to get money through loans. (Translated from the field, 2021–2022)

The observations and narrations from the field show that regular street vendors and street vendors accessing loans and credit require formal support from a trade union. This can increase their status and help them access better formal financial knowledge and services. The street vendors also believed that not taking a loan was a better way of dealing with loan repayments.

In Model 6, concerning loan repayment, we observe that street vendors who did not keep records of their daily expenses and savings were more likely to have higher debt abilities than those who maintained records. This was an interesting observation, as street vendors with bookkeeping habits were often observed to have better debt management abilities. This could be attributed to street vendors’ belief that accessing loans and keeping records could lead to more failure in their debt abilities; therefore, they would not access the same.

Our study highlights that education has a significant role in predicting both cognitive ability and financial literacy. The findings indicate that education has a direct relationship with enhancing both cognitive abilities (captured through quantitative reasoning) and financial aptitude instead of a three-way association.

Other external stimulants, like awareness, education, trade unions and regular vending, encouraged better financial literacy among street vendors. This is crucial because the study is reported from a tribal state of India that has long depended on primitive economic practices. An activity like street vending can encourage and open doors for better entrepreneurial growth within the state. Therefore, financial literacy among street vendors can be a small step towards the holistic development of tribal self-employed informal workers.

Discussion and Conclusion

Our study reflects that educational attainment is essential for higher cognitive skills and financial literacy. The study documented that cognitive ability positively affects street vendors’ financial literacy. Regular street vendors had better access to financial tools and services. They had fluid cognitive skills, while the migrants were sounder in their crystallized cognitive abilities.

However, there is a plethora of existing literature that has often highlighted the positive association between education, cognitive ability and financial literacy (Lusardi & Mitchell, 2014; Yu et al., 2017). The present study contributes to the existing literature by understanding and contextualizing this relationship within the informal economies, especially in the context of a tribal region in Northeast India. This adds to the empirical evidence of a relatively understudied population of urban informal street vendors who have already been facing socio-economic and institutional constraints. Unlike most studies, which often address such issues through nationally representative surveys and urban metropolitan cities, this study combines both quantitative measurements reflected through aptitude and qualitative measures replicated through narratives highlighting the lived experiences of tribal street vendors.

The study suggests that even with basic primary-level schooling, street vendors not only gain cognitive abilities but are also capable of making better financial decisions and reflect enhanced financial behaviour, especially when there is a lack of accessibility to formal financial institutions. This underscores the importance of education as a capacity-building resource for street vendors in low-income settings.

With respect to financial behaviour, we observed that most street vendors reflected several behavioural patterns, as identified in the literature. For instance, most street vendors during the survey were observed to compartmentalize their money into distinct categories like household expenditure and savings or expenses made during festivities. This clearly shows an association with mental accounting (Thaler, 1999). Also, it was observed that some street vendors, despite being aware of the formal financial services, schemes and programmes, continued relying on informal saving methods and the rotating credit system. It is also to be noted that despite the formal financial literacy indicators such as access to loans, bank accounts, loan repayment behaviour and awareness of government programmes and schemes, many street vendors depend on informal financial mechanisms. These include community-saving groups (self-help groups), rotating credit associations, informal moneylenders and microfinance institutions (MFIs).

The decisions of street vendors reflect a present bias, where they prefer immediate savings and expenses rather than long-term financial planning. They also highlight loss aversion and status quo bias. The perceived risk of an informal system outweighs the potential benefit of the formal system. Through the interaction of these behavioural insights, the study provides a more elaborate understanding of financial literacy and decision-making under cognitive and economic constraints.

Policies, schemes and programmes must incorporate better awareness and knowledge practices on financial services to encourage better economic and entrepreneurial growth. These aspects can affect their financial decision-making ability and should be considered through ground-level approaches in future research.

Street vendors with adequate knowledge of financial decision-making tools often practise a more favourable decision-making habit. Most street vendors with crystallized cognitive intelligence were aware of profitability. Therefore, programmes on financial literacy must not be limited to a homogeneous pattern or group. They must be framed based on the financial knowledge of the street vendors. In a long-term approach, it is essential to include topics on financial literacy within the curriculum in school education.

As observed in the results, few street vendors had access to formal financial tools. Nonetheless, they need to understand how these tools work, which again requires the intervention of policymakers (Ramana & Muduli, 2019). After the COVID-19 pandemic, the usage of Google Pay, Phone Pay and Aadhar Pay has rapidly increased. This has caused many street vendors to stop traditional payment practices and adopt digital payment platforms and mobile banking, underscoring the importance of developing a cohesive financial education strategy that engages policymakers and service providers in imparting knowledge on formal financial services. Collaborations with diverse service providers, policymakers, digital payment platforms and MFIs can prioritize initiatives to educate street vendors on the nuances of digital payment adoption, which includes understanding its risks and fostering trust (Nandru et al., 2021; Ramana & Muduli, 2019). Trade unions can also play a vital role at the ground level in engaging and providing knowledge on financial literacy to street vendors.

It is to be noted that although the ordered logit regression reflects that higher education leads to better cognitive ability among the tribal street vendors, the results from the PSM have highlighted a negative treatment effect for the higher secondary education attained by street vendors. This contradiction could be attributed to the fact that while the ordered logit regression presents the correlations, the PSM infers the causal effect through the comparison of matched individuals. The negative ATT could be attributed to unobserved disadvantages like poor quality of education, cognitive skills mismatch and underemployment, which may overpower their performance. This is an important observation, as it states that it is not education alone that improves the cognitive abilities of street vendors; perhaps an amalgamation of labour market opportunities and better-quality education can lead to the holistic improvement of cognitive abilities. The findings highlight the need for tailored policy interventions that cater to the accessibility and effectiveness of educational attainment, especially within the marginalized section.

A committee on medium-term paths for financial inclusion (Reserve Bank of India, 2018) has recommended specific strategies designed for financial education. They have emphasized using social networks and financial literacy camps at the local level. Rural self-employed, along with micro, small and medium enterprises (MSMEs), are the key areas in which training and skill upgradation have been given importance. Nevertheless, this programme is limited to rural areas and does not consider urban self-employed street vendors. Such schemes can be beneficial for the street vendors in the urban areas.

In India, most women manage their household budgets and seek business opportunities in the informal sector. The informal sector is easily accessible and can be initiated with less working capital. Financial education programmes promoting their knowledge could add more advantages to their business. For instance, programmes and schemes for women in Maharashtra, Rajasthan and Gujarat by the RBL bank provide classroom courses that help tailor the financial knowledge of women in small-income households (Asian Development Bank, 2022). Similar programmes can also be launched for women street vendors in urban areas. This should encourage the country’s future citizens, as women are the pillars of overall family growth.

The present study is focused on 203 tribal street vendors in Aizawl, Mizoram, where the findings highlight a broader trend with other parts of India. Studies in West Bengal and Maharashtra have reflected a similar association of informal institutions and moneylenders in enhancing financial practices among street vendors (Bhowmik & Saha, 2011). In the case of Gujarat, in Ahmedabad’s Manek Chowk, it was observed that social capital played a significant role in both sociological and economic aspects (Neethi et al., 2019). Nevertheless, these studies have highlighted the issues of major metropolitan cities in the country. In contrast, the present study infers information on a unique demographic composition—the tribal street vendors in a semi-urban informal set-up reflecting a distinct dimension to the contemporary discussion. Unlike the metropolitan cities, the tribal street vendors navigate their financial behaviour and crises through indigenous mechanisms such as savings built on trust and rearing of poultry and piggery livestock. This comparison suggests that while the issues are prevalent amongst most street vendors across the country, the cultural norms and local institutions enhance the financial behaviour and decision-making power of the tribal street vendors.

However, the study is limited to street vendors in the urban economy and has not considered the vendors on the city’s periphery. Since education plays a crucial role in financial literacy, future studies can look at data on their mindset on recording daily expenditures on business and household, especially after the COVID-19 outbreak. Future studies can also adopt the methodology framed in this study and analyze whether the results are sensitive to other geographical areas, such as urban tribal or metropolitan cities.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The first author had received fellowship from the Ministry of Tribal Affairs, Government of India and the Indian Institute of Technology Kharagpur to pursue her PhD research.

Note

Supplementary material

ORCID iDs

Aayushi Lyngwa

Bimal Kishore Sahoo

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