Mental accounting, financial literacy, and savings behaviour in Nigeria: Evidence from a high-inflation environment

Abstract

Low household savings rates remain a persistent structural concern in Nigeria, yet the behavioural determinants of savings decisions within a high-inflation, lower-middle-income context remain understudied. This study examines the impact of mental accounting on savings behaviour among Nigerian adults, with particular attention to the roles of financial literacy and inflation perception. Drawing theoretically on Thaler's mental accounting framework, Kahneman and Tversky's prospect theory, and the life cycle hypothesis, the study employs a quantitative cross-sectional survey design. Primary data were collected from 97 respondents via a structured five-point Likert-scale questionnaire administered digitally across diverse demographic groups in Nigeria. Ordinary least squares regression was used to test three hypotheses, supported by correlation analysis and diagnostic checks for heteroscedasticity, autocorrelation, and non-normality of residuals. The results indicate that mental accounting exerts a significant positive effect on savings behaviour (β = 0.35, p < 0.01), and that financial literacy positively influences both mental accounting (β = 0.42, p < 0.01) and savings behaviour directly (β = 0.28, p < 0.01). Inflation perception has a significant negative effect on savings behaviour (β = 0.21, p < 0.01). These findings extend the behavioural finance literature to a high-inflation emerging economy and underscore the importance of targeted financial literacy interventions and inflation-stabilising monetary policy as complementary levers for promoting household savings in Nigeria.