Does financial education matter for a sustainable future? | Experts’ Opinions

“Learn well, get a job, and save money” – this is the advice given by many parents to their children but is this sufficient for a child, a teenager, or a young person to be able to make smart financial decisions during future adult life? Recently, more and more people have been hearing about the concept of financial education, which is taught neither at home nor in schools. Studies show that just one-third of adults worldwide are classified as financially literate. Does financial literacy contribute to advances in global development and the achievement of the sustainable development goals? We asked several experts to draw some conclusions. Check out their opinions below.

DevelopmentAid: How does financial literacy contribute to more rapid global development? How does a lack of financial literacy contribute to cycles of poverty and inequality within societies?

“Referring to the general definition given by scholars and international organizations, in essence, financial literacy demonstrates the ability and knowledge to make simple financial decisions; from settling a payment for a utility to deciding over a long or short-term loan or a deposit with a financial institution or in the capital market. While this literacy is obtained from schools’ programs and/or vocational training, studies around the world show that a direct correlation exists between financial literacy and the status of development advancement of a country. Even though most countries in the world have an obligatory educational system for the youngest, budget constraints within state budgets and the related lack of public infrastructure funding directly contribute to issues of literacy, including the ability to read, write, and communicate, thus making it impossible to further advance in education and acquire specific literacies like financial literacy, thereby directly contributing to poverty levels and social inequalities. In the developed world, due to a high level of financial literacy gained from individuals, corporations, and institutional investors, an advanced status of financial institutions and markets is achieved, maintained, and improved, resulting from an increasing number of interactions pushed forward from the need to achieve higher returns or greater access to financial instruments. Meanwhile, access to education for people is increased through investments in infrastructure, roads, utilities, housing, education, and so forth, mostly raised from these financial markets.”

“Financial education followed by literacy, provides both individuals and businesses with new tools for participation in financial markets which advances global development. Equal access to financial literacy for all people must be pursued between and within countries. Human development cannot work effectively for everyone without it. But the human rights-based approach of development has so far failed to effectively link financial literacy and poverty reduction strategies, in part because the priority is on public expenditure policies instead of financial empowerment which improves economic productivity and supply-side capacity. Hence, financial literacy programs should be explicitly linked with poverty reduction and national human development strategies involving diversified financial services which would in return reduce inequality and accelerate the virtuous cycle of global development and financial advancement. Although the urge to save and take a loan is represented in all groups of people, the capacity to save and repay debt is inhibited by illiquidity. Literacy, coupled with access to financial services, should assist people to generate liquidity and increase their financial assets. For example, salaried workers who earn a regular income would appreciate access to savings products and credit for mitigating arrears and fulfilling urgent requirements. Seasonal agricultural workers and retired people could also benefit from financial planning and literacy programs.”

“Financial literacy is an extremely important contributor to the development of a society. Without it, societies face poverty and inequality because of several reasons:
1. High risk of being exploited by predatory practices;
2. Limited investments in education (this is actually a vicious circle where lack of education leads to lack of importance of education which leads to lack of investments in education and this can go on for generations);
3. There is a high risk of inadequate planning for future needs which leads to hardships;
4. Financially illiterate individuals risk falling into debt traps;
5. Poor management of physical assets leads to missed opportunities to accumulate wealth and the degradation of assets.
On the other hand, financial literacy contributes to development advancement by, for example, promoting entrepreneurship which can reduce poverty and inequality and thus lead to economic and social stability and prosperity.”

“The rise in the number of users of financial services and products worldwide has not been accompanied by a simultaneous increase in financial literacy. This discrepancy is deepening economic and social disparities and contributing to financial crises. Both developed and emerging economies are affected, albeit to varying degrees. Countries and societies with larger proportions of financially illiterate individuals suffer more from economic deprivation and are unable to contribute to global economic advancement. Uninformed, financially illiterate individuals cannot make informed decisions regarding their earning potential. They lack the capacity to save and invest, participate in pension plans, obtain insurance, and borrow funds; in essence, they are unable to manage their wealth. This contributes to a cycle of poverty, resulting in social and economic marginalization. Furthermore, increased access to a wide range of financial services, coupled with insufficient financial literacy, weak regulatory mechanisms, and inefficient judicial systems, has in several cases contributed to financial crises, even in developed economies. The enhancement of financial literacy is a prerequisite for the financial inclusion of poor and marginalized groups, as well as for economic and social development, not only in emerging markets but worldwide.”

“Financial literacy is a critical driver of global development as it empowers individuals to make informed financial decisions, ultimately contributing to economic growth and stability. When individuals lack financial literacy, they are more vulnerable to financial pitfalls, perpetuating cycles of poverty and inequality within societies. Without the ability to manage finances, save, invest, or access financial services, disadvantaged populations struggle to break free from the grip of poverty.”

“Growing financial literacy is like planting seeds of prosperity in the garden of global development. Financial literacy enables individuals to make informed decisions, manage resources, and contribute to economic growth. On the contrary, financial ignorance perpetuates egregious levels of poverty and inequality. It limits access to opportunities, traps people in debt, and widens wealth disparities between countries.”

DevelopmentAid: What role does education play in promoting financial literacy, and how can this be incorporated in educational institutions?

“While the first five years of education provide the basics for achieving reading, writing, and communication literacy, it’s important to introduce a separate set of learning to enhance basic knowledge in spending, savings, and family budget composition, together with the introduction of simple financial products, i.e., deposits, loans, and credit/debit cards. However, considering the early age and difficulties in understanding such notions, educational institutions must build curricula that resembles the features of a game that provides entertainment and amusement. Altogether, considering the access to technology advancement and internet broadband, such curricula might include the introduction of game apps which elevate the attention, satisfaction, and consequently contribute to an increased financial literacy. Moreover, a continuity of this education must persevere for the sixth to ninth classes, which in most countries represents the final stage of the obligatory educational system.”

“The deepest inequalities exist in education, with unmistakable long-range effects on the capacities of both individuals and businesses that have no access to it. Inclusion in education particularly represents a precondition for ethnic minorities and other disadvantaged groups to access financial markets as individuals and to develop financially viable businesses in the global arena. In order to effectively incorporate financial education into their curricula, educational institutions should modernize the integration of the ‘ex-cathedra’ method of teaching with the ‘case study method’, particularly in furthering the use of online methods. This educational totality would be a step forward as it includes both the theoretical and practical aspects of financial literacy. Each of these approaches has in it a certain content that is useful, but this approach must be adapted to the students’ needs, with the aid of broader concepts and theories that consider more and more of the local factors on which financial education depends. For example, in Mauritius, Singapore and Costa Rica, the private sector has prospered from a dynamic cycle with formal education reinforced by on-the-job learning and training. In addition, the unique value of the case study method would theoretically and comparatively show both individuals and businesses that improved financial literacy and planning can better equip them to deal with macro-economic imbalances.”

“Education plays a pivotal role in the development of every society. There are many ongoing discussions as to how to incorporate financial literacy at different stages of education, including elementary schools and high schools. One approach could involve integrating financial literacy into math classes and teaching how mathematics can be applied in everyday financial planning. It is also important to educate students about the various purposes of money, emphasizing that it serves not only as a medium for purchasing goods but also as a measure of wealth, a gauge of the value of their work, a means for trade, and a safeguard of their assets. However, I believe that, first and foremost, there is a need for education about responsibility. Today, too much focus is placed on ‘freedoms’ and ‘rights’ to the detriment of the essential principles of ‘responsibilities’ and ‘obligations’. This shift in focus has caused people to overlook the importance and value of money and financial planning, fostering irrational consumerism and unwise risk-taking which can lead to debt, financial instability, and, ultimately, poverty.”

“Education is one of the key instruments for promoting financial literacy. Financial education provides financial consumers with knowledge, skills, and confidence, helping them to understand their financial needs, as well as the benefits and risks associated with financial services and products. Financial education can be pursued through formal channels such as schools and universities, or through informal, behavior-culture-based programs. Starting at the primary level, children should be taught about the importance and fundamentals of personal financial management. At the secondary level, this education should progress to include instruction on cash and asset management, as well as financial instruments such as loans, insurance, pension schemes, and savings products. Adult education is equally important. Providing free access to user-friendly online information and courses on various financial instruments and products will contribute to financial stability and socially responsible economic growth. The design of educational programs should take into consideration the development level of the financial markets in the respective economy, as well as the behavioral and cultural characteristics of the population.”

“Education plays a pivotal role in promoting financial literacy. Educational institutions can effectively incorporate financial education into their curricula by introducing practical lessons on topics like budgeting, saving, and investing at various educational levels. This equips individuals with essential life skills and prepares them to make sound financial choices.”

“Education is vital to unlocking financial literacy. To include economic training efficiently into curricula, academic establishments should integrate practical, real-international examples into their coaching. They must be conscious of teaching budgeting, saving, making an investment, and understanding economic instruments. Additionally, faculties can associate with financial establishments to provide hands-on experiences and workshops.”

DevelopmentAid: What should the international community do to create comprehensive financial literacy programs that address diverse segments of the population?

“While international development organizations coordinate capacity-building and institutional strengthening efforts amongst each other while preparing interventions in a specific country, we rarely find common intervention from non-governmental organizations and the private sector, particularly small not-for-profit organizations, corporations, or business associations. Therefore, it is important to properly address and solve poverty, inequalities, and financial literacy to enhance the coordination of all types of efforts put in place in a country. Meanwhile, governments and the related local administrations, education, development, and welfare agencies lead coordination along with foreign donors, with individual efforts put in place from NGOs and the private sector. Proper coordination from governments and donors might arise through the preparation of a national strategy and a related action plan towards poverty and inequality reduction, including increasing financial literacy, intervention by type, areas, population segments by age and social conditions, while duly addressing and monitoring activities. Monitoring tools might include the creation of a national register of areas and people who have benefited from individual action plans to avoid the overlapping of interventions and/or lack of continuous advances of these educational and development efforts.”

“Financial literacy is the capacity to comprehend basic information about financial products and services. International standards must be re-engineered to reflect more equitably the financial literacy concerns of diverse population segments particularly in developing countries. Moreover, governments, non-governmental organizations, and private sector entities in developing countries should be given adequate financial and non-financial technical assistance to cooperate in modernizing international standards and to comply with them, enabling them to take greater part in financial literacy programs. Governments should envisage treating microfinance and micro-insurance products differently than as tax oriented commercial products. Increasingly, central banks and finance ministries should become involved in promoting financial literacy, as low levels of information and confidence are perhaps the greatest obstacle to the use of microfinance and insurance among low-income populations. Financial support to retrain scientific personnel and equip laboratories, possibly at the regional level, would also allow developing countries and disadvantaged groups to better formulate and implement mutual financial literacy arrangements. The laboratories could also comprehensively share technical assistance with businesses to boost their financial literacy. And finally, stakeholders in both the UN group of G77 and developed nations need sufficient capacity to handle the challenges of financial literacy with the acceleration of new financial technologies involving artificial intelligence (AI) and machine learning (ML).”

“There are ways to make this collaboration possible. Governments have ownership over educational curricula and can pass laws and regulations aimed at protecting citizens and companies from fraud, as well as assisting them to recover what they might have lost as victims of fraud. Non-governmental organizations have the task of being vigilant and pointing out any irregularities to the public and governments. They can also assist governments to find solutions to close the gaps. Specialized NGOs can allocate funds to promote financial literacy in schools, utilizing mass and social media. Private sector entities should find it beneficial to collaborate, as they too can fall victim to fraudulent activities. Their contribution could include financial support for dedicated NGOs or educational institutions, as well as offering internships and experiential learning opportunities.”

“Governments in both developed and emerging economies should establish adequate legislative frameworks and institutional structures to raise the levels of financial literacy among the general population. Furthermore, they should ensure the protection of the rights of financial consumers. This involves providing accurate and transparent information about financial products and services, accompanied by a transparent dispute settlement mechanism. Non-governmental organizations can act as watchdogs and providers of financial education services. Private sector entities that provide financial services and products should take an active educational role, ensuring that consumers are well-informed not only about the benefits but also the risks. All of these interested stakeholders should share a common joint interest: well-informed, financially literate consumers. This will benefit social and economic development.”

“To create comprehensive financial literacy programs, governments, non-governmental organizations, and the private sector should collaborate. These programs must consider the diverse needs of various population segments, accounting for language, culture, and accessibility. Such collaboration can help to bridge gaps in financial knowledge and promote inclusive economic development, ensuring that everyone has the opportunity to participate in and benefit from the global economy.”

“Collaboration is crucial in developing comprehensive financial literacy applications. Governments can set standards and provide investment, non-governmental businesses can deliver schooling to underserved groups, and the non-public sector can provide knowledge and resources. These partnerships can tailor applications to satisfy the unique wishes of various populace segments, ensuring nobody is left behind.”

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