Global financial literacy is a challenging undertaking, even for educated persons. For example, do you know how compound interest works? How would you define inflation? What about calculating interest?
Financial inclusion will allow a wider range of people to gain access to affordable financial services. But this also requires complementary financial literacy programs to help the underserved improve their lives.
Global Financial Literacy in Emerging Countries
Global financial literacy is the ability to understand money: how someone earns, manages and invests it. Many people at the bottom of the pyramid face unpredictable cash-only societies, worsened by remote bank branches, difficulty obtaining credit and expensive remittance costs.
Financial inclusion’s next challenge is creating universal financial literacy. Access to financial services will not help the underserved without training, education and acceptance.
Innovators around the world, however, have begun creating new digital financial services that improve lives of the underserved. India’s approval of 11 licenses for payment banks, for example, has dramatically increased people’s access to bank accounts.
Developed vs. Developing Country Stats
S&P’s 2014 Global Financial Literacy test revealed staggering results. Over 93 countries showed a gender gap of five percentage points for financial literacy between men and women. With more than 140 countries included in the survey, 30% of global participants were considered financially illiterate, while the United States ranked 14th with 57%. Not surprisingly, developing countries like Yemen and Afghanistan were placed near the bottom of the list.
Financial knowledge in developed countries typically follows a U-shaped curve, with middle-aged adults performing better than young or old. Financial literacy in developing countries is much higher among the young who are better educated.
Digital Financial Services
Although advanced economies like the United States may have slightly higher literacy rates, this doesn’t mean we are any less susceptible to the pitfalls of poor money management. The availability of new digital financial services should be buffered with further education as well as built-in consumer protection from abuse.
- Visa‘s financial literacy programs have educated millions of children and adults in more than 30 countries on how to manage their money wisely.
- MasterCard’s “Priceless Pointers” interactive web page provides financial planning tools including a cash flow calculator, personal balance sheet, a glossary of financial terms, and video tips on credit and personal finance.
- Capital One Financial Corporation’s “MoneyWi$e” combines multilingual online resources with community training and seminars to assist consumers at all income levels with financial decisions.
- Jump$tart Coalition for Personal Financial Literacy
- FinLit Talks by GFLEC is a video series offering concise summaries in the area of financial literacy for a worldwide audience.
- The World Bank’s Consumer Financial Protection and Literacy Program
- Accion Ventures has promoted financial literacy and business training before fintech even existed.
Bank of America partnered with the nonprofit Khan Academy to offer “Better Money Habits,” an online resource that offers videos on financial literacy topics such as understanding credit, home buying, and saving and
- JP Morgan Chase & Co. developed the “Financial Education Library,” a series of financial education workbooks available online in English, Spanish, Chinese, Korean, and Vietnamese to guide consumers through banking, savings, managing credit, obtaining a mortgage and investing.
- U.S. Bank’s “Credit Wellness Center” is an online tool that helps consumers take control of their credit score through tips about how to protect and maintain good credit scores.
- Wells Fargo & Company’s “Hands on Banking for Entrepreneurship Program” is designed to help individuals learn and develop skills on how to best start, manage, and grow a business, as well as minimizing proper financial risk.
Although many of these initiatives have originated in the United States, countries abroad also realize the importance of educating their consumers. India is taking unique approaches by employing its postal services as a means to educate the underserved.
A Prosperous Future for All
What would happen when the 2.5 billion underserved learn how to use all of these new digital products and services? Monumental change.
Technology has proven to be a big enabler for the poor. The use of mobile phones has allowed those with limited means to suddenly connect with the rest of the world in ways they never thought possible.
Many countries across the globe have now realized the benefits of financial inclusion and how it could improve both the lives of their citizens and their economies. Efforts to achieve financial literacy should continue to function in parallel with financial inclusion strategy to help those at the bottom of the pyramid.