Lethargic African Financial Literacy: Governments, Schools & Fintech Can Jump-Start Unparalleled Growth
In sub-Saharan Africa, less than a third of the population possesses adequate financial literacy, a stark contrast to the thirty-eight OECD countries where over half are reported to be sufficiently finance savvy.
The ramifications of this disparity are profound and worrisome. Individuals with a high level of financial literacy reap many benefits from their education. They make smarter investment choices, plan for retirement and unforeseen expenses, and exhibit greater resilience to economic downturns to name a few. Conversely, those lacking the crucial skills that inform ‘financial literacy’ often find themselves mired in debt, vulnerable to exploitation by scam artists, prone to costly investment blunders, and are at a significantly higher risk of defaulting on their loans.
Boosting financial literacy yields a plethora of benefits, extending beyond individuals and families to bolster entire country’s economies and societies at large. Research indicates that enhanced financial literacy correlates with reduced debt and poverty, heightened economic growth, and increased social mobility.
Essentially, it serves as a catalyst for economic advancement and improved living standards, empowering marginalized communities to make informed financial decisions and pursue long-term goals like access to credit, entrepreneurship, and homeownership.
Africa’s blooming fintech landscape, stoked by widespread mobile internet access, promises increased financial inclusivity and convenience. However, while the proliferation of electronic payments and mobile money wallets enhances accessibility, it doesn’t negate the need for financial literacy. Indeed, quite the opposite: the dizzying array of financial products necessitates a heightened focus on financial education to help African citizens mitigate the risks of indebtedness, reckless investing and would-be scammers.
Scaling up financial literacy initiatives across Africa demands a multifaceted approach to succeed. One of the most important avenues is from financial institutions themselves. Banks and short term credit providers alike should prioritize enhancing financial literacy among their customers, either as a strategic imperative or part of corporate social responsibility efforts.
Brett Van Aswegen, CEO of short term loan provider ‘Wonga South Africa’ suggests there is a mutual benefit to both customers and business when educational initiatives lead to tangible improvements in financial behaviour. He argues if a financial service can empower more people to make well-informed choices, their financial well-being will improve over time. This cultivates long term stability and grows a sustainable source of potential credit customers in the future.
This approach is in heavy contrast to the ‘churn and burn’ approach many short term lenders employed previously across South Africa. This model relied on extracting the maximum profit from a customer in the shortest time, before they ‘burnt out’. This business model was, thankfully, made near-obsolete thanks to a series of legal reforms from the National Credit Regulator.
Education in Schools is another key pillar in the campaign to improve financial literacy. Introducing targeted financial education from a young age is crucial. Governments should spearhead standardized programs in collaboration with private sector and non-profit entities, ensuring coherence and widespread implementation at the national level. Setting measurable targets and leveraging international metrics for assessment are essential for long term results.
By rapidly and comprehensively rolling out financial education initiatives from both schools and established credit providers, Africa can empower more citizens to make wise financial decisions, fostering individual prosperity and laying the groundwork for sustained economic growth and resilience across the whole continent.
