Financial Literacy and Why it Matters

In a recent report by Standard & Poor’s, Financial Literacy Around the World, the authors seek to answer a question: How financially literate are people across the globe? Financial literacy’s importance is clear. An understanding of basic concepts in finance empowers people to make sound financial decisions, and without which can lead to people borrowing more and saving less.

“Financial literacy is a critical barrier to financial and economic participation,” writes the authors of the report. “Because of a lack of knowledge about finance and financial products, many people – especially the poor and women – are not able to access banking and financial services, and are therefore kept out of financial markets.”

Globally, 33 percent of adults are financially literate, or approximately 3.5 billion people.

However, financial literacy is dependent on a number of demographic factors and tends to be lower among women and the poor. About 30 percent of women are financially literate compared to 35 percent of men. In emerging economies, 31 percent of the richest households are financially literate compared to 23 percent of adults in the poorest households.

Can access to banks, mobile banking or other financial institutions – like FINCA – help to increase financial literacy? In the last 30 years, FINCA has found that when poor people have access to financial services, they can earn more and build assets. The report found a correlation with access to financial institutions and the level of financial literacy.  A greater percentage of banking and financial institution account holders are financially literate – about 38 percent.  Only 25 percent who don’t have access to accounts are financially literate.

The unbanked, the report authors conclude, “do not have experience using financial products. If they used financial concepts in their daily lives, their understanding could increase with time.”

FINCA Kyrgyzstan is one of several subsidiaries working to accomplish this. In order to increase financial literacy amongst FINCA’s clients and the general public, staff are teaching how to efficiently manage financial resources, how to keep track of household expenses and the importance of savings.  Over the past three years, FINCA Kyrgyzstan has reached over 20,000 banked and unbanked people, with in-person trainings, workshops, textbooks and publications on financial concepts.

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