Globally, there are 1.4 billion unbanked people who can’t access financial services, while around 345 million micro-enterprises are informal and struggle to get formal banking services. Zaki Farooq, CTO and Co-Founder of PayFuture, discusses why the financial literacy and exclusion gap needs to be filled – fast.
Financial literacy is the key to unlocking a new era of prosperity for all. It’s a bold statement, but also a simple truth that is evidenced time and time again.
This is a universal problem, and it’s one that’s particularly acute in emerging markets with significant underbanked and unbanked populations. According to the World Bank, Japan has the highest percentage of people with formal bank accounts at 89%, contrasted with Nigeria at 45%. Standard & Poor’s own financial literacy survey found that only 28% of adults in emerging markets were financially literate, compared to 55% in more mature economies.
How Financial Literacy Fuels Global Financial Inclusion Efforts
From local community and microcredit cooperatives in rural Africa that help women to engage with financial services, to national digital transformation programmes like Saudi Arabia’s Vision 2030 initiative, financial literacy is the cornerstone that financial inclusion is built on.
While some of these financial exclusion gaps can be addressed with more network infrastructure and mobile connectivity, understanding how bank accounts, cards and other products can be used effectively is one of the biggest building blocks for a more financially inclusive world.
Even in developed and mature markets like the UK, improving financial literacy is still necessary. Consider that a 2021 Financial Times survey found that 90% of people in England felt they’d learnt “nothing at all” or “not very much” about finance at school.
When most people hit the age of 18, they’ll start applying for bank accounts, credit cards, loans and other financial services. Strange then that so many people around the world don’t know the basics of financial products at the point when they begin to engage with them. We know how useful these products are in our daily lives, so understanding how to use them is essential if we are to give financial inclusion to those who need it the most.
How to Build Financial Literacy from an Early Age
It’s never too early or too late to improve financial literacy. Parents can help their children learn how to handle money, why it’s important to keep to a budget and not spend beyond their means, and in the case of credit products, the importance of making repayments on time.
The trick to making these lessons stick is to make them fun. There will be many daily opportunities for parents to instil financial literacy – from getting kids to add up item prices while grocery shopping, setting a budget and savings goal to buy their favourite toy, or showing them how a debit card links to a bank account.
For adults, there are several financial tools available at their fingertips. Prepaid cards are great tools for introducing people to using payment cards responsibly, as they can only spend the funds that they load onto them.
Prepaid cards work in the same way as a bank debit card, but without any overdraft attached, and they can be used for in-person, contactless, and online purchases. With the same security features as debit and credit cards, prepaid cards also allow for instant notifications through apps or digital wallets, enabling people to keep track of what they’ve spent and where, and helping them to budget responsibly.
Understanding how timely repayments on credit products can contribute to building up a healthy credit score is also another building block of financial literacy. A good credit score can open up access to more affordable financial services and products. When people are empowered with financial literacy, they can move forward into the financial mainstream with confidence, with the knowledge, tools, and strong financial habits to navigate a world of different financial products and services.
Why Fintechs Can Break Down the Financial Exclusion Barriers
The financial exclusion gap is getting smaller by the day, but much more needs to be done. Fintech has a vital role to play in aiding financial inclusion, reducing poverty and giving individuals and businesses the knowledge they need to engage and thrive in today’s digital-first world. New technologies have helped emerging markets make great strides toward financial inclusion – look at the success of mobile banking services in Africa.
Through innovative solutions that can bridge gaps in physical infrastructure, mobile connectivity and cross-border trade, fintech can empower people to break the cycle of poverty, make plans for the future, and create their own opportunities.
This also means that fintechs and other ecosystem players have a responsibility to understand what market they’re operating in, understand what customers need in those markets, and localise their solutions accordingly. That also means speaking in the local language, offering clear and transparent pricing, and forging reliable partnerships with the right providers to ensure people have a wide choice of payment methods available to them.
With so much transaction data available, fintechs can tailor financial products to fit the circumstances of underbanked individuals. They can build a stronger, more flexible and more personalised ecosystem that really makes a difference to people’s lives.
When more people are given the literacy, knowledge and tools to engage with financial services, communities thrive, businesses grow, and local and national economies are boosted. The result? A truly global interconnected world that can offer more prosperous futures for all.
Author: Zaki Farooq, Chief Technology Officer and Co-Founder of PayFuture.
