daniel chigunwe
Less than a third of sub-Saharan Africa’s population is financially literate – in contrast to OECD countries where over half the population is. This lack of financial literacy has implications that are as significant as they are concerning. As researchers Ashenafi Fanta and Kingstone Mutsonziwa explain, financially literate people make better and more informed investment decisions, save for retirement and rainy days, and are more resilient to economic shocks — while those without adequate financial literacy:
Tend to be more heavily indebted and rack up greater financial expenses
Are more easily exploited by unscrupulous financial actor
Are more prone to making costly investment mistakes
Have a higher risk of falling behind on debt payments
Increased financial literacy creates a host of positive outcomes — not just for individuals and their families, but for a country’s broader economy and society too. Research suggests that the benefits of financial literacy include reductions in debt and poverty, stronger economic growth and greater mobility.
Indeed, as research from Allianz explains, financial literacy acts as “a catalyst for economic mobility” and better living conditions through enabling marginalised and vulnerable people “to make better financial decisions and promote long-term planning,” unlocking “opportunities such as access to credit, entrepreneurship insurance — and even homeownership” so that cycle of poverty can be broken.
In recent years, Africa has seen a rapid proliferation of fintech (financial technology), particularly via mobile devices.
This should come as no surprise given that, by the middle of the decade, nearly half a billion Africans will have access to mobile internet. Electronic payments (a market projected to have revenues of US$40 billion by 2025) are now widespread, and there are now over 184 million mobile money wallets being actively used across Africa.
The increasing ubiquity of fintech offers plenty of advantages — increasing the accessibility, affordability and convenience of financial services on a continent which has long been underbanked.
But while greater access to financial data and more numerous savings and investment options are to be welcomed, they are not a substitute for financial literacy.
In fact, the fintech revolution underway makes the need for financial literacy education in Africa all the more necessary — and urgent. With a dizzying variety of financial products more easily available than ever before, indebtedness and risky investing is likely to increase if not proactively addressed.
There are a number of approaches through which African nations should scale up financial literacy education for their citizens — at all ages. Schools: Young people need to be taught the basics of financial literacy from the get go.
Financial Institutions: Financial institutions should prioritise improvements in financial literacy for their customers — either as one of their strategic goals or as an integral component of their corporate social responsibility.
Mobile Money Operators: Roughly 350 million Africans do not have access to traditional financial institutions, with many of them using mobile money operators to manage their finances instead.
Through rolling out financial education rapidly and at scale, we will be empowering Africa’s consumers with the know-how they need to wisely and profitably invest, borrow and save. Not only will this lead to greater individual well-being and prosperity: we will also be priming the continent’s economy for a new era of vibrant growth and lasting resilience. — CNBC
Peter Tanyanyiwa
Online Reporter