Mobile payment systems through one’s basic or smartphone have opened advanced banking services to millions of new individuals in recent years, but most people lack the basic financial literacy to protect their money and their future. Thus financial education becomes an enabler for these individuals to gain the required knowledge and skills to become financial literate. The opportunity to close the gap is real as only 30 percent women and 35 percent of men worldwide are financially literate.
Mobile Network Operators (MNOs) have already enabled 5.3 billion people to access services beyond telephony. Over the last decade, 1.2 billion more people have accessed financial services through mobile money accounts such as Safaricom’s M-PESA and MTN’s MoMo in markets across Africa. The exponential growth in peer-to-peer transfers and merchant payments shows the potential of this platform. Yet as we prepare to mark “Global Money Week” later in March, this transformation now needs to include programmes for digital financial equity and inclusion to boost financial literacy.
One of the key drivers of this change will be Fintechs – the integration of technology into offerings by financial services companies – such as stcpay in Saudi Arabia or Djamo in Cote d’Ivoire. Though their current focus has been on enabling payments within and across borders through mobile devices, the real game changer will be in education at scale. Fintech’s scalability and reach represent an opportunity to address the financial literacy gap for communities to take full advantage of the digital economy. As a result, they have emerged as a new tool to spur financial literacy for youth and adults alike.
What is at stake is financial inclusion: access to useful and affordable financial services delivered in a responsible and sustainable way. Customers need the full set of skills and knowledge to thrive in the digital economy. Financial education can become the social contract that binds the Fintech and their users. And this contract should mean that the use of the service does not lead to a worsening of the situation of one of the parties. For example, understanding interest rates and how the compounding effect works on savings and borrowing is key to a better debt management as highlighted by Marco Di Maggio, Director of Fintech, Crypto and Web3 at Harvard University.
Fintechs have already revolutionised the digital movement of money and access to payments. Now they can revolutionise financial education for underserved populations. However, the rise in access has also created new challenges and risks for individuals that will not all be solved by financial education only. It represents one of the drivers of vulnerability. The opportunity as argued by Mayada El-Zoghbi lies in our collective ability to understand and measure the drivers of vulnerability in order to strengthen the ecosystem. With a holistic view, skills development through financial education will not be an isolated experience connected to use and access of financial services but an opportunity to solve, once and for all, for one of the drivers of vulnerability.
Acquiring the financial literacy skills limits the loss to individuals and society. And improving financial literacy is not only relevant in the Global South because of the complexity of existing financial products. For example, the United States the TIAA Institute-GFLEC Personal Finance index indicates that lack of financial literacy cost 15 percent of adults at least USD 10,000 in 2022. With globalisation boosting access to financial products in all markets, lagging financial education in less developed markets means a higher cost to countries with less experienced consumers. This is corroborated by the fact that in Africa, the most financial literate country is Botswana (51 percent) with the least being Somalia (15 percent) according to S&P’s Global Financial Literacy Survey.
Across the world, governments are already taking steps to support financial education. A study by the Asian Development Bank, in Vietnam, found strong and positive effects between financial literacy and an individual’s awareness and use of fintech products. In South Africa, the regulator is leading a public-private coalition to run the FSCA financial literacy speech competition where grade 11 pupils from 500 non-paying fee schools compete nationally.
Moreover, it is also on the civil society organisations’ agenda. Aflatoun, an international NGO dedicated to broadening financial literacy, is supporting a network of more than 300 organisations in more than 100 countries to make financial education accessible in schools. By developing curricula, training teachers and providing partnerships and support, it has allowed educators and students to become more aware of the risks and opportunities that money represents. Furthermore, recognising that financial education should start as early as possible could mean integration in the national school curriculum which has been effective in The Gambia, Cameroon, Philippines, North Macedonia and Jordan, with the support of Aflatoun.
With the proliferation of financial services brought by mobile technologies, we have a unique opportunity to promote financial literacy at scale, thereby supporting individual and household’s path to prosperity.