The Necessity of Financial Literacy

Not long ago, hard cash used to be the main means of payment for our purchase of goods and services. Online, mobile, credit card payments, etc were not so much in the radar. This is changing, especially as technological changes happen in that space and as many financial products and services consumers keeps on enhancing their understanding of finances.
As it were, lack of financial understanding is singled out as the main reason behind savings, savings mobilization, financial intermediation and investing challenges in many economies. So, what is financial literacy? financial literacy is the education and understanding of various financial areas including topics such as managing money and personal finances, managing money, managing debts and borrowings and managing investments.
Financial literacy is important in almost every aspect of life, from managing retirement funds; to the choice of asset classes where you invest your savings; to debt and borrowing management; to management of risks and bad lucks; etc. Financial literacy remains necessary into various decisions we make everyday as far as they involve our personal economy and finances. These decisions are integral to our everyday lives. With financial literacy, chances for responsible decisions are increased.
To be clear, the challenges of lack of financial literacy is not a challenge for developing or emerging countries. Consumers in developed countries in often cases fails to demonstrate a strong grasp and understanding of financial principles either, making it hard to negotiate and manage their financial affairs and related risks. Of course, challenges from individual to induvial and community to community differs depending on the context, exposure to education, income levels, etc. However, there is strong evidence showing that even highly educated individuals can be just as ignorant about financial issues as the less-educated and lower-income people.
And it seems that we are all the same in being hesitant to learn about these issues. For instance, a recent OECD (Organization for Economic Cooperation and Development) survey conducted in Canada found that, for many, choosing the right investment for retirement savings was more stressful that a visit to a dentist – can you imagine that! Yes, I can imagine that – in my personal and career experience first working in the banking sector, then as corporate transactions advisor, and then as a stock broker and investment advisor and now at the Stock Exchange, I’ve met many a people who are either unwilling to learn about financial issues or fail to take any action once learned.
But there comes a moment when financial literacy becomes a matter of necessity, and I see that moment is now. Current lifestyle, trends and decisions-making all points towards the direction where financial literacy seem even more important, I will explain:
In retirement planning and pensions for example – in the past generation(s) people depended on public pensions plans to fund a significant part of their retirement lives. Excluding our case, in many societies pension funds, managed by professional independent fund managers do not significantly rely on companies and governments to sponsor their upcoming obligations, they instead rely both on contributions and largely on clear investment decisions and the expected investment returns from those investment decisions. Under such circumstances, pensions consumers are also involved in decision making as to the contribution amounts and the fund manager who will be engaged to manage contribution funds.
Even furthermore, in the past a major source of retirement income was social security, but as it turns out the amount paid by social security are not enough, and in some cases may be delayed, while in worst of circumstances may not be available at all – tell me, what will become for a financial consumer safety net which could barely provide enough for basic survival?
In the savings, finance and investment space options are becoming complex, and financial consumers are being asked to choose among various investment and savings products. Sometimes these products are more sophisticated for us, but we are being asked to choose among different options offering varying rates of returns, maturities, payments intervals, etc – such decisions require an adequate financial understanding.
As it were, deciding on complex financial instruments with a large range of options can impact the financial consumer’s ability to finance a home, education for children, savings during retirement, access to health care when sick, recovery from circumstances when undesirable event occurs, etc. under these life necessity situations what happens if an individual is not financially educated?
Additionally, the financial landscape is becoming very dynamic by the day – in the global marketplace, there are many participants and many factors at play, added to this is the changing technological advancement in the financial markets. Taken together, these factors can cause conflicting views which may sometimes make it difficult for a financial illiteracy consumer to make clear decisions. In the mix, is also a number of financial intermediaries and supporting institutions in the ecosystem – banks, stock and insurance brokers, credit card companies, mobile network operators, financial and investment advisors, other financial services companies, etc — these are all vying for financial assets creating confusion for a not so financial literate consumer.
In conclusion – I have tried to paint a picture of where we are and how crucial it is to become a financial literacy society. The bottom line is, any improvement in the financial literacy will have a profound impact on financial consumers and their ability to provide for the future. As we have seen above, recent trends make it so imperative that financial consumers understand basic finance because we are being asked to shoulder more of the burden of savings, investment and retirement decisions while we decipher more complex financial products and options.