Money management is a critical life skill and those without such skills are often forced into a downward cycle of poverty and missed financial opportunity, unless fortunate enough to be born into a wealthy family. Even minor setbacks can be devastating. The impoverished in developing countries are at an even greater disadvantage due to the general lack of financial education, fewer resources, and challenging socio-economic conditions. Financial literacy education is a powerful tool that has the potential to help the poor escape poverty by building savings, growing assets, and creating wealth.
Saving money may seem straightforward, however many at the base of the economic pyramid (BOP) are barely able to do so. What little money they do have is kept on their person or hidden within their household. Saving even a pound or two per week can cultivate much needed savings habits. Core concepts such as saving money are the basic foundation for proactive financial planning. These practices will not only help consumers build savings, but will further develop good money management habits enabling BOP consumers the rare opportunity to plan for their future.
Some, however, have raised concerns about the effectiveness of financial-literacy education. Law Professor Lauren E. Willis of Loyola Law School published a journal titled ‘Against Financial-Literacy Education’ in November 2008, citing the lack of empirical support of the effectiveness of financial-literacy education. Prof. Willis cites in her report that the hours of study needed in order to obtain financial literacy is beyond the reach of most people, citing as an example the complexities involved in evaluating a retirement plan. I agree; this would indeed be a cumbersome task for the non-expert. This does not mean, however, that ordinary consumers would not benefit with some form of basic financial literacy education.
Not only do the beneficiaries of financial literacy education stand to prosper. There are opportunities buried in untapped markets for banks and financial service providers to offer the same basic services available to those in rich countries, however, designed for BOP markets. Financial service providers serving BOP markets are rewarded with profitable sources of income by tapping into these millions of potential clients, many who are using innovative means to establish micro-businesses in order to escape the poverty trap.
Technology is key. Online financial planning is a new and innovative way to provide financial planning to consumers who typically do not have access to professional advice. According to the Wall Street Journal, it is estimated that nearly 50 million U.S. based consumers that could potentially benefit from professional financial advice lack access to these services. Imagine the need for these services, even in their most basic form, in developing nations. Technology-based solutions have the potential to make a connection with the rural poor, such as cell phone banking. Banks do not find it profitable to establish branches in regions where the remote poor live. Cell phone bank accounts facilitate ease of deposits, thus avoiding long journeys to deliver cash, the need to conceal money within one’s household, or to incur expensive wire transfer charges.
Another possible innovation may lie in the creation of social investment strategies designed specifically for consumers typically denied access to financial markets, giving them the opportunity to grow wealth in capital markets. Friends, family, and neighbors in BOP communities often pool their resources together. Fund managers and investment advisors may consider the possible rewards that lie in providing these consumers the opportunity to invest pooled funds, with continued contributions even in the smallest of increments, into low-fee micro-investing index funds.
Universities are an ideal source of both initiative funding and financial expertise. Like-minded social entrepreneurs can form student and professional organisations enabling students, alumni, and academics to work collectively toward providing financial literacy education to the local community. These initiatives can be a terrific source of uniting low-income families together with financial services providers who may better understand and meet their actual needs. When these consumers become financially literate, they are more likely to better manage their money, and thus avoiding predatory bank revenue generating schemes.
Many at the top of the economic pyramid have the willingness to explore new and innovative ways to promote financial literacy education. Similarly many at the bottom are actively involved in fighting their way out of poverty. Collectively we have the potential to grant the poor access to the basic building blocks of financial independence.
Progress is being made toward financial literacy education. Organisations such as the Institute for Financial Literacy (IFL) aim to promote effective financial literacy education in the United States. Similarly, the Consumer Financial Education Body in the United Kingdom aims to help consumers understand financial services and to help them better manage their finances. Meanwhile the Organisation for Economic Co-operation and Development and the Reserve Bank of India have co-sponsored a financial literacy workshop in Bangalore India with a focus on the implementation of a national financial literacy program.
For those who are interested in making a difference, The Institute for Financial Literacy (IFL) offers volunteer opportunities as Volunteer Educator or Outreach Volunteers. Those who serve as Volunteer Educators provide financial literacy education in their local communities. Outreach Volunteers are responsible for developing community based networks, holding financial-literacy discussions, and writing letters to newspapers or journals in support of financial-literacy education. The Center for Financial Certifications, an independent division of the IFL, offers professional certifications in credit counseling, financial education, and debt management, among others.
No comments:
Post a Comment