Even though financial literacy in Africa has a lot of room for improvement, technology has grown tremendously on the continent, with many embracing digital transformations in the continent.
- Financial literacy represents the ability to comprehend crucial financial concepts to make informed decisions about saving, investing and borrowing.
- While some economic and human development disparities exist between African countries, most populations have relatively low financial literacy levels.
- Financial institutions have a crucial role in promoting financial literacy in Africa.
Financial literacy represents the ability to comprehend crucial financial concepts to make informed decisions about saving, investing and borrowing. Aside from helping to alleviate poverty, current developments in the digitisation of financial services and products and the growth in credit and microfinance facilities have shown that financial literacy is a crucial tool for survival.
With more access to capital and a wide range of financial products offering abnormally high guaranteed returns, low financial literacy levels and skills may negatively impact an individual and future generations, the financial services industry, and the economy.
Individual financial literacy aids in budgeting, debt management, and developing a savings and retirement plan. Furthermore, debt management and savings programs might assist decrease household debt and lift people out of poverty.
READ: Mobile Phones Driving Youth Literacy in East Africa
Financial literacy in Africa
While some economic and human development disparities exist between African countries, most populations have relatively low financial literacy levels. According to S&P’s Global Financial Literacy Survey, African countries score the worst in financial literacy globally.
Topics such as interest rates, loan requirements, saving, budgeting, and loan risks are among the many areas in which most Africans lack knowledge. This brings the realisation that the majority of the population in Africa faces difficulty in financial mobility.
Most of those living in developing nations within Africa do not necessarily have the capacity and financial capability to effectively plan their financial future or invest in financial knowledge due to the general economic instability and financial issues. The reality is that Africa is in dire need of financial literacy improvement.
In a strenuous time socially, financially and economically worldwide post the Covid 19 pandemic and the prevailing economic shocks, emerging countries in Africa face rising inflation and interest rates, staggering unemployment and high levels of debt.
The situation impacts the number of entrepreneurs and small businesses in Africa. It proves that action needs to be taken to improve opportunities and education, which can ultimately lead to an increase in GDP, amongst other important figures.
Different stakeholders play a significant role in encouraging financial literacy in Africa. These include government agencies and financial institutions. However, the government plays the leading role. Therefore, as other stakeholders step in to bridge the gap, governments should allocate resources to actualise financial literacy in Africa.
READ: Absa Bank Kenya Invests Sh23mn to Enhance Digital Literacy
Mobile phone penetration and technological advancement
Mobile phone penetration and access in Africa continue to rise. Projections indicate that unique mobile subscriptions will rise to 614 million in 2025. Among these users, 475 million will have mobile internet access.
Thus, financial literacy in Africa can progressively expand due to the surge in mobile phone usage. Internet access creates an environment of knowledge accessibility. This is important since it allows people of all backgrounds to seek information and relevant education.
Most of Africa’s internet user growth derives from affordable smartphones and the internet. This growth presents an opportunity to use such platforms to raise financial literacy awareness and comprehension. Operators are continuously communicating with customers as mobile money markets and digital financial services grow in popularity.
Mobile money carriers might use these platforms to offer message-based financial literacy classes to supplement their current services and products. Aside from offering courses on their platforms, mobile money providers could implement a goal-oriented savings program.
Moreover, there is an exciting opportunity around cryptocurrency trading across Africa. Many people are continually investing in digital assets like Bitcoin, expecting to make profits. However, many of these investors have lost or fallen victim to scams and frauds. This stems from the fact that many people have little or no interest in understanding financial literacy but only focus on short-term profits.
Africa leads in the crypto adoption statistics. Thus, it remains paramount that Africans, especially the youth, understand commodities, foreign exchange (FX), crypto, stocks and indices. These global markets and digital assets represent a leap into the future of money.
The role of financial institutions
Financial institutions have a crucial role in promoting financial literacy in Africa. Thus, all financial institutions should incorporate financial literacy development as one of their strategic goals or as a component of their corporate social responsibility. Banks, for instance, are essential to most people’s lives. People rely on banks for savings, borrowing, investment services, and guidance.
Most financial institutions provide current and prospective clients with educational tools and resources to assist them in making the best financial decisions. They may take it a step further by hosting seminars in which their staff speak on critical issues such as saving, borrowing, and financial management, among other things.
Financial institutions can develop financial literacy initiatives for their clients and the general public through educational and non-profit organisations. These institutions may use mobile platforms, print, and online media to publicise their programs.
On the other hand, financial institutions must ensure that their workers are properly equipped to understand clients’ risk tolerance, investment goals, and investment timeframe to offer them the best products and services.
Enhancing financial literacy is only one of the numerous ways Africa’s youth may be prepared for the future. Stakeholders must simplify financial literacy education and make it practical. Without simplified and functional financial literacy, one could fall victim to the prevailing financial challenges in a highly changing world marked by technological advancements. Improving financial literacy in Africa’s youth will help improve financial inclusion.
READ MORE: APPROACHES TO FINANCIAL INCLUSION
1 Comment
Financial Literacy skills are very important now. It’s not just about money management anymore. For our continent it stretches to our lifestyles and our families. Financial literacy can help or relieve us from black tax too. Thank you for this article, it exposes us to the necessary things we ought to focus on for our personal development.