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Sanderson Abel
Financial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.A major barrier to the growth of a sustainable informal sector is a generally inadequate level of financial literacy.

This gap in financial education and practice, largely due to a lack of comprehensive management training, hampers the prosperity of business through a variety of adverse knock-on effects.

It is important that a financial literacy programme should be rolled out for the sector. Improving the financial literacy will have a beneficial flow-on effect to the broader economy, increasing levels of enterprising financial behaviour and greater participation in financial services and markets by confident and informed informal sector players.

Who are the beneficiaries of financial literacy?
Financial literacy can benefit any informal sector player regardless of the trade, size of business or educational background.

The financial literacy skill can assist people in making informed decisions in their day to day operations.

This will then assist them to avoid being shortchanged by their suppliers, consumers, financial services providers among other stakeholders they deal with.

Financial literacy is a key contributor to improving financial wellbeing. A financial literate entrepreneur is most like to benefit from financial inclusion, access to suitable financial products, and appropriate consumer protection and financial services regulation which promotes fair and efficient financial markets conduct.

Financially literate informal sector players are more likely to make effective financial decisions and less likely to produce unsuitable products and services for their markets.

They are also likely to save and challenge financial service providers to develop products that truly respond to their needs, and that should have positive effects on both investment levels and economic growth.

These will be able to choose the right savings or investments products for themselves, and avoid being at risk of fraud, if they are more financially literate

How can you improve your financial literacy?

The dominance of the informal sector in the economy requires that the informal sector players become more financially astute so that there are able to derive value from their businesses. Given the scarcity for financial resources and the ability to generate and source financing for operational purposes, informal sector players need to acquaint themselves with the language of finance.

There are several things that you can do as an informal sector player on a daily basis to increase your financial acumen:

Be as informed as you can about your finances. After all, you are the one who is going to have to live with your decisions.

Try to find a financial institution or financial advisor that is knowledgeable, that you can trust, and with whom you can work comfortably. They will not make all your decisions, but they should be able to help you put your situation into perspective and help you evaluate your options.

Try to develop good financial habits. Just paying attention to how you spend your money will probably lead to some ideas about how to save more. Over time, your savings can make a large difference in your future financial lifestyle and the success of your business.

Do the easy things first. Starting to save early for a college education, instituting a direct credit to your account for you pay cheque, and using some form of automatic saving plan will help you accumulate funds. In addition, you will know you are taking positive actions.

Try to develop a financial plan of some sort. It does not have to be complicated or extensive. In fact, you may want to tackle one part of your finances at a time, such as looking at all your insurance needs. Breaking up a financial plan into smaller, workable pieces can make it easier to create.

Research credible sources. Your personal relationship banker or financial advisor could be the great places to start.

What needs to be done?
Efforts to improve financial literacy are soundly grounded in economic terms. Markets work best if participants are fully informed and are able to correctly interpret available information to their advantage.

Put clearly, consumers benefit from improved financial literacy directly by being in a position to make better informed decisions; and indirectly by adding to competitive pressures faced by financial product and service providers. Given the wide variety of the number of ways one can acquire financial knowledge, it is important that the informal sector players strive to acquire financial skills by whatever means available to them.

The power of self-organisation becomes important in financial literacy where the informal sector players are able to pool together their resources and engage competitive institutions to train them in managing their finances.

They would also be able as groups, to subscribe to institutions which provide literature on financial management on a regular basis. This literature can then be shared among members to understand the current trends in financial management.

Informal sector players might end up finding information on potential funders, upcoming financial management training workshops and development in their field of endeavour.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463