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Sanderson Abel
As financial markets become increasingly sophisticated and as households assume more of the responsibility and risk for financial decisions, financial education has become increasingly necessary for individuals, not only to ensure their own financial well-being but also to ensure the smooth functioning of financial markets and the economy.

Financial literacy is important for consumers because it helps them in budgeting and managing their income, saving and investing efficiently. Being financially literate also enables customers to avoid becoming victims of fraud.

Financial education should therefore be targeted at providing citizens with knowledge and tools around money management.

This will help citizens break the cycle of inter-generational poverty, get out of a debt trap and show people how to use the limited financial resources they

have to realise their goals and dreams.

If governments are to win consumers over to financial education, more needs to be learned about what their financial education needs are at various stages in their lives. How to deliver this education is also important.

What are the principles and good practices for financial education?

The Organisation of Economic Co-operation and Development developed a set of recommendation on Principles and Good Practices for Financial Education and Awareness. Some of the recommendations to the Government include the following.

Governments and all concerned stakeholders should promote unbiased, fair and co-ordinated financial education.

Financial education should start at school, for people to be educated as early as possible.

Financial education should be part of the good governance of financial institutions, whose accountability and responsibility should be encouraged.

Financial education should be clearly distinguished from commercial advice; codes of conduct for the staff of financial institutions should be developed.

Financial institutions should be encouraged to check that clients read and understand information, especially when related to long-term commitments or financial services with potentially significant financial consequences: small print and abstruse documentation should be discouraged.

Financial education programmes should focus particularly on important life-planning aspects, such as basic savings, debt, insurance or pensions.

Programmes should be oriented towards financial capacity building, where appropriate targeted on specific groups and made as personalised as possible.

Future retirees should be made aware of the need to assess the financial adequacy of their current public and private pension’s schemes.

National campaigns, specific web sites, free information services and warning systems on high-risk issues for financial consumers (such as fraud) should be promoted.

What role can stakeholders play?

These principles are a good starting point for a country like ours. We should then customise them to suit our situation. In this regard the Government should be the leader through its various departments responsible for the financial sector.

While the Government takes the leadership role, the financial sector players should then compliment these efforts. It is through combined effort that financial literacy can start to bear fruit through increased savings and consumption of various financial products.

An all stakeholders approach to financial literacy is therefore important. Efforts to improve financial literacy are grounded in economic theory and practice. Markets work best if participants are fully informed and able to correctly interpret available information to their advantage.

Most 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 product and service providers. There is a duty for everyone for this objective to be realised.

The role of financial institutions in providing financial

education, not only to clients but also to their own staff, needs to be better defined and further promoted.

More information is needed at both international and national levels on good programmes and practices and on ways to promote access to financial services.

Sharing information on successful experiences can be helpful to all. Financial institutions as both beneficiaries of a financial literate society and custodians of various financial products have a role to play in the whole matrix of financial literacy.

With a financially literate society, banks and other financial institutions also stand to benefit in the form of lower transaction costs from having competent, well-informed and confident consumers.

Over time they can expect to achieve deeper market penetration and possibly some roll-back in regulations that may outlive their usefulness in a better informed marketplace.

Governments are clearly aware of the need to improve financial literacy. One key element for the future is persuading consumers that they need financial education and enabling them to access it.

Also important is better financial education in schools. Today’s school-leavers need to be a lot more financially literate than their parents were if they are to manage their personal finances successfully through life.

• Sanderson Abel is an economist. He writes in his capacity as Senior Economist for the Bankers’0 Association of Zimbabwe. He can be contacted on [email protected] or on 04-744686, 0772463008.