Africans Need to be Equipped With Financial Literacy

Well-founded research has proven that many households in Africa earn reasonable incomes but are not financially well. Despite being well-off materially, members of many households are not able to take control of their finances.

This has been attributed to lack of adequate knowledge in terms of financial literacy. If we take an example of a financial literacy survey in South Africa, the issue at hand becomes clear. The Financial Services Board in South Africa conducted a comprehensive study that revealed that the financial literacy level in the country is 51%, when compared with other developed countries and contemporary developing countries.

Many households are concerned with luxury cars, big houses, sending kids to private schools and living a larger-than-life lifestyle. This has a subsequent effect on credit use. To this end, families need to learn about planning, saving and budgeting. People need to be wealthy, but must have control over their own money.

When one is equipped with financial literacy, they are able to make retirement plans and thus security after retirement is fully assured. One tends to make realistic key life decisions when they know they have control over their money and how to use it a way that will not land them in limbo. Financially literate clients make optimal financial and economic decision including, savings, borrowing, investment as well as properly managing of daily money. Increasing number of empirical studies have also evidenced the role financial literacy plays in managing personal finance, both asset and liability. This is why financial literacy has become a policy concern in developed countries since the 1990s especially in Africa.

A society that is financially literate has a direct positive impact to the economy. There are evidences showing that lack of financial literacy in the population affected realization of poverty reduction and welfare improvement programs, which suggested the need for integrating personal financial education into poverty reduction programs, such as, micro-finance and financial inclusion, entrepreneurship, income and employment creation, and other similar programs aimed at welfare enhancement.

 Building financial literacy and capability of citizens improves personal financial management, which in turn, \will be manifested through better financial behavior and financial outcomes. Personal financial management capability enables people to save for income and consumption smoothing in developing countries where people face various risk, including but not limited to price volatility of agricultural products, illness, death of bread winner, loss of jobs, retirement, posing significant income shocks for many. Financial literacy and its outcome on personal saving behavior also contribute to availability of investment fund at household and national level.

Financial literacy improves understanding of investment options which could reduce risk and optimize earning from meager financial resource of the poor in developing countries. Enhanced money and finance management capability also contribute to wealth accumulation and decrease over indebtedness resulting from informed use of selected beneficial financial services, and consumer finance schemes emerging in most developing countries. Financial literacy education incorporated in poverty reduction programs ―seeks to strengthen and change behaviors that lead to increased incomes, better management and protection of scarce assets and effective use of financial services.

Financial literacy also helps in programs such as health, education and any other social development programs. Hence African governments and other civil organisations must do a lot in helping Africans get financial literacy.