Financial literacy to end inequality and poverty
How well do you manage money? Not nearly as well as you think, studies show. The lack of financial literacy education in Jamaica has had devastating effects on our people — effects we have come to accept as normal.
Ideally, financial education would be taught in the home at a young age by responsible parents. Here, our nation’s youth should have learnt about money, its value, saving, investment, and responsible spending, but the reality is that many parents have very little knowledge about this themselves.
This is exemplified in the Financial Services Commission’s (FSC) 2012 National Financial Literacy Baseline Survey which noted that less than half of Jamaicans received a high score for making wise financial choices. This survey highlighted that Jamaicans appear to have difficulties with the concept of the time value of money and calculating the impact of compounding interest on savings.
The communications manager for the Financial Services Commission Nadine Newsome in a 2013 Jamaica Observer interview noted that the FSC frequently responds to calls from people who do not fully understand the loan agreements in which they have entered.
Truly, a lack of financial discipline seems to plague our nation. In researching this article, a small group of around 50 people were engaged for their opinions on financial literacy. Many individuals referenced the use of ‘partner’ programmes as a primary method of saving or preparation for large purchases. When asked why this is so, the consensus was that individuals felt forced to pay into the system rather than spend their money casually, and it kept cash out of the hands of participants until they are given their ‘draw’, as they were often prone to impulsive spending.Both factors combined guaranteed that the participants would maintain their goal of saving.
The question is: Are these individuals aware of fixed deposit accounts, for example? Certainly, the cost of the partner programme — the banker’s fee — as well as entrusting large sums of money to strangers for weeks at a time would be unattractive to individuals who are aware of their options.
Another prime example of the need for financial education is the extent to which many Jamaicans have been thrown for a loop during the novel coronavirus pandemic. One can only imagine how jarring market shifts and changes in spending have affected our citizens, particularly small businesses owners and those within the informal economy.
Our current situation
You would be wrong to assume this means Jamaica has no financial literacy education. At the Caribbean Secondary Education Certificate (CSEC) and Caribbean Advanced Proficiency Examination (CAPE) levels there are several business subjects such as principles of business and entrepreneurship that provide students with highly useful financial management information; however these are electives, not mandatory subjects.
We are to be encouraged, however, as a new addition to the pre-CSEC syllabus is on the horizon — “business basics” — which is to be taught in all secondary schools up to grade nine. It contains a significant amount of content, which focuses on being money wise, as well as exploiting resources for financial gain.
Clearly, we are moving in the right direction.
This kind of content simply needs to be optimised to teach lifelong financial skills and made more attractive to encourage its rapid implementation as a foundation subject in high schools across the country. This would include an introduction to the concepts of investing, the banking system and how its works, and so on.
The solution
For the minority with strong financial skills and knowledge, who have engaged in long-term financial planning, the pandemic was more of an opportunity to invest rather than a curse. We must remember, however, that prosperity is a national mandate. It shouldn’t be the reality for a select few during difficult times.
Simply put, we must instil the mindset of saving and investment long before opportunities arise, otherwise capitalising on them will not be an option.
Many of our youth may be earning well enough through the informal economy but are unaware that they can contribute to the National Housing Trust (NHT) or the National Insurance Scheme (NIS), as well as register a company to benefit from grants from the Government or non-govermental organisations (NGOs). If these young people are equipped with the right knowledge on a large scale, our tax base will be broadened and our economy enlarged.
Knowledge is power. It therefore falls on the Government, through the Ministry of Education, to arm and safeguard the financial future of our youth through a mandatory financial literacy programme in our schools because the average Jamaican will not be blessed with the luxury of having these conversations over dinner with his or her parents.
What would this look like?
A financial literacy programme could take many forms. Ideally, it would include banking, loans, budgeting, investment, insurance, and college financing — all essential skills in today’s world.
In the US, for example, six states require high school students to complete a semester-long stand-alone personal finance course.
The youth can never be too prepared, and this programme could start as early as primary school in small and easy-to-consume portions.
The benefits
Poverty alleviation is the first and most defined benefit of financial education in schools. For many people poverty is the result of not just circumstances, but also being ill-equipped to take advantage of opportunities to escape it.
If money is poorly spent, regardless of how much, the outcome will never be a positive return. An understanding of the process of accumulating wealth would be beneficial to many individuals.
Those with limited knowledge are taken advantage of by individuals and institutions that, for example, offer loans at unfair terms and encourage investment in pyramid schemes.
Financial literacy would also lead to higher rates of financial inclusion. This would go a long way in reducing the distrust in essential financial institutions, such as banks, thereby reducing unbanked statistics, increasing access to business and personal loans, and making the case for the benefits of having an insurance policy.
A better understanding of investing and the potential returns will attract far more Jamaicans and remove the perception that investing in stocks and bonds is only for elite and highly educated. This will also boost capital available to businesses, which would only help to further bolster the economy.
Financial literacy will go a long way to reduce social inequality by providing our most vulnerable citizens with access to the knowledge and skills needed to improve their station in life.
Ryan A Strachan is president of Generation 2000. Send comments to Jamaica Observer or www.g2kja.com/