Less than a third of sub-Saharan Africa’s population is financially literate – in contrast to OECD countries where over half the population is. This lack of financial literacy has implications that are as significant as they are concerning. As researchers Ashenafi Fanta and Kingstone Mutsonziwa explain, financially literate people make better and more informed investment decisions, save for retirement and rainy days, and are more resilient to economic shocks – while those without adequate financial literacy:
- Tend to be more heavily indebted and rack up greater financial expenses
- Are more easily exploited by unscrupulous financial actors
- Are more prone to making costly investment mistakes
- Have a higher risk of falling behind on debt payments
Increased financial literacy creates a host of positive outcomes – not just for individuals and their families, but for a country’s broader economy and society too. Research suggests that the benefits of financial literacy include reductions in debt and poverty, stronger economic growth and greater mobility. Indeed, as research from Allianz explains, financial literacy acts as “a catalyst for economic mobility” and better living conditions through enabling marginalized and vulnerable people “to make better financial decisions and promote long-term planning,” unlocking “opportunities such as access to credit, entrepreneurship insurance – and even homeownership” so that cycle of poverty can be broken.
Africa’s fintech revolution requires a revolution in financial literacy
In recent years, Africa has seen a rapid proliferation of fintech (financial technology), particularly via mobile devices. This should come as no surprise given that, by the middle of the decade, nearly half a billion Africans will have access to mobile internet. Electronic payments (a market projected to have revenues of $40 billion by 2025) are now widespread, and there are now over 184 million mobile money wallets being actively used across Africa.
The increasing ubiquity of fintech offers plenty of advantages – increasing the accessibility, affordability and convenience of financial services on a continent which has long been underbanked. But while greater access to financial data and more numerous savings and investment options are to be welcomed, they are not a substitute for financial literacy. In fact, the fintech revolution underway makes the need for financial literacy education in Africa all the more necessary – and urgent. With a dizzying variety of financial products more easily available than ever before, indebtedness and risky investing is likely to increase if not proactively addressed.
There are a number of approaches through which African nations should scale up financial literacy education for their citizens – at all ages.
- Schools: Young people need to be taught the basics of financial literacy from the get go. That is why schools like the Complexo Escolar Privado Internacional (CEPI) – an award-winning school in Luanda, Angola, operated by ABO Capital – prioritizes the study of STEM and empowers its students to participate in global education competitions, including the recent GENIUS Olympiad in New York and the 2022 Copernicus Mathematics Olympiad. But while some programs already exist at the school level (typically implemented by the private sector and nonprofits), OECD research suggests that these efforts tend to be siloed, lacking coherence and country-wide coordination. Governments must therefore take the lead in establishing standardized literacy programs, collaborating with – and more effectively monitoring – the other stakeholders (including nonprofits and businesses) who are already active in the financial literacy space. Governments must set measurable targets for improvement, using financial literacy metrics determined by international organizations like the World Bank so that progress can be assessed and benchmarked against other countries.
- Financial Institutions: Financial institutions should prioritize improvements in financial literacy for their customers – either as one of their strategic goals or as an integral component of their corporate social responsibility. African financial institutions that have incorporated financial literacy programs have seen successful results. For example, research shows that a financial literacy program offered by Old Mutual (a major South African financial services firm) resulted in improvements in “financial behavior related to savings, borrowings, and money management”.
- Mobile Money Operators: Roughly 350 million Africans do not have access to traditional financial institutions, with many of them using mobile money operators to manage their finances instead. Mobile money operators must therefore use their platforms to promote financial literacy courses that complement their existing products and services. In addition, mobile money operators should also introduce goal-oriented programs that incentivise saving. For example, the M-Shwari 52 Week Challenge in Kenya led to more than 270,000 Kenyans increasing their savings, with a total of 4.5 billion Kenyan Shillings saved.
Through rolling out financial education rapidly and at scale, we will be empowering Africa’s consumers with the know-how they need to wisely and profitably invest, borrow and save. Not only will this lead to greater individual wellbeing and prosperity: we will also be priming the continent’s economy for a new era of vibrant growth and lasting resilience.
