Throughout their lifetime, individuals today are more responsible for their personal finances than ever before. With life expectancies rising, pension and social welfare systems are being strained. Financial literacy affects everything from day-to-day to long-term financial decisions, and this has implications for both individuals and society. Low levels of financial literacy across countries are correlated with ineffective spending and financial planning, and expensive borrowing and debt management.
Also, the exponential growth in financial technology (fintech) is revolutionizing the way people make payments, decide about their financial investments and seek financial advice. In this context, it is important to understand how financially knowledgeable people are and to what extent their knowledge of finance affects their financial decision-making.
Unfortunately, financial education today is restricted to university programs and rarely taught in high schools. Most parents also fail to teach their children important money skills when they are teenagers. If colleges promote finance activities for students, they will help not only the students but also the institutions. It has been proven that college financial literacy programs can aid student retention and recruitment, boost graduation rates and the school’s reputation, and build goodwill and provision from the community.
Financial literacy is like a global passport that allows individuals to make the most of the plethora of financial products available in the market and to make sound financial decisions. Financial literacy should be seen as a fundamental right and universal need, rather than a privilege of the relatively few consumers who have special access to financial knowledge or financial advice.
All in all, in today’s world, financial literacy should be considered as important as basic literacy, ie the ability to read and write. Without it, individuals and societies cannot reach their full potential.
Dr Kamola Bayram is the project director at the International Council of Islamic Finance Educators. She can be contacted at [email protected]