Image credit: OECD
The Organization for Economic Cooperation and Development (OECD) formalised the concept of “financial literacy” in their 2003 project the International Gateway for Financial Education. As a concept, financial literacy refers to a generalised skill set that allows a person to make informed decisions regarding their personal financial resources. As obvious as this may sound, the OECD found that the vast majority of people worldwide have no idea how to manage their finances competently, even in the so-called “developed” world.
A survey in Australia found that although 67% of respondents felt they understood the concept of compound interest, only 28% actually did. Fewer than 60% of Korean high school students understood how to manage credit and assess financial risk. A study of 1000 Saudi Arabian youths found that only 11% tracked their spending, although 75% believed they understood basic money management. To arguments that these are “just kids,” children become adults, and a British survey found that the majority of consumers did not actively seek out financial information.
In wealthy, developed nations, this lack of financial savvy may be no more than a costly annoyance to citizens, leading to reliance on social welfare programs. In developing nations, inability to access and manage their money prevents any type of movement out of dire poverty. The World Bank places financial literacy at the top of difficulties preventing financial growth in developing countries.
The World Bank, together with a number of public and private investors and NGOs, is working to increase financial awareness in 25 key countries where 75% of the “unbanked” population lives. Beyond the benefit to the investors, the more stable and solvent a population, the more stable the nation, and the greater the benefit to the world overall. Comprehensive strategies are a must for corporations in this growing marketplace.
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