Dr Lynn Wee Ling Min
In recent years, financial literacy has garnered significant attention and importance as it has become a crucial topic of discussion among governments and policymakers worldwide.
At the micro level, financial literacy pertains to an individual’s ability to effectively manage their finances, and make informed choices regarding saving, spending, and investments that will impact their overall well-being in the present and future.
On a larger scale, financial literacy contributes to improved financial planning, competent debt management, and effective risk mitigation. Consequently, this reduces the financial vulnerability of individuals and businesses, fostering economic stability essential for sustainable and stable economic growth.
Moreover, financial literacy also facilitates the efficient utilization of financial and natural resources, leading to heightened efficiency and productivity across diverse economic sectors, potentially boosting GDP.
For instance, financially literate individuals and businesses prioritize their investments by allocating funds to productive ventures, optimizing resource allocation, minimizing waste, and ensuring the long-term viability of investment returns.
The United Nations (UN) has recognised the significance of financial literacy in achieving specific Sustainable Development Goals (SDGs), namely Goal 1 (No Poverty) and Goal 5 (Gender Equality). Given its importance, it is worthwhile to delve deeper into the subject and comprehend the essence of financial literacy.
The OECD has defined financial literacy as: “A combination of awareness, knowledge, skills, attitudes, and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.”
Financial literacy significantly contributes to poverty reduction and fosters sustainable development through various means:
Firstly, educating individuals from low-income communities about financial know-how such as business planning, financial management, and assessing microfinance equips them with the skills and capacity to start small income-generating ventures. This not only lifts them out of poverty but also cultivates economic advancement within the nation.
Secondly, financially literate individuals excel in budgeting and financial planning, enabling more efficient management of income and expenditures. Consequently, this increases savings, reduces debt, and promotes financial stability, ultimately enhancing the economic well-being of households and communities.
Thirdly, financial literacy advocates for the inclusion of individuals, regardless of socio-economic status and background, in the financial system by imparting knowledge on the effective utilization of financial services and products, ranging from daily financial transactions to saving, borrowing, and investing. Consequently, financially literate individuals better understand credit terms, interest rates, and repayment structures, enabling them to prudently employ credit for business expansion, education, homeownership, and other investments. This, in turn, diminishes poverty, elevates financial security, and propels economic growth.
Fourthly, financial literacy programs targeting women and marginalized groups empower them with the knowledge and skills to adeptly manage their finances, make informed choices, and participate in income-generating pursuits. For example, financial literacy empowers women to negotiate their salaries effectively, understand their rights within the workplace, and advocate for fair compensation. This helps address the gender wage gap and promotes more balanced and equitable societies.
Last but not least, financial literacy encourages long-term planning, including retirement planning. Individuals who plan for their retirement increase the likelihood of achieving financial stability in the later stages of life. This, in turn, alleviates pressure on social welfare systems and contributes to economic stability.
So, who holds the responsibility of providing financial education? While schools and governmental organizations in numerous countries, including Malaysia, are tasked with this primary responsibility, it is crucial to recognize that parents also play an equally significant role.
Numerous studies have emphasized that parents serve as the primary financial socialization agents for their children. Parents act as vital role models, and their children often observe and replicate their financial behaviours and habits, both positive and negative, shaping their financial comprehension that can endure into adulthood.
With this understanding, parents should create a financial environment where basic but fundamental money management skills like budgeting, saving, and responsible spending are introduced to their children at an early age. They should also encourage open dialogues about financial topics, addressing any queries or uncertainties their children may have as they learn about money.
Furthermore, as children mature, it is beneficial for parents to involve them in age-appropriate financial decisions to help them understand the consequences of their choices.
Lastly, parents should provide unbiased financial knowledge when educating their children about money, regardless of their gender. This is essential to reduce the disparity in financial knowledge between men and women over time.
To wrap up, financial literacy contributes to poverty alleviation and sustainable development by enhancing financial inclusion, promoting responsible financial behaviour, encouraging sustainable consumption, fostering entrepreneurship, promoting gender equality, and empowering individuals and communities to make informed and sustainable financial decisions. Financial education is a shared responsibility involving schools, governmental organizations, and parents.
While schools and governmental bodies play a significant role, parents are crucial financial socialization agents for children. As the financial landscape continually evolves, parents, as adults, should stay updated on these changes. Only financially competent parents have the capability and confidence to impart positive and healthy financial knowledge to the next generation.
