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How Fintech Can Empower Financial Literacy For All

The COVID-19 pandemic, economic downturns, global trade disputes, and climate-related disasters have contributed to significant financial challenges worldwide. According to a study conducted by the World Bank, which analysed data from 35 countries, the economic impact of events such as income losses have been so severe that one in four households with children has had to go without food for a day or more. This highlights the significant financial challenges that many households around the world are currently facing. 

Millions of people worldwide are ill-prepared to deal with rapid changes in the financial landscape, which has a knock-on effect on mental health. Here in the UK, April marks Stress Awareness Month – an annual campaign to increase public awareness about the causes and effects of stress. Its goal is to educate individuals and organisations about the importance of stress management and to encourage them to take action to reduce stress in their lives. 

As part of managing stress, it’s crucial to understand the link between financial well-being and mental health - and financial literacy's role in improving both. The challenges of today’s financial landscape underscore the importance of promoting financial literacy and access to financial services to help individuals and families navigate these difficulties. 

Financial Literacy: An Essential Tool for Managing Financial Wellbeing

Financial literacy is more than just understanding the basics of managing money. It encompasses a broad range of skills and knowledge related to personal finance, investing, and managing debt. Without a fundamental understanding of financial concepts, people may struggle to manage their finances effectively, leading to economic instability and hardship. They could fail to budget and save properly, leaving them vulnerable to unexpected expenses and financial emergencies. It may also be hard for them to make informed credit decisions, resulting in high levels of debt and interest payments. 

A lack of financial literacy can make it challenging to achieve long-term financial goals, such as buying a home or saving for retirement. This can affect psychological well-being: almost 40% of people with a mental health problem report that their financial situation worsens their psychological state. 

A crucial point to note is that when it comes to financial literacy, there can be a cyclical nature throughout generations. Without basic financial education being provided to them by their predecessors, today’s youth can face difficulties in managing their finances effectively and risk financial disaster through high debt, bad credit and lack of savings. In turn, they can pass on that lack of financial literacy to their own children – and so the cycle continues. 

Challenges to Achieving Financial Literacy in the UK and Worldwide

A lack of financial literacy is prevalent in the United Kingdom, where nearly nine million residents are in serious debt, with only around a third receiving help. In fact, only 67% of adults were assessed as financially literate. This means over one-third of UK adults struggle with basic financial concepts, such as understanding interest rates and managing debt. Addressing this lack of financial literacy is crucial for ensuring the economic well-being of individuals and society as a whole.

Where does the responsibility for financial literacy lie? Ideally, it is shared between stakeholders, including parents, schools, financial institutions, regulators, and policymakers. The UK government has already implemented various financial literacy initiatives, including promoting access to financial advice, launching campaigns to raise awareness about financial scams, and including financial education in the national curriculum

While more work is needed to ensure that all UK adults have the financial knowledge and skills to make informed decisions about their finances, fintech companies may play a significant role simply by their design. They have the potential to revolutionise access to financial services and narrow the knowledge gap by offering innovative solutions that are more easily available than in previous decades. 

Fintech Solutions for Promoting Financial Literacy

Fintechs have democratised access to products and revolutionised the way we access and manage our money, offering user-friendly solutions that have made financial services more convenient than ever before. By providing educational resources and tools that promote financial literacy, fintechs also narrow the knowledge gap and empower consumers to make better financial decisions.

In terms of breaking the generational cycles of financial illiteracy, many fintechs offer "pocket money" apps aimed at helping young people manage their finances more effectively. Some examples include apps, such as Go Henry and Natwest’s Rooster, that allow parents to set up an allowance for their children and monitor their spending, apps that round up purchases and save the spare change, and apps that offer cash-back rewards for responsible spending. These types of apps can help instil good financial habits in young people from an early age and set them up for long-term financial success.

However, regardless of the age of the end-user, fintechs are also uniquely placed to leverage innovative technologies by creating personalised financial education experiences tailored to individual needs and preferences. They can use data analytics and machine learning algorithms to analyse user behaviour and provide personalised financial recommendations and insights. This can help users understand their spending habits, identify areas for improvement, and make informed decisions about their finances.

Addressing the Global Financial Literacy Gap

Across the globe, fintechs can contribute to bridging financial literacy gaps by offering innovative digital financial services that are accessible, affordable, and user-friendly. In this way, fintech companies can help integrate these individuals into the formal financial system, providing them with the means to save, invest, and build wealth.

One emerging nation, South Africa, faces considerable challenges around financial knowledge gaps. A recent study found that over half of South Africans wished they had better financial literacy. While the country has made strides in recent years to improve access to financial services, a large portion of the population still lacks the necessary skills to manage their money effectively. 

There are various initiatives taking place to address this issue. At Paymentology, we are partnering with Blackbullion South Africa to promote financial literacy among young people in the country. The partnership is a significant step towards improving the economic well-being of the youth in South Africa by sponsoring them on the Blackbullion South Africa platform.

By providing the necessary financial knowledge and skills, we aim to equip young people with the tools to make informed decisions and achieve financial success. Blackbullion South Africa's interactive courses and user-friendly tools provide a fun and engaging learning experience, making it ideal for younger generations. While the focus is currently on South Africa, this type of partnership would also work in all areas of the world.

Ultimately, financial literacy is a crucial aspect of both financial and mental well-being, and fintech companies have a unique opportunity to help promote it around the world. By leveraging innovative technologies, fintechs can provide tailored financial education. As individuals become more financially literate, they can make better decisions that not only improve their own well-being but also contribute to broader economic prosperity for society as a whole. This increased financial literacy can have a generational impact by helping to break cycles of poverty and creating opportunities for future generations.

 

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