The impact of financial literacy on Nigeria’s economy
One of the primary reasons why people struggle with money is their lack of financial literacy or the inadequacy of their financial knowledge. Many people do not understand how money works beyond the basics of receiving it and spending it; and in most cases, they do not know about the relationships between money, wealth, time, and skill.
Ask yourself, on a scale of one to ten, how well do I understand the following: personal finance, budgeting, investment, credit, insurance, and the financial system? Your comprehension of all these elements is what defines your level of financial literacy. Financial literacy is the ability to understand financial concepts and utilise financial resources properly and efficiently; it goes beyond knowing how to make and spend your money. It is much deeper than that.
Interestingly, anyone can acquire financial literacy with the right resources and attention to detail.
Who needs financial literacy?
Both individuals—young and old—and corporations need financial literacy because it directly impacts their expenses and, by extension, the larger economy. In the past, the idea of understanding the financial system was limited to the few individuals who were tasked with making our economic decisions for us. However, with the explosion of information access via the Internet, more people are becoming aware of the importance of their financial education. Search volumes for personal finance terms have skyrocketed. We have also seen a boom in the number of personal finance platforms in Nigeria and worldwide. It’s no longer business as usual.
A financial literacy report from the Central Bank of Nigeria (CBN) shows that most Nigerians want training and information on financial concepts such as long-term financial planning, budgeting, financial products and services, risk management, the financial security of their dependents, and insurance.
The report also revealed that about 53.4% of Nigeria’s adult population does not know, or only has a rough idea of, what they have spent in the past week. Additionally, over 50% do not know how much money is available for their daily expenses.
While the CBN’s report reveals that there is genuine interest in financial literacy, it also reveals a significant knowledge gap. Millions of Nigerians are looking to achieve financial independence and create wealth for themselves, and they are talking more openly about money and other related financial concepts. They are hungry for knowledge. The question then is, where can they find it?
Several individual platforms have sprung up to teach people about money and personal finance in the last few years. Companies like Wema Bank have also invested more into financial education through several ways that we will discuss in a moment. But first, let us consider how financial literacy impacts our economy.
How does financial literacy impact Nigeria’s economy?
According to scholars from the University of Nigeria, Nsukka, financial literacy affects different classes of society in different ways. For members of the lower class, financial literacy teaches the benefits of participating in the financial system, knowing how to manage irregular income flows, and dealing with unforeseen emergencies without falling into unnecessary debt. For this set of people, most of their financial activities are informal and cash-based, which makes their financial flow hard to track. However, investing in financial literacy helps to reduce their knowledge gap and increase spending power gradually.
For the middle class, most of whom are already financially included, financial literacy opens them up to new products and services. It also empowers them to participate more strategically in the financial system.
For members of the upper, high-income class, financial literacy provides a deeper understanding of the financial system and the benefits that come with investing. It helps them better realise where to direct their financial resources so as to gain even more wealth.
Regardless of social status, everyone needs financial literacy. The more financially literate Nigerians we have, the more economically secure our country will become. This will also impact the standard of living as more money comes in and circulates within the country. Increased financial literacy will also make Nigerians more strategic and innovative, providing a platform for generating more income through the people’s financial power.
Lastly, financial literacy impacts how people understand and utilise financial products and services, whether physical or digital. This will lead to increased profits for organisations and motivate financial institutions like ours to innovate in our provision of products and services.
How Wema Bank aids financial literacy in Nigeria
As I mentioned earlier, financial education is one of the things we are most passionate about at Wema Bank. We know that the more financially literate our customers are, the better able we are to engage with them and provide them with the services that make their lives better.
Recently, we launched the SME Business School in partnership with the Frankfurt School of Finance and Management, Germany. This programme is designed to equip business owners and entrepreneurs with the knowledge and skills they need to run their businesses properly. At the business school, we offer a world-class curriculum that covers finance, marketing, sales, innovation, leadership, technology, strategy, and so on. At the end of each cohort, all participants get a certificate and gain access to a network of like-minded individuals who can provide them with support and access to more valuable insight further down the line.
We also provide loans to customers that enable them to increase their earning capacity. Along with these loans comes systematic education. For example, in educating our customers about how to source for business funds, we break down the different options available such as funds from family and friends, venture capital firms, bank loans, crowdfunding, etc. By doing this, we don’t just hand over funds to our customers, we also give them the relevant information they need to succeed.
Beyond financial education for business owners, we also educate individual customers about saving, access to loans, setting up emergency funds, and how to access the financial freedom that technology brings. We do all these because we understand the importance of financial literacy for our customers, Nigerians, and the country at large. We do this because we know that the more financially literate our customers become, the closer they get to financial freedom and the more robust Nigeria’s economy becomes.
Mabawonku is the chief financial officer, Wema Bank Plc