Why financial literacy needs to be expanded in Nigeria

Many Nigerians who keep savings accounts do not have adequate knowledge on the fundamentals of savings and investment and that is costing the economy in no small way.

For instance, the Central Bank of Nigeria (CBN) on the 31st of August 2020 reviewed the negotiable minimum interest rate paid on savings deposit to 1.25 percent annually.

This review was made in line with recent market developments which in turn encouraged the CBN to push down savings deposit rate to a negotiable minimum of 10 percent per annum of the Monetary Policy Rates (MPR), effective September 1st 2020.

The savings deposit rate is the rate that determines how much money your bank pays you to keep your money with them.

The new directive, therefore, connotes that savings depositors who previously earned a minimum of about N378 per annum on their savings of N10,000 will now earn a minimum of N125 on their savings deposits annually, a decrease of about 67 percent.

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But several Nigerians are not sure what it means. That doesn’t include people who are unbanked and do not even have an account with any bank.

“If the motive for this is to drive individuals to take their money out of Banks and investment elsewhere, then we need to answer the ‘how’ and ‘where’ questions on making investments”, explained Omobola Adu, a Research Analyst at Growth and Development Asset Limited (GDL).

“Already, if you know the basics of investment, you will know that saving your money in Banks does not multiply your income and given the restriction on interest payment for up to three withdrawals from savings account within a month, most savings depositors do not receive interests”, according to Ikemesit Effiong, Head of Research at SBM Intelligence.

Nigeria’s financial literacy

Financial literacy may be defined as the possession of knowledge and skill by individuals to manage financial resources effectively to enhance their economic well-being, according to the Central Bank of Nigeria (CBN) National Financial Literacy Framework.

Researchers have put Nigeria’s financial literacy at below 50 percent, which is very low, with rural areas accounting for the bulk of financial illiteracy.

Many persons and even business owners in Nigeria do not understand the concept of investment and many of them do not even seek required information before making financial decisions, experts have said.

“Financial literacy will take a long time to be achieved but if primary, secondary and tertiary institutions take up the role of teaching students all about investment from now, it will be a kick start to a long-term solution”, Effiong said.

Financial literacy is germane for reducing poverty in Nigeria as well as improving the overall productivity of the economy at large.

How can financial literacy be improved in Nigeria?

In a webinar on ‘strategies for the recovery of the capital market (Post-COVID-19)’ hosted by Susman and Associates on August 19 2020, Dr Lamido Yuguda, the Director-General of the Security and Exchange Commission (SEC) stressed the need for more campaigns to enlighten people on the importance of the capital market as there is less than 400 Collective Investment Scheme (CIS) accounts in Nigeria.

“Tertiary institutions, both public and private need to buckle up on investment education by introducing a curriculum that teaches the nitty-gritty of finance and investment”, according to Gbolahan Ologunro, the Research Analyst at CSL Stockbrokers.

“Employers in both private and public sectors should make sure that they teach their employees about investing their money and the benefits that come to them and the economy at large”, he said.

To sensitise the populace on financial investment, use different techniques for the educated and non-educated, said Boboye Olaolu, a Sub-Saharan African Economist at CSL Stockbrokers.

Olaolu explained that you can introduce financial education to schools’ curriculum and employers can train their employees for financial inclusion, but these methods to do not exactly work for the uneducated persons.

“Different financial literacy plans in all local dialects should be created so that no one, be it the educated or non-educated is left out”, Olaolu further mentioned.