Financial literacy is about making people financially literate aimed at enabling them to manage their finance adeptly and making their decisions judiciously. The significance of financial literacy can hardly be overemphasized particularly at a time when policy-makers and planners alike have pinned their hopes on financial literacy in order to attain inclusive growth, vis-à-vis all-round sustainable development of a country. Inclusive or pro-poor growth cannot be imagined without financial literacy. This type of growth means a process that enables the poor to actively participate in and significantly benefit from economic activities of a country. It is a major departure from the trickle-down development concept.
Inclusive growth, as it is defined, underscores the need for financial literacy that refers to knowledge and understanding of various financial areas. It particularly focuses on the ability to manage personal finance in an efficient manner by making appropriate decisions.
Educating the common people on financial matters is a precondition for them to be actively involved in development activities. The importance of financial literacy has increasingly been felt since the global financial crisis and economic recession in 2008 as the focus shifted on to inclusive growth. A lack of financial literacy or financial illiteracy may lead people to making poor financial decisions that can have negative impact on financial well-being of an individual. Over the last decade, financial range and scope spread further and access to financial services widened. But a national policy on financial literacy is yet to be in place.
The concept of inclusive or pro-poor growth was unknown until about two decades ago. Financial inclusion is now high on the agenda of the national policy and the Bangladesh Bank was assigned with the responsibility for immediate implementation of financial inclusion all over the country. The central bank accordingly adopted a number of action programmes including credit programmes for targeted vulnerable groups, opening rural bank branches, introducing school banking and opening of bank accounts for street children, and stimulating new financial innovations like mobile financial services (MFS).
According to the Organization for Economic Co-operation and Development (OECD), financial literacy will help promote many other financial products. Additionally, it will integrate knowledge in financial products and services by consumers and investors, and their capacity to speculate financial risks and opportunities, so that they would be able to make informed financial decisions. Financially educated individuals are better skilled to formulate their own household budgets and distribute resources efficiently. Hence, financial literacy will augment performances of individuals, firms, and households.
The country's financial market has remained underutilised due to information gap between consumers and financial service providers arising out of financial illiteracy. As a result, consumers are not able to make the right decisions on their finance. Particularly in rural areas, consumers are not well informed of their rights and options. The information gap and reduced access to financial services can be taken care of by strengthening financial literacy.
If Bangladesh had a national policy on financial literacy, a greater number of people could have been made financially literate. The Bangladesh Bank has a website wherein a brief policy statement regarding financial literacy can be found (www.bb.org.bd/finedu). On the website it has been claimed that the general people of Bangladesh have proper access to all financial goods and services of banks and other non-bank financial institutions. This highlights the importance and necessity for disseminating financial knowledge and guidelines for people to make well informed financial decisions. In addition, it motivates all the scheduled financial institutions, especially all banks, to develop and formulate purposeful financial products for all. As part of financial inclusion, lots of financial products and services have been developed, such as account opening by rural farmers with a balance of Tk10 only, school banking scheme, dissemination of financial knowledge through electronic and print media and so on. Although these financial programmes may have contributed substantially to greater access to financial goods and services for the people, they are yet to be knowledgeable enough to make informed financial decisions.
The category of employment, educational background, income level, family values, and occupational activities have been potentially main determinants of financial literacy. White-collar employees, professional individuals, and business entrepreneurs are more likely to have broader financial knowledge.
Financial inclusion strategy has emerged as an effective tool for achieving the Sustainable Development Goals (SDGs). In recognition of the need to mainstream financial inclusion strategies in Asia and the Pacific, Khalily and Miah conducted an empirical study on the current trends and patterns of financial inclusion. The study document emphasises that consumer protection, financial literacy and governance frameworks are crucial factors for advancing financial inclusion in the region by 2030. The study took three aspects into consideration to measure financial literacy: (1) bank-related financial knowledge, (2) basic mathematical knowledge, and (3) an overall understanding of inflation and discounting.
Based on empirical evidence it can be perceived that financial literacy is negatively related to age and positively related to educational level. In rural areas women, less educated people, elderly people and other groups have evidently proved difficult for financial inclusion. Therefore, on a national basis, an aggregate financial literacy policy needs to be devised in order to enhance financial knowledge. Specifically, these policies should to be targeted at rural areas where most of the socially deprived people live in.
In Bangladesh, deepening and inclusive finance have expanded over the past decade. Both financial institutions and rural based micro-financing institutions (MFIs) have provided great support for greater magnitude of inclusive finance. But the roles of these institutions have been diversified. Banks are more concentrated in commercial and urban areas where literate as well as high-income individuals are greater in number.
As a crucial component of financial literacy policy, branch banking sector may have educated the vulnerable people while operating banking activities in those areas, with new innovative financial methods like mobile banking. MFIs have a big role to play in respect of financial inclusion as they are particularly operating in rural areas. For the greater inclusive finance growth, the government, financial institutions and all the relevant educational institutions will have to come up to ensure the financial literacy to make the financial inclusion scheme a greater success.
Financial inclusion has received a lot of attention in Bangladesh. Unfortunately as there is as yet no national policy on inclusive finance, this may delay the process of achieving the SDG goals. The success of financial inclusion broadly depends on an appropriate framing of a national policy, ensuring financial literacy across the country.
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