Financial literacy for development

Only 35% of Sri Lanka’s adult population are financially literate according to a global study released last week, which puts fresh light on correlations between financial literacy, financial access, and the strength of markets. Addressing financial literacy is a key strategy in building stronger, more accessible and sustainable markets around the globe, particularly in developing markets.  

In one of the most extensive measurements of global financial literacy to date, the Standard & Poor’s Ratings Services Global Financial Literacy Survey (S&P Global FinLit Survey) found that two-thirds of adults worldwide are not financially literate and there is a wide gap between men and women’s literacy, including in highly developed countries.

The survey results come from interviews conducted with more than 150,000 adults in more than 140 countries who were tested on their knowledge of four basic financial concepts: numeracy, interest compounding, inflation, and risk diversification. According to the study, the US with a financial literacy rate of 57%, trails behind countries such as Germany, Israel, New Zealand, and Norway – the latter topped the list with 71% literacy.

The S&P Global FinLit Survey shows that in almost every country there is a material gap between men and women. Worldwide, there is a five-point gender gap, with 35 per cent of men being financially literate compared with 30 per cent of women. In the US, men’s financial literacy averages 10 percentage points higher than women’s. Notably, in China and South Africa, there was no gender gap.

The data also uncovered a new pattern: In most developed countries young people have lower financial literacy scores than middle-aged people. This pattern, however, is reversed in the developing world, as in China. Although the country’s overall scores are lower, China’s youngest adults have higher scores than middle-aged adults. So while China remains much less financially literate than the US, each generation is getting savvier. In Hong Kong, young people are slightly more financially literate than young Americans, even as the older Hong Kong generations have far lower literacy than Americans of the same age.

In Sri Lanka financial literacy is made even more difficult by the war with indebtedness becoming a severe problem in the northern part of the country as people who were caught in conflict were cut off from the rest of island and not equipped with sufficient caution when borrowing and getting into easy payment plans.

The average debt of a Sri Lankan family has increased from Rs. 52, 000 to Rs. 194,000 rupees, according to Central Bank surveys since 2009. So dire has the problem become that the Central Bank this year started holding educational programs especially for low income families in the north, bringing in experts to guide them on better borrowing techniques.  

Elsewhere in the country the problem remains significant. Despite Sri Lanka having a banking density on par with developed countries industry professionals have pointed out on average three out of ten adults are unbanked. Moreover the majority of these are women with over 50% of Sri Lankan’s female population having low levels of financial literacy. Sri Lanka’s struggles to promote financial inclusion means efforts towards sustainable development will also face high hurdles.