To Help the Poor, Increase Financial Literacy
When you live in the U.S. and are surrounded by ATMs, smartphones, and digital banking products, it’s easy to assume that the entire world is as wired as we are. But 2 billion people across the globe don’t have access to regulated banking systems. They can’t open savings accounts or swipe their debit cards when they go to the grocery store.
Fortunately, digital technology is changing that. Mobile phones, banking kiosks, direct deposit, and financial apps are empowering poor communities. Access to regulated banking systems provides people with secure, low-cost ways to manage their money. The opportunity to save and access credit is quite literally life-changing.
As important as access to financial services is, however, financial literacy is even more crucial in developing areas.
The Power of Financial Knowledge
Educating communities about smart money practices is both exciting and challenging. When people learn early about how to budget, save, and invest wisely, they make better choices throughout their lives. I grew up in a modern, open-minded Indian family. But even in our household, my father and uncles made all money-related decisions. In fact, the World Bank found that women in developing economies are 20 percent less likely to have formal bank accounts than men. They also face cultural and legal barriers to obtaining insurance, digital payment tools, and financial education.
Widespread financial training — for both men and women — is essential to economic growth in the developing world. Literacy in this area enables people to protect their earnings, brace for personal crises, launch businesses, and grow their income.
Having the right financial tools at critical moments often determines whether a poor household is able to move out of poverty or absorb the shock to avoid falling deeper into debt. However, the traditional brick-and-mortar banking system doesn’t work for poor people. Most citizens who live in poverty conduct their transactions in cash, which is costly for banks, utility companies, and other institutions. Those costs are then passed on to their customers, creating an endless loop of financial strain.
Programs such as the Bill & Melinda Gates Foundation’s Financial Services for the Poor recognize the need for low-cost digital services in low-income communities. Not only do mobile phones and apps allow people to tap into existing financial products, but they also create income-generating opportunities. Once people go online, they’re relieved of the tremendous time and cost burdens associated with banking.
Research shows that microfinance programs are especially useful for getting women involved in the economy. Nearly 100 percent of women who received group loans through the Indian microfinance institution MFI reported that their self-confidence and standard of living improved because of the program. They also became more involved in household conversations about money management.
Given the right financial circumstances, people will thrive — and they’ll lift up their communities in the process.
Access Is Not Enough
Bringing digital technology to underserved communities is only the first step. Companies that are serious about spreading financial awareness must create products that suit the needs of their varied markets. People can’t learn if they don’t know how to use the technologies available to them or if the products don’t fit easily into their lives.
Tech organizations should research developing markets so they can incorporate design features, price incentives, and marketing messages that resonate among the desired audiences. Only when those conditions are met will poor people embrace digital financial services. Businesses must also work with policymakers to establish oversight and accountability in the financial tech industry.
Government offices can serve as powerful allies in expanding access to financial services. Sandhya Rani Kanneganti, postmaster general of India’s Andhra Pradesh state, noted that the India Post could help bring banking and insurance services to remote parts of the country.
“With over 155,000 post offices, most of which are in rural areas, we are poised to play a critical role in enhancing financial inclusion,” she said. Such partnerships will spur a financial revolution in the poorest parts of the world.
The Future of Financial Inclusion
During the past three years, the number of unbanked people declined by 500 million. That’s no small achievement. Nevertheless, there are still 2 billion people locked out of formal financial services. That number grows substantially if you include people who have financial accounts but don’t use them.
When you look more deeply at the numbers, you see disparities between regions, countries, income groups, rural citizens, age brackets, and genders. Governments and tech companies must collaborate on multipronged solutions to cover these gaps. Developing markets require access to digital products, financial literacy education, and regulations that promote inclusion and prohibit exploitation.
Financial inclusiveness is within the grasp of even the poorest communities. But they cannot leverage new opportunities effectively until they understand how to manage their money. Stakeholders must emphasize both access and education if they want developing economies to blossom.
Sona Jepsen is the global head of consultant relations and sales enablement at Fidelity National Information Services. Her team drives communication between industry consultants hired by mutual clients and FIS’ global sales team.