Financial Literacy Initiative

Financial Literacy initiative is envisaged to develop broader understanding about financial markets and products.

Widespread financial literacy and awareness within the masses is now considered an important tool to promote savings and expand financial security in most of the Nations. Policy makers worldwide now increasingly acknowledge the importance of financial education as a key component of economic stability and development in their Nations. That’s why many advanced countries of the World such as Australia, Japan, United States and UK etc., already have regular programs to raise the interest of their citizens in financial education and literacy. Broadly, the purpose of such programs is to empower investors/ consumers with sound economic, financial and regulatory knowledge so as to enable them to maximize their longer-term financial gains besides adding to the overall economic health and stability of a society.

Since Pakistan is characterized as having very low rates of savings & investments, low penetration of financial products & services and relatively lax enforcement standards to protect the consumers, therefore a campaign for the financial literacy is deemed as the need of the hour. It is in this context that FLI has embarked on the “Financial Literacy Initiative in Pakistan”.

Under this initiative, several types of financial awareness programs are planned which aim to target different kinds of financial consumers in our society. In this way, targetted teaching and practical money-handling skills shall be provided to almost all social segements of our population.

Mission

To promote financial skills and prudent economic decision-making capabilities in all segments of our citizens.

Objectives

• To create basic awareness in the masses about various financial markets and their products.
• To promote the understanding of risk-reward relationship in financial decisions.
• To create responsible financial behavior.
• To inculcate the habits of saving.
• To modify the spending habits.
• To empower consumers of financial products.
• To increase financial security and stability in the society.

Compelling Reasons for Promoting Financial Understanding

• For the people living at the bottom of the pyramid, the ability to make good financial decisions is of fundamental importance.
• The poor lack resources to cushion them from lost savings or investments or enable them to rebound from adversity. Having access to savings products or insurance can greatly affect their financial future.
• Mounting evidence shows that those who are less financially literate are more likely to have problems with debt, are less likely to save, are more likely to engage in high-cost credit, and are less likely to plan for the future.
• More than one third of World’s population uses high cost alternatives to access funds in times of need, and lower income groups of the society fall prey to loan sharks etc.;
• As fees and interest expenses related to financial products—formal or informal—take a higher share of income, therefore they have a significant impact on the well-being of individuals.
• Financial stress is the single largest reason of many other social problems facing our societies.
• Due to lack of adequate financial knowledge, consumers become vulnerable to fraudulent activities such as pyramid schemes etc., which make them to enter into unwise investments, ignore important signals, information, or basic prudence measures before entering into a contractual agreement with a financial service provider.
• For financial institutions, over-indebtedness is a serious issue affecting microfinance clients as well as commercial bank clients.
• The recent global financial crisis originated because overextended consumers were provided with easy access to credit.
• The increasing complexity of financial markets and innovation has created further vulnerabilities as loan products have become too complex for consumers to easily understand, and disclosure are inadequate to clarify the risks.
• Financial institutions themselves became prone to risks involved in the trading of complex derivative financial products.

Benefits of Enhanced Financial Awareness

• Financially educated consumers are more likely to save their money, compare financial products and services, and seek and give advice on money matters.
• Access to finance is known to create incentives and environments that promotes desired financial behaviors such as saving, budgeting, or using credit wisely.
• Financial literacy can help to prepare consumers for tough financial times, by promoting strategies that mitigate risk such as accumulating savings, diversifying assets, and purchasing insurance.
• Greater financial knowledge, together with behavioral change to apply the lessons of financial education, reduces the likelihood that consumers—at any income level—will fall prey to unscrupulous salespeople and purchase products or services that aren’t in their best interest.
• For poor and rich alike, financial literacy provides greater control of one’s financial future, more effective use of financial products and services, and reduced vulnerability to overzealous retailers or fraudulent schemes.
• Financial literacy also reinforces responsible behaviors such as conscientious tax payments, timely clearance of bills and avoidance of over-indebtedness etc.