World Bank Group: Financial Literacy is Key to Financial Inclusion

With more than 2 billion adults classified as unbanked globally, several leading figures at a World Bank Group forum last week presented a plan for securing universal financial access by 2020, with financial literacy serving as a primary driver to successful financial inclusion.  The group’s thesis is based in large part on the recognition that innovative technology developments and aggressive reforms being implemented in both developed and developing countries have made universal financial access more achievable within a shorter timeframe than it was previously believed possible.

Low cost bank accounts, debit cards, and online and mobile banking all are paving the way for a revolutionary upswing in financial product access.  And proponents widely agree that financial literacy is critical in order to ensure that people understand how to use new financial products and services.

Her Majesty Queen Máxima of the Netherlands has been a leading advocate of financial education and inclusion, and she currently serves as the UN Secretary General’s Special Advocate for Inclusive Finance for Development.  Queen Maxima led a dialogue underscoring the high potential of financial inclusion as an important driver of economic progress, with financial education being a corresponding force to ensuring success.  The World Bank Group’s interest in this area has been boosted by the connection between financial education and the Group’s objectives of eradicating poverty and heightening economic prosperity throughout the world.

So what would it take to get countries on board with the aggressive timetable of completing financial inclusion by 2020?  The good news is that over 50 countries already have brought financial literacy and inclusion to their national agendas and made ground-breaking commitments to achieving important targets within bullish timeframes.  The Group’s participants have been highly confident that if these nations meet their commitments and if other countries follow suit, then the ambitious goals they’ve promulgated are within reach.

One primary reason why financial literacy is seen as a crucial element required for financial inclusion success is that without a sound financial education, individuals lack the ability to know about and understand new financial products and services that could become more accessible to them.  A similar phenomenon exists beyond individuals and families – namely, in the corporate and institutional context.  Specifically, the existing limitations on small business access to financial products in many emerging countries hampers their ability to grow, create more jobs, and contribute most effectively to their local economies.  But even if access to financial products for those businesses became more readily available, many contend that without financial literacy, small business owners and workers would not know about or understand how to use the tools and resources that they could access.

Just as many countries have sought to address the financial inclusion issues by developing strategies and making commitments for solutions by 2020, several nations have done the same with respect to financial literacy.  In fact, a recently released joint publication by the OECD and Russia’s G20 Presidency outlines the financial education developments and plans of many countries that have espoused financial literacy as a major driver of individual and economic growth in those nations, which are serving to catalyze other countries in their respective regions.  This publication on National Strategies for Financial Education reviews both G20 and non-G20 countries – and financial education observers have been very bullish on the findings.

Given the significant growth of financial literacy initiatives in both developed and developing regions, financial education will continue to serve as a critical component in any nation’s efforts to move towards full financial inclusion in the years ahead.  Higher levels of financial literacy ensure that individuals, families and institutions know about and understand new financial products being offered to them, in many cases for the first time.  Moreover, given its already heightened placement on the national policy and legislative agendas of many countries throughout the world, financial literacy will remain a driving force in the global movement towards comprehensive financial inclusion in the coming years.