Financial Literacy Revolution – Africa – Guest Editorial
Alan Greenspan, the ex- U.S Federal Reserve Chair, once remarked “The number one problem in today’s generation and economy is the lack of financial literacy.” Whilst he was predominantly centering this towards the United States, the statement is certainly true for those in Africa. Financial Literacy rates must be improved across the African continent- and fortunately there has never been a better time to take up the challenge.
Financial literacy has many definitions, but a widely used one is from Standard & Poor (S&P), who in their Global Financial Literacy Survey define it as the ability to ‘understand essential financial concepts in making informed decisions about saving, investing and borrowing’. This survey went across the world and found rates of financial understanding amongst Africans to be alarmingly low. Simple questions were asked around topics such as diversification of risk, calculating interest repayments and knowledge of transaction costs and a percentage of correct answers/ literacy rates were captured for each country. The finding showed that where many European countries, for example, had literacy rates of circa 65-75%, many African countries fell well below, such as South Africa (42%), Tanzania (40%), Kenya (38%) and Nigeria (26%). This is a profound issue, as it shows most of these populations are not able to navigate their financial lives effectively and are certainly not planning their retirements to any real extent. Indeed, in Kenya it is noted that 70% of the population enter retirement with less than $10k.
Growing Mobile Phone Penetration Opportunity
These low financial literacy rates are bad news, but the good news is we can massively improve the situation very quickly and key to this is mobile phone usage. The number of people that will have access to mobile phones over the coming years will increase at a phenomenal rate across Sub-Saharan Africa particularly. Unique mobile subscribers will increase from 477 million in 2019, to 614 million by 2025. Of these users, a huge 475 million will have internet access through their smart phone by 2025. This is so important, as it allows people of all backgrounds and genders to seek information, education and fintech organisations there to help people understand how to save and invest.
Much more can be done to improve financial literacy
But there is so much more we can do whilst this mobile internet adoption continues to take place. Financial institutions like our brokerage, Equiti Group (EGM Securities/ FXPesa) must certainly play it’s part. We will persist in increasing the education we are supplying; We spend a huge amount of time, energy and money shipping out educational content to our African clients through seminars, webinars, podcast, radio and tv interviews and social media channels. This education needs to be balanced and open eyes to exciting short-term returns + investing for the long-term. For example, there is a current hysteria around Cryptocurrency trading across Africa, with those investing solely in assets like Bitcoin expecting huge returns each week. Improved literacy will mean understanding the need to diversify across asset classes.
Social Networks- the good and the bad
The recent rise of forums such as r/Wallstreetbets on Reddit and stock memes on platforms such as Instagram and Twitter have brought trading to a younger generation across the world – and Africa is no different. This is a huge positive, as we are seeing more people decide to learn how to invest. However, these social networks can have a raw side-effect also. Poor financial literacy increases a person’s susceptibility to scams. Young Africans are being bombarded with ‘influencers’ and targeted ‘get rich’ schemes, that unfortunately steal hard-earned and much needed income far too often.
Financial Literacy Revolution
So it’s crystal clear that improving financial literacy is critical for all generations, but particularly the young. This is one of the reasons that myself and my Equiti/ FxPesa team decided to start the ‘Financial Literacy Revolution’ webinar tour at the beginning of 2021. For several months now, we have held a virtual tour of universities across Kenya, determined to give basic financial knowledge and equip students with more information to counter bad agents within finance. In parallel to the tour of universities, we are always holding financial literacy talks with our army of clients. Over the past year we have spoken to over 100k bright eyed Kenyans through this series and our other webinars and seminars. It has been an incredibly rewarding experience for us all. This is only the start of the revolution….. but started it has!
By Brian Myers, Chief Executive Officer at Equiti Capital. Follow Brian on Twitter @bjmyersuk.
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