Is financial education the Responsibility of The Government, Individual Financial Institutions, or The Customer?
Considering Its Impact on economic mobility and The Urgency of The Poverty Eradication Mission in Africa, Is financial education the Responsibility of The Government, Individual Financial Institutions, or The Customer?
Rather than looking at financial education as a favor that financial institutions provide for their customers, we view it as a crucial ingredient in the career success of every worker.
United States International University - Africa Forbes 世界银行 World Economic Forum Financial Times BlackRock Financial Modeling Education Financial Education Professionals Financial Education Services Inc. KOFE : Knowledge of Financial Education Financial Sector Deepening Tanzania Financial Sector Deepening Uganda (FSD Uganda) Financial Sector Deepening Mo?ambique (FSDMo?) Central Bank of Kenya Government of Kenya Kenya Investment Authority (KenInvest) KRA(KENYA REVENUE AUTHORITY) Kenya Bankers Association REITs Association of Kenya BANCASSURANCE ASSOCIATION OF KENYA (BAK) First Bank of Nigeria Ltd. Olusegun Alebiosu MD/CEO FirstBank Group United Nations UNSDGs 'R' US
Imagine if medicine was sold in hospitals and chemists without prescription instructions. There is a slim chance that patients will get well if they don’t know how to take their meds. That’s the same situation that consumers of financial products face every day while trying to navigate the waters of personal finance. There are too many moving pieces and insufficient information about how everything works, meaning customers often end up overwhelmed and often fail to reach their true wealth-generation potential.
Financial products and services are becoming increasingly complex, with various savings, investments, loans, and insurance options available. Without proper guidance, individuals can easily fall into financial traps such as high-interest debt, inadequate emergency savings, and poor investment choices. This complexity is compounded by the fact that, historically, financial literacy has not been taught in schools, leaving many people to learn through trial and error. The consequences of financial illiteracy can be severe, leading to a cycle of debt, financial stress, and limited economic mobility. Therefore, it is crucial to provide comprehensive financial education to empower individuals to make informed decisions and achieve financial stability.
The Need for Financial Education
Economic mobility cannot occur without smart personal finance management. Personal finance starts with career growth and development and ends with estate management and succession planning. In between, there is budgeting, savings planning, investments, insurance, and retirement planning. Without proper financial management, economic progress is always hampered by poor spending habits, poor savings and investment habits, and haphazard involvement in retirement and estate planning.
At the personal level, financial literacy enables workers to get more out of their scarce resources. Financial education teaches the knowledge, skills, and most importantly the attitudes that people must adopt to engage in good money management practices on earning, spending, savings, borrowing, and investing. According to Financial Sector Deepening (FSD) Kenya, channels for financial education include the basic school system, mass media, face-to-face trainings sponsored by financial sector players, and legislative action on partnering with civil society organizations (2008).
Professional networks and associations can be used to deliver wall-to-wall coverage of financial education in the market (FSD Kenya, 2008). One challenge with relying on financial institutions to provide financial education to consumers is the insufficiency of syllabi. Institutions tend to provide just sufficient information to sell their products. Customers end up receiving a lopsided understanding of personal finance. To ensure that financial education is sufficiently beneficial to the consumer, a more holistic approach is needed.
Role of Financial Institutions in Financial Education
Financial institutions are naturally constrained in the amount of education they can provide to their customers. A bank is only qualified to teach about savings and loans since these are their main areas of operation and expertise. Moreover, financial companies are likely to create syllabi to help them sell more products. The customer may not always get the best deal in this situation.
According to FSD Kenya, some financial institutions handle financial education under their CSR department and mainly focus on low-income neighborhoods. The biggest constraint to creating a financially literate Kenya is the conflict of interest that exists in a model where every financial institution provides training independently. Savings and credit management are insufficient without investment education. Investment training is insufficient without insurance management, and insurance falls short without retirement and estate management.
The Role of Government and Independent Institutions
Financial education institutions are the missing piece in the personal finance landscape. According to FSD Kenya (2008), non-banking civic institutions are best suited to provide financial education because they can provide customers with an understanding of all the players in all the market segments. An independent entity existing solely to provide financial education can coordinate value exchange between all the various financial institutions on the one hand and customers on the other. Empowering the customer on how to use all existing financial products promotes synergy in the finance industry and facilitates long-term financial growth for individuals and the overall economy.
Introducing Individual Retirement Accounts (IRAs) in the Informal Sector
One innovative approach to enhancing financial security in Kenya’s informal sector is the introduction of Individual Retirement Accounts (IRAs). The informal sector, which employs a significant portion of the Kenyan workforce, often lacks access to structured retirement savings plans. By introducing IRAs tailored to the needs of informal workers, we can provide a viable solution for long-term financial stability. These accounts would allow individuals to make regular contributions towards their retirement, no matter how small. Leveraging mobile technology, contributions can be made conveniently via mobile money platforms, ensuring ease of access and participation. This initiative promotes a culture of saving and ensures that informal sector workers have a safety net for their retirement years.?The success of similar programs, like the Mbao Pension Plan, demonstrates the potential for IRAs to significantly impact the financial well-being of informal sector workers in Kenya1.
However, the adoption rates of the Mbao Pension Plan have been relatively low, with only about 1% of informal sector workers participating.?This low uptake is likely influenced by financial illiteracy, which affects approximately 62% of the target population2. Many informal sector workers lack the necessary knowledge and understanding of the value of retirement savings, leading to hesitation and mistrust towards such schemes. Addressing this gap through targeted financial education programs can significantly improve the adoption rates of IRAs and similar pension plans, ensuring that more workers in the informal sector can secure their financial futures.
Our Unique Approach to Financial Education Operations and Funding
The FSD Kenya report cited in this essay was conducted in May 2008. It culminated in a workshop for all stakeholders in the financial industry to “sketch a framework” for a national financial education program. Sixteen years later, financial education is still an unresolved issue in Kenya. Solutions such as M-Pesa with its extreme simplicity seem to have dampened the financial education sector. It has allowed more low-income Kenyans to access financial services. However, financial illiteracy is still a problem, especially on the customer side of the equation.
FSD Kenya recommended creating content relevant to the market segment being targeted and using the right delivery channels. In the current system, the delivery of financial content is an expensive expense even for financial institutions. Not only are training events expensive to host, they also generate mediocre results. Customers are not always motivated to follow through on the skills they are taught or they simply lack the capacity to follow through.
Our Unique Solution
Instead of looking at financial illiteracy as a challenge to the operations of financial institutions, Infina? PMC takes the exact opposite view. Our research indicates that financial illiteracy is a major challenge for the financial wellbeing of customers. Rather than looking at financial education as a favor that financial institutions provide for their customers, we view it as a crucial ingredient in the career success of every working Kenyan.
Infina? PMC combines all the 7 aspects of personal finance into one certifiable after-school class. These include; income planning, budgeting, savings, investing, insurance, retirement planning, and estate management. Consumers need to understand all these areas of personal finance to achieve financial security. Our business exists solely to provide these competencies with the goal of sparking synergies with financial service providers.
Our vision is to become ubiquitous with financial education for the average Kenyan and for service providers. Our business model borrows from Multi-Level Marketing to create an army of financially intelligent representatives who will be responsible for teaching others the ways of money. We also care about financial inclusion. The Infina? PMC community will be a dedicated marketplace for financial products. Our work is to arm Kenyans with financial intelligence on one hand and financial products on the other, enabling them to overcome poverty and build sustainable wealth.
Addressing Key Considerations
Holistic Approach: Combining all aspects of personal finance into one certifiable class is a great idea. How do you plan to ensure that the curriculum remains up-to-date with the latest financial trends and regulations?
To ensure the curriculum remains current, Infina? PMC will establish a dedicated team of financial experts and educators who continuously monitor and integrate the latest financial trends, regulations, and best practices. Regular updates and revisions will be made to the curriculum to reflect changes in the financial landscape, ensuring that learners receive the most relevant and accurate information.
Delivery Methods: Utilizing group-based trainings, mass media, and school-based trainings can reach a wide audience. Have you considered leveraging digital platforms like mobile apps to provide continuous learning and support?
Yes, leveraging digital platforms is a key component of our strategy. Infina? PMC plans to develop a mobile app that offers continuous learning and support. This app will provide access to interactive courses, financial tools, and resources, enabling users to learn at their own pace and convenience. Additionally, the app will feature forums and chat support to foster a community of learners who can share experiences and advice.
Partnerships: Partnering with financial service providers is crucial. What strategies do you have in place to attract and maintain these partnerships?
To attract and maintain partnerships with financial service providers, Infina? PMC will offer value propositions that align with their business goals. This includes co-branded educational programs, joint marketing initiatives, and opportunities for financial institutions to showcase their products and services to a financially literate audience. Regular feedback and collaboration sessions will ensure that partnerships remain mutually beneficial and aligned with evolving market needs.
Motivation and Follow-Through: You mentioned that customers often lack the motivation or capacity to follow through on financial education. How will Infina? PMC address this challenge to ensure long-term engagement and application of the skills taught?
Infina? PMC will implement several strategies to enhance motivation and follow-through. These include gamification elements in our digital platforms, such as rewards and badges for course completion, and real-life success stories to inspire learners. Additionally, we will provide personalized coaching and mentorship programs to support individuals in applying the skills they learn to their personal financial situations.
Impact Measurement: How will you measure the success and impact of your financial education programs on the financial well-being of participants?
To measure the success and impact of our programs, Infina? PMC will use a combination of quantitative and qualitative metrics. These will include pre- and post-program assessments to gauge improvements in financial literacy, surveys to measure changes in financial behaviors and attitudes, and longitudinal studies to track participants’ financial well-being over time. Regular reporting and analysis will help us refine our programs and demonstrate their effectiveness to stakeholders.
The Broader Impact of Financial Education
Financial education does not only benefit individuals but also has a broader impact on the economy. When individuals are financially literate, they are more likely to save and invest, which can lead to increased capital formation and economic growth. Moreover, financially educated individuals are better equipped to start and manage businesses, contributing to job creation and economic development.
The Role of Technology in Financial Education
In today’s digital age, technology plays a crucial role in delivering financial education. Digital platforms, such as mobile apps and online courses, can provide accessible and scalable financial education solutions. These platforms can offer interactive and engaging content, making it easier for individuals to learn and apply financial concepts. Additionally, technology can facilitate continuous learning and support, ensuring that individuals have the resources they need to make informed financial decisions.