Financial literacy is a social cause, and we need companies to embrace it

Financial literacy consists of knowing and understanding financial and related concepts that allow us to make informed and correct decisions regarding our money.

Why is financial literacy relevant?

Financial literacy is a social cause. And this is not a matter of perspective or ideology, it is a matter of social justice. In an increasingly complex world regarding money, with financial products and services increasingly flowing to the digital world and assuming dematerialized forms, we are not equally equipped to deal with the challenge.

When and where people and communities have low financial literacy levels, there is difficulty in managing money – they struggle in managing personal budgets, they have trouble in deciding if and what financial products to adopt, they do not feel comfortable in using digital means to manage money, they do not prepare for their retirement days. When financial literacy is at medium or low levels, people will carry those limitations to their jobs. And therefore, organizations, companies included, are impacted by low literacy levels.

A simple telecoms contract demands our care and detailed attention. Consumer credit companies have long since become aggressive and are not concerned with making clear the consequences of their services in families' budgets. When proposing new financial products, banks don't always put the client's interests and declared risk profile first. If financial literacy is low, you easily fall prey to the system. The world we make is not a fair one. Companies can make it fairer if they decide to. (And they would be better pictured in the ‘S’ of ESG indicators.)

How can financial literacy be developed?

Facing financial literacy as a social cause means that we, as members of a society, recognise it raises a social challenge to be tackled. Its dimension and its complexity are not compatible with an individual and fragmented approach, with each entity working by itself. Financial illiteracy must be embraced by multiple and diverse actors – from the public sector, ie government at local, regional and national levels; from the private sector, ie companies; from the non-profit sector, ie associations of various kinds and foundations; and civil society in general, ie individuals and families. Whatever ways are set up to embrace that cause, collaboration among people and organizations is essential, to design effective and impactful solutions. Therefore, companies are not alone in this, and can be leaders in generative partnerships towards better financial literacy.

How is Portugal in terms of financial literacy?

The level of financial illiteracy is high in Portugal and has an impact on the lives of families, companies and organisations in general. There are various organisations that monitor the level of financial literacy. In the 2023 OECD/INFE survey , Portugal came 13th in the global indicator of financial literacy. In the European Union's (EU) Eurobarometer in 2023 Portugal was the penultimate EU country in terms of financial knowledge. Only Romania was worse than us. To the questions asked, only 16 per cent of the respondents showed high financial literacy, 56 per cent showed average knowledge and 28 per cent showed low knowledge. In terms of financial behaviour, Portugal is slightly above the European average. When we look at self-perceived knowledge, the Portuguese respondents tend to show a higher level of knowledge than is actually the case when measuring actual knowledge and evaluating behaviour. We are also in second-to-last place when it comes to comfort in using digital financial means.

Why is this a relevant subject for companies and their workforces?

In uncertain times as the ones we have been living in, it is highly probable that employees in all organizations are facing personal financial stress. Inflation rates, wages that do not accompany the raise in expenses, the housing crisis, all combine to add pressure on an already tight budget of many Portuguese citizens and families. Employees in financial stress will bring those concerns to work. Instead of ignoring reality, companies and their top managers have a role to play. Out of a human sense of respect and dignity, and out of companies’ bottom line.

In the 2023 edition of PwC Employee Financial Wellness Survey, 57% of the inquired employees stated that finances are the top cause of stress in their lives. This is slightly higher even comparing with the pandemic years’ editions. Financially stressed employees, the report reveals, are nearly five times as likely to admit personal finance issues have been a distraction at work: 56% of the workers answered spending three hours or more per week at work dealing with or thinking about issues related to their personal finances. An impressive 74% of all employees want help with their personal finances, with just 33% admitting they find it embarrassing to ask for this kind of guidance or advice. The report highlights as critical that employees have access to trustworthy, objective resources that aren’t capitalizing on product sales or retirement plan rollovers. Among the actions suggested, the report includes the creation of financial wellness services to employees, including one-on-one coaching.

What are other relevant targets?

Of course, companies and their employees are not the only ones to whom financial literacy is relevant. Work must be developed towards children and young people, so that positive social impact can be achieved in the long run, but also towards the elderly who need help to catch up with such a steep change in this domain. There are organisations in Portugal with projects that promote financial literacy, and that have been steadily and firmly cultivating the ground for better financial literacy levels in the future. One of these organisations is the Dr. António Cupertino de Miranda Foundation, with the project No Poupar Está o Ganho (NPEG), for school children; Eu e a Minha Reforma , for older people; Por tua Conta , for vocational school students; and Financial education - a special need, for people with disabilities. An example of how broad is the spectrum of groups to work with in the improvement of financial literacy levels.

Much has been achieved, but a lot is still to be accomplished. And companies must embrace the cause, starting inside their doors.

Have a great and impactful week!

Raquel Campos Franco, founder & Director de-fora-a-fora