Why Financial Literacy Matters in a World of Disruption

It’s almost the end of April and with it being National Financial Literacy month, I wanted to share some thoughts on a topic that's close to my heart. Financial literacy helps ordinary consumers make better financial choices. It brings underserved and unbanked people into the financial mainstream. It measurably improves their quality of life, reduces their stress, and uplifts entire communities.?

Right now, the need for financial literacy has never been greater. Across the continent, the people of Africa are reeling under the onslaught of rising interest rates and inflation. They’re spending more every month on basics like food, housing and transport.

TransUnion’s research shows clearly that consumers are cutting back their discretionary spend and having to make some hard choices when it comes to paying their bills at the end of each month. Financial literacy can help them navigate these stormy times.

Why does this matter for us as business leaders? For one, the knock-on effects of better financial literacy can be seen in customer health and their ability to grow. When our customers struggle to make ends meet, they pose a massive risk to entire industries: retail, credit, auto, housing.

At the same time, we're dealing with several disruptive trends. How we manage the impact of these trends on our clients and our businesses – and how we seize the opportunities they present – will determine not only the future health of our businesses, but of entire national and regional economies.

The move towards a cashless society

We’re living in an age of digital money. Today, you can pay for goods and services using your smart watch and some countries are using a ‘Smile to Pay’ facial recognition payment service. The EU is looking at introducing a digital euro. But can Africa truly ever go cashless? And should it?

I see a hybrid approach emerging. There’s no doubt that more of us are going cashless, but cash will continue to play an important role in African societies for the foreseeable future. The game-changer here is the rapid growth of smartphones across the continent, which has created an entire generation of tech-savvy consumers who are comfortable transacting from their mobile devices.

But we can’t leave the job of educating our consumers to central banks. If we want the benefits of going cashless, we have to make sure we don’t leave the underserved and unbanked behind.

The rise of FinTech

Is there a hotter sector right now than FinTech? If there is, please lead me to it. Investment in Africa's tech startup ecosystem passed the $3 billion mark for the first time in 2022 , despite a global downturn in investments. Overall, funding for African tech startups has increased by over 1,000% since 2015.

FinTech is also creating jobs, skills and opportunities across the continent. An IFC - International Finance Corporation study estimates that over 230 million jobs in sub-Saharan Africa will require digital skills by 2030 . It’s up to us, as business leaders, to help create the skills we need to be part of the digital revolution.

Changing consumer expectations

The real trend here, and what’s important to businesses, is the way FinTech is fundamentally changing our relationship with money and the way we buy and sell goods.

The fact is that younger generations – which just happens to be most of the African population – want different things from money and FinTechs than millennials. Millennials want the ease of mobile payments. Gen Z wants convenience and customisation, and finance that’s purpose and values driven. We’re going to have to find ways to educate all these audiences as we drive home-grown solutions to Africa’s financial inclusion challenges.

The bottom line

We live in turbulent economic times, but we still need to grow our businesses, manage our risks around several disruptive trends, and keep driving greater financial inclusion. Better use of alternative data can identify previously credit-invisible people and predict their financial behaviour. But to bring them into the financial mainstream and keep them there will take a concerted effort to improve and grow financial literacy. The future of our businesses, and our continent, depends on it.