Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.
Unknown to many, the hardest part about money is not in making it, but keeping it. As the fairly popular saying goes “Money slow to enter, money quick to go. Where does money go?”, there is always an endless list of bills to pay, and so eventually, what actually separates the rich from the poor is how much of their money one category gets to keep from how much money they make.
There has been that very huge gap between the haves and the have nots forever, and financial literacy is the best bet to bridging it. While financial literacy does not necessarily make you rich, it ensures that you don’t have to struggle too much to understand the concept of your money, and it places you in your rightful position as far as your finances are concerned – In Charge.
Let’s use Africa as a practical guide.
Despite the continent’s ability to sustain itself if its natural resources and the billions received as aid from European and Asian countries are put to judicious use, poverty is still on the rise. And while the continent is not necessarily poor, there is a culmination of factors; mismanagement, corruption, financial illiteracy, wars and conflicts that constantly plague the region.
According to the World Bank, in 2012, 501 million people, or 47% of the population of sub-Saharan Africa lived on $1.90 a day or less; a principal factor in causing widespread hunger (World Bank, Sub-Saharan Africa Poverty and Equity Data). This number compares to 233 million estimated undernourished people. It goes on to add, that however, because of population growth, many more people are poor. The most optimistic scenario shows about 330 million poor in 2012, up from about 280 million in 1990. The report notes that although the urban-rural gap has narrowed, poverty reduction has been slowest in fragile countries, and rural areas remain much poorer.
The report by the World Bank also points to complexity of why this exists. Seven of the ten most unequal countries in the world are in Africa, most of them in southern Africa. Excluding these countries and controlling for GDP levels, inequality is not higher in Africa than elsewhere in the world, but the number of extremely wealthy Africans is increasing. Differences between urban and rural areas and across regions are large. Intergenerational mobility in education and occupation has improved, but remains low.
Africa currently stands as the second largest continent in the world, with an estimated population of 4.1 billion people which poses a healthy market for brands looking to leverage on the people and the continent. Over the years, we’ve seen not just brands move to Africa in a bid to expand their global reach and profit but countries, trade deals and aids has sprouted from every corner of Africa in the last decade.
Beyond all of these data and information, how does an average person understand financial literacy, to enable self-preservation?
First off, one might ask, “why is it so critical?”Here are some statistics according to borgenprojects.org
75% of the world’s poorest countries are located in Africa, including Zimbabwe, Liberia, Ethiopia and Nigeria. The Western African Republic ranked the poorest in the world with a GDP per capita of $656 in 2016.
According to Gallup World, in 2013, the 10 countries with the highest proportion of residents living in extreme poverty were all in sub-Saharan Africa. Extreme poverty is defined as living on $1.25 or less a day. In 2010, 414 million people were living in extreme poverty across sub-Saharan Africa. According to the World Bank, those living on $1.25 a day accounted for 48.5% of the population in that region in 2010.
Approximately one in three people living in sub-Saharan Africa is undernourished. The Food and Agriculture Organization (FAO) of the United Nations estimated that 239 million people (about 30% of the population) in sub-Saharan Africa were hungry in 2010. This is the highest percentage of any region in the world. In addition, the U.N. Millennium Project reported that over 40% of all Africans are unable to regularly obtain sufficient food.
In sub-Saharan Africa, 589 million live without electricity, and assuch, a staggering 80% of the population relies on biomass products such as wood, charcoal and dung in order to cook.
Of the 738 million people globally who lack access to clean water, 37% are living in sub-Saharan Africa. Poverty in Africa results in more than 500 million people suffering from waterborne diseases. According to the U.N. Millennium Project, more than 50% of Africans have a water-related illness like cholera.
Every year, sub-Saharan Africa misses out on about $30 billion as productivity is compromised by water and sanitation problems. This amount accounts for approximately 5% of the region’s Gross Domestic Product (GDP), exceeding the total amount of foreign aid sent to sub-Saharan Africa in 2003.
Due to continuing violence, conflict and widespread human rights abuses, the United Nations High Commissioner for Refugees (UNHCR) reports that 18 million people are of concern to the agency, including stateless people and returnees.
Fewer than 20% of African women have access to education. Uneducated African women are twice as likely to contract AIDS and 50% less likely to immunize their children. Meanwhile, the children of African women with at least five years of schooling have a 40% higher chance of survival.
Women in sub-Saharan Africa are more than 230 times more likely to die during childbirth or pregnancy than women in North America. Approximately one in sixteen women living in sub-Saharan African will die during childbirth or pregnancy; only one in 4,000 women in North America will.
More than one million people, mostly children under the age of five, die every year from malaria. Malaria deaths in Africa alone accounts for 90% of all malaria deaths worldwide, and 80% of these victims are African children. The U.N. Millennium Project has calculated that a child in Africa dies from malaria every 30 seconds, or about 3,000 each day.
In light of these staggering statistics, how and why does financial literacy come in as a viable solution to these situations? It gives control.
The knowledge and power of how money really works will lead to re-investment in Africa’s economy. Boost growth and tilt the equilibrium that divides the haves and have nots to a semblance of balance.
Here’s what to do:
Remember that schools do not necessarily teach financial literacy, and the best way to learn it, is to actually imbibe and practice it.
Earn: Financial literacy does nothing for you until there are finances to be literate about. Learn to earn, start from where you feel most confident and build up your ability to earn.
Be Attentive: Find out what you spend money on, interests, outflow of cash as against inflow of cash. Compare and differentiate your needs from wants and if your wants are titling the scale, use the margin of basic needs. It is good to write this aspect down, because actually looking at how you spend money will help with the next tip.
Budget: For many this is a foreign language and implementing it is even worse. It is like learning the ways of the Samurai. Chances are you’ve googled how to budget and found hundreds of articles, apps, charts and tables with promise to financial freedom but it all just leaves you with a headache. Don’t fret, try tackling it this way; using the same analogy of want and need, write under each of them and strike out as you go. What a budget does is teach self-control, it is not about writing how much you spend but controlling how you spend and alternatives to do this better.
Whatever you do or use, start budgeting and writing how you spend.
Save: Saving makes it all worth it. The rainy day always comes, and saving is an important provision to make in budgeting. When you save, you can plan about future investments or generally have a better idea about your financial capacity. For business people it can be easy to keep pushing your money back into your business which is not a bad thing, but set something aside and save it.
Have a dream or focus. It helps give your season a meaning and provides self control and some measure of security. Banks are not the only place to save money, having a piggy bank and putting a certain amount on a daily or weekly basis does help.
Investment: This is the tricky part of financial literacy because it is how the money you keep grows. In today’s world, digitalization has made us closer to one another, know ourselves better and has opened up opportunities for businesses and investments, but it has made fraud easier and harder to tell genuine investments. This is where research comes to play; research and understand before you plunge in. This does not mean that genuine investment opportunities don’t lose money, it just reduces your risk of losing. Smart investments will grow your money.
It is noteworthy that financial literacy should start early and be taught in schools. We teach the younger generation and show them examples. Just like all other things, financial literacy keeps changing as the world moves closer or further away, hence, the need to keep learning, keep an eye on the trends and market in just like other spheres, applies to financial literacy.