Developing the Accountancy Profession

Promoting Financial Literacy: Professional Accountancy Organizations Take on the Challenge

Linda Lach, Darlene Nzorubara | April 22, 2021

April is National Financial Literacy Month in the United States, so it’s an excellent opportunity to look at why financial literacy is so important and why it’s needed across the world. Many professional accountancy organizations have taken on the challenge of helping to improve financial literacy. Some of these initiatives are included here, and we hope others will share information to inspire all PAOs to get involved however they can. 

Why is financial literacy so important?

Financial literacy focuses on increasing financial knowledge and skills, which supports financial inclusion by allowing individuals to participate in the economy and improve their financial well-being. Improving financial education helps protect consumers from predatory financial practices, increases trust in the financial sector, and expands confidence in financial services. 

According to S&P's Rating Services Global Financial Literacy Survey,  “financial illiteracy is a critical barrier to financial inclusion. Because of a lack of knowledge about finance and financial products, many people are unable to access banking and financial services, and are therefore kept out of financial markets. Financial literacy is therefore highly important to people’s financial well-being and to the overall health of a country’s economy.”  Similarly, the OECD/INFE  2020 International Survey of Adult Financial Literacy  notes that financial education, financial consumer protection and financial inclusion are three essential ingredients for the financial empowerment of individuals and the overall stability of the financial system.

Yet both surveys show low levels of financial literacy worldwide. The OECD survey shows that financial literacy is low in  the twenty-six countries and economies sampled. And the S&P Global survey shows only 33% of adults worldwide are financially literate, with women’s financial literacy levels being lower than those of men.  According to another recent academic paper,  Fearless Woman: Financial Literacy and Stock Market Participation,  the lower participation of women in stock markets is due to both weaker financial knowledge and self-doubt. These findings emphasize the importance of boosting both financial literacy and confidence for women.

Why should PAOs support financial literacy?

In most jurisdictions, no one institution has a formal explicit mandate to support financial education. The responsibilities to support financial literacy are closely related to the regulation of consumer protection, and are spread among the ministries of finance, central banks, financial markets authorities, and ministries of education. According to The National Strategies for Financial Education: OECD/INFE Policy Handbook, only 59 countries are implementing national strategies.

The accountancy profession can advocate for and facilitate financial education to help improve financial literacy as part of its public interest responsibility.  The OECD/INFE High-Level Principles on National Strategies for Financial Education encourage the involvement of national associations or self-regulatory bodies to help implement financial literacy and education initiatives by providing dedicated material through the development of training programs and/or by lending their support for public or civil society initiatives.

PAOs advocate for inclusive and sustainable development, and financial inclusion is a key factor in this. PAOs can improve access to financial services by supporting initiatives to improve  financial understanding for all individuals in society. These initiatives can target people across all age groups with the objective of equipping them with the basic financial decision-making skills that will enable them to actively participate in their country’s economy.

Financial literacy is also critical for SMEs. Research reveals that over 50% of new businesses fail during their first five years. Studies suggest low financial literacy levels and a lack of financial discipline may be reasons for the poor track record of SMEs (OECD Report, 2016). Small- and medium-sized practices (SMPs) have a critical role in providing a range of services to support SMEs, including demystifying financial information, helping SMEs make informed decisions and providing advice as they navigate different financing options. In addition, PAOs can provide financial literacy tools and education programs to strengthen entrepreneurial skills development.

How PAOs may support a financial literacy initiative

  1. Engage with the national stakeholders who are responsible for supporting financial education and obtain an understanding of existing financial education initiatives promoted by public, private and civil society stakeholders.
  2. Assess the needs of the population and outline an approach for your financial literacy initiative in coordination with all key stakeholders.
  3. Design your approach, which includes defining your target audience, setting specific objectives to measure the effectiveness of your initiative, and determining the resources needed. Be sure that the objective of the initiative is to improve the financial knowledge, attitude, and behavior of individuals.  It’s also important to note that any financial education initiatives should not be used as marketing or advertising vehicles.
  4. Engage with your leadership to obtain their approval and get agreement of your members to support the implementation of your initiatives.
  5. Develop and execute a communications plan to publicize your financial education resources and financial literacy initiatives.

Looking ahead

PAOs also need to consider how to support digital financial literacy (DFL). With the increased reliance on financial technology products for financial planning, PAOs need to consider how to support their members and the public to improve digital financial literacy and enable consumers to make effective use of financial technology products and services.

How PAOs are helping

Professional accountancy organizations across the world have developed programs to help improve financial literacy. As examples:

  1. The AICPA’s Financial Literacy Resource Center  provides information and turnkey resources for CPAs to use in volunteer efforts. Thousands of CPAs volunteer annually as part of the 360 Degrees of Financial Literacy effort. The Center includes information on “Feed the Pig,” a financial literacy campaign sponsored by the AICPA that encourages and helps Americans aged 25 to 34 to take control of their personal finances.
  2. CPA Canada also has a Financial Literacy Program that includes online information, tools, resources, publications, and research. The program also includes financial literacy sessions and a financial literacy volunteer program utilizing CPA Canada’s network of CPA member volunteers.
  3. The Hong Kong Institute of Certified Public Accountants (HKICPA) launched their Rich Kid, Poor Kid program in 2005. This program has allowed the Institute to play a key role in the financial education of future generations. Since the program’s establishment, Accountant Ambassadors have visited more than 600 primary and secondary schools, and held around 800 free financial seminars – reaching more than 140,000 students in an interactive way, educating young children and teenagers on positive financial management concepts and techniques.

PAOs can also partner with others.

  1. The Association of Chartered Certified Accountants (ACCA) has joined forces with the National Financial Literacy Program for Youth, a project of the State Bank of Pakistan, to promote financial literacy among young people in the country.
  2. In 2015, CPA Australia and CUFA (the Australian Aid Organization) launched an educational app to help improve the financial literacy of children in Cambodia. Details on the initiative can be found here.
  3. In 2018, the Institute of Chartered Accountants in England and Wales (ICAEW) teamed up with Sonia Brown of the National Black Women’s Network to launch The Guide to Financial Fitness in Business.
  4. In 2019, the Conselho Federal de Contabilidade (CFC) promoted National Financial Education Week in Brazil, as discussed here.   The initiative involved several government ministries, banks, regulators, and other associations.

These are just a few examples. We would like to hear what other PAOs are doing to support financial literacy. We would be delighted to hear from you in the “Join the Conversation” comment box below. 

 

Linda Lach

Director, Governance, IFAC

Linda A. Lach is Director, Governance and is responsible for IFAC’s governance matters, including management of IFAC’s board and Council and compliance with its Constitution and Bylaws. She also supports the Governance and Planning and Finance Committees. Previously, Ms. Lach was the Director, Quality and Development, where she was responsible for the program management, implementation, and governance of IFAC’s Professional Accountancy Organization Capacity Building Program funded by the UK Department for International Development. Before joining IFAC, Ms. Lach was a contributing author on numerous accounting publications for Practitioner’s Publishing Company and served as the associate director of the Center for Financial Integrity at Baruch College (US). Ms. Lach also was the director of professional development for the American Institute of CPAs where she was responsible for conferences, seminars, and self-study professional development courses for accounting professionals. Her previous experience also includes audit and financial management positions. Ms. Lach has a bachelor’s degree in economics from Yale University and a master’s degree in accounting from New York University. She is licensed as a CPA in the state of New York and is a member of the American Institute of CPAs. See more by Linda Lach

Darlene Nzorubara

Darlene Nzorubara is a senior technical manager on IFAC’s Quality and Development team, having joined IFAC in April 2011. In her time at IFAC, she has managed compliance and membership activities and currently supports the PAO Capacity Building Program and MOSAIC (Memorandum of Understanding to Strengthen Accountancy and Improve Collaboration) Steering Committee. These roles have helped her gain insights into development challenges experienced by PAOs in low-income nations. Before joining IFAC, Darlene was a governance research assistant at Baruch College in New York and a legal assistant for a law firm in Paris, France. Darlene has post-graduate degrees in international economic law and business and exportation law from Université René Descartes – Paris V along with a Master in International Financial Affairs from EHEI and a Master in Public Administration from Baruch College. See more by Darlene Nzorubara

 
 

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