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
- 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.
- Assess the needs of the population and outline an approach for your financial literacy initiative in coordination with all key stakeholders.
- 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.
- Engage with your leadership to obtain their approval and get agreement of your members to support the implementation of your initiatives.
- Develop and execute a communications plan to publicize your financial education resources and financial literacy initiatives.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.