How Fintech Can Promote Financial Literacy And Inclusion
Financial literacy should be taught to all students in every school as a regular course, much like arithmetic, reading, and the other abilities that people learn when they are young. Early financial education allows a person to take greater risks, gain from compound interest rates for a longer period of time, and improve their credit score. Additionally, the beneficial spillover effects benefit the entire neighborhood. A increasing body of research demonstrates that those with financial expertise invest more, are less likely to declare bankruptcy, and make better risk-weighted decisions when faced with uncertainty, all of which contribute to a less anxious and stressful life. The general well-being of society can be enhanced by financial literacy.
Fintech has arisen as a fresh instrument to promote financial literacy as the fourth industrial revolution, a period of increased uncertainties, opportunities, and hazards, gets underway. The absence of intermediaries—often not entirely trusted—along with the fact that nearly all transactions can now be completed using a user-friendly tool—the smartphone—are closing the gap between the world of finance and many young consumers. Studies from organizations like the World Bank and the OECD, among others, demonstrate how using financial products is hampered by a lack of financial literacy. Fintech gets rid of this obstacle.
Applications like World of Money, a US non-profit that equips youngsters with a basic financial education through online videos segmented by age group and topic, are the best illustration of how fintech can enhance financial literacy. Zogo, Rooster Money, Guardian Savings, Prism, Savings Spree, Mint, and Investmate are further instances that are comparable. They all provide interactive, user-friendly, and simple software that instruct various age groups on personal finance.
By making banking more easily available, fintech can also increase financial inclusion. According to the World Bank and the most recent Findex Report, there are still many people in the world who can use smartphones but who do not have access to banks (about 1.7 billion people). People who don’t have access to traditional banking are being helped by application-based smartphone solutions like Tala or Branch International by giving them their first taste of a variety of digital products like instant loans, money transfers, bill payment, high-yield investments, and savings.
Other forms of literacy, starting with environmental literacy, could be encouraged by Fintech
This can happen both directly—through innovative fintech companies that reduce pollution—and indirectly—by reducing significant paperwork as the majority of conventional, non-fintech contracts are printed rather than saved on a single device. This is the case with the newest kid on the block, Kakubi, which makes it much easier to access EUA carbon allowances that are typically difficult to purchase. By purchasing each allowance through Kakubi, polluters are prevented from emitting a ton of carbon dioxide.
Evidently, this only functions in specific situations. Not everything that glitters is gold. Fintech can only be beneficial if other fundamental literacy skills are present, such as media literacy (the capacity to access and critically evaluate media messages) or computer literacy (ability to use, understand, manage, and analyze technology safely, effectively, and responsibly). Fintech innovations may also be detrimental to one’s financial health because they may encourage impulsive buying and irrational investing. Mobile applications that speed up operations and shorten the gap between purchase and consumption may encourage impulsive purchases and overspending, which are frequently harmful to consumer welfare, if they are not accompanied by adequate training and knowledge.
The world of cryptocurrency is a prime illustration of potentially detrimental technology for consumers lacking adequate financial literacy. Early adopters, sophisticated investors, and lucky investors made unanticipated fortunes, while the rest of the public suffered enormous losses. Recent research demonstrates a negative correlation between financial literacy and bitcoin trading. People who are financially savvy seem to be more aware of cryptocurrencies and less likely to trade them, maybe because they are better able to understand risk. Even though media and technology literacy are needed for cryptocurrency, financial literacy is still the most crucial trait. The “generic” economy does not exclude these digital currencies, and like all financial assets, they are heavily influenced by the fundamental macroeconomic factors like interest rates. Unsurprisingly, the prolonged period of virtually low interest rates appears to be responsible for a large portion of their extraordinary performance.
The fourth industrial revolution ushers in a momentous and difficult era. By fostering more financial literacy, new technologies can contribute to a better world, but only when appropriately incorporated into educational initiatives. As more nations become aware of this, some policy decisions are hesitantly incorporating financial literacy. Utilizing the growing fintech industry can aid in this process.