Im­por­tance of fi­nan­cial lit­er­acy

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The land­scape of fi­nan­cial mar­kets in Pak­istan has changed dras­ti­cally over a short span. Un­til a few years back, there were very few peo­ple who par­tic­i­pated in buy­ing and sell­ing of stocks, or in­vested vig­or­ously in fi­nan­cial prod­ucts. This has changed with the ap­pear­ance of an in­creas­ing num­ber of in­di­vid­ual in­vestors in fi­nan­cial mar­kets. Now peo­ple also have less dif­fi­culty in un­der­stand­ing var­i­ous fi­nan­cial prod­ucts. The rea­son is the growth of fi­nan­cial knowl­edge that in­vestors now have in mak­ing fi­nan­cial de­ci­sions. With growth in fi­nan­cial lit­er­acy, peo­ple now un­der­stand stock mar­ket be­hav­iour and treat it dif­fer­ently than a card game.

But, de­spite this change in the fi­nan­cial dy­nam­ics of the coun­try, there is still a lot more room for the im­por­tance of fi­nan­cial lit­er­acy to pen­e­trate. In an ear­lier in­ter­view to En­ter­prise, Nazish Lutfi, CEO, In­sti­tute of Se­cu­ri­ties Man­age­ment and Re­search, lamented: “Peo­ple do not fol­low the trend; they fol­low the crowd in this quite er­ratic mar­ket. There is no un­der­stand­ing of how to cre­ate busi­ness. In Pak­istan, we do not have more than 60 to seventy thou­sand cus­tomers, while in Bangladesh and In­dia these fig­ures are in mil­lions. To cre­ate new cus­tomers, we need to fo­cus on the un­tapped mar­ket of ed­u­cated bro­kers.”

She fur­ther elab­o­rated, “It is the job of the bro­kers to ed­u­cate traders and in­vestors but for that bro­kers need to be ed­u­cated first. A bro­ker also ed­u­cates the in­vestor and gives him rea­sons about why he is buy­ing, presents the re­ports and prof­its, shares the fu­ture prospects and the in­ter­na­tional mar­ket sce­nario. This is the stan­dard abroad where the in­vestor re­lies on the bro­ker and the re­ports of com­pa­nies. But here what hap­pens is that buy­ing and sell­ing takes place on the names of peo­ple. There­fore peo­ple com­plain that this mar­ket is mo­nop­o­lized, but I tell them that beat this mo­nop­oly through your money man­age­ment.”

Money man­age­ment is about fi­nan­cial dig­nity. Ex­perts point out that it was not the lack of jus­tice that some com­mu­ni­ties were worst hit by the eco­nomic cri­sis, but the lack of fi­nan­cial tools. To ad­dress this is­sue, there have been ini­tia­tives like the State Bank of Pak­istan’s Na­tion­wide Fi­nan­cial Lit­er­acy Pro­gram (NFLP) with an en­dow­ment from the Asian De­vel­op­ment Bank with a fo­cus on im­part­ing knowl­edge and un­der­stand­ing of ba­sic fi­nan­cial con­cepts and prod­ucts and ser­vices for low-in­come Pak­ista­nis in or­der to en­able them to take bet­ter eco­nomic de­ci­sions.

NFLP fo­cuses on seven themes: bud­get­ing, sav­ings, in­vest­ments, debt man­age­ment, con­sumer rights and re­spon­si­bil­i­ties, fi­nan­cial prod­ucts and ser­vices and branch­less bank­ing. Its key ad­vi­sors in­clude lo­cal and in­ter­na­tional ex­perts from the fields of fi­nan­cial ed­u­ca­tion, microfinance, train­ing, cur­ricu­lum de­vel­op­ment and the fi­nan­cial in­dus­try.

Also, Visa, one of the lead­ing pay­ment so­lu­tions providers, has rolled out its fi­nan­cial lit­er­acy pro­gramme for me­dia in Pak­istan by or­ga­niz­ing ed­u­ca­tional work­shops on fi­nan­cial lit­er­acy. Work­ing with mem­bers of the Karachi Press Club and the Karachi Union of Jour­nal­ists (KUJ), the work­shop is aimed at help­ing cre­ate a bet­ter un­der­stand­ing of money man­age­ment skills among the peo­ple of Pak­istan.

Com­ment­ing on Visa’s fi­nan­cial lit­er­acy pro­gram, Lama Kab­bani, Visa Cor­po­rate Com­mu­ni­ca­tions Man­ager in the Mid­dle East, said, “Visa be­lieves the most im­por­tant fi­nan­cial tool is not a prod­uct — it is knowl­edge. That is why, for more than a decade, Visa has been de­vel­op­ing fi­nan­cial lit­er­acy pro­grams that teach in­di­vid­u­als how to spend, save and bud­get re­spon­si­bly. Pos­sess­ing the skills to make the right money man­age­ment de­ci­sions gives peo­ple greater con­trol over their fi­nances, the abil­ity to deal with un­ex­pected costs, and the skills to bud­get and save re­spon­si­bly.”

As part of its Fi­nan­cial Lit­er­acy pro­gramme, Visa also has plans to launch a lo­cal­ized ver­sion of its ded­i­cated fi­nan­cial lit­er­acy web­site, www.my­moneyskills.com to help peo­ple from all seg­ments strengthen their knowl­edge of per­sonal fi­nance. Pro­vid­ing fun­da­men­tal per­sonal fi­nance in­for­ma­tion in both Urdu and English on top­ics such as learn­ing how to plan a bud­get, pre­par­ing for the fu­ture, us­ing a credit card wisely and spend­ing re­spon­si­bly, the web­site will pro­vide an en­gag­ing plat­form for all au­di­ences, in­clud­ing young peo­ple, fam­i­lies and schools to im­prove their fi­nan­cial lit­er­acy skills.

More­over, among other ini­tia­tives, the South Asian Fed­er­a­tion of Ex­changes (SAFE) and Friedrich-Nau­mann-Stiftung fur die Freiheit (FNF) have also been ar­rang­ing sem­i­nars on fi­nan­cial lit­er­acy in col­lab­o­ra­tion with Se­cu­ri­ties and Ex­change Com­mis­sion of Pak­istan and Lahore Stock Ex­change. At one such sem­i­nar, it was urged that, “In the af­ter­math of the fi­nan­cial cri­sis, fi­nan­cial lit­er­acy and ed­u­ca­tion is­sues have ac­quired a mo­men­tum. Pol­i­cy­mak­ers world­wide now in­creas­ingly ac­knowl­edge the im­por­tance of fi­nan­cial lit­er­acy both as a life skill and as a key com­po­nent of fi­nan­cial and eco­nomic sta­bil­ity and de­vel­op­ment. Ac­knowl­edg­ing the im­por­tance of bet­ter fi­nan­cial ed­u­ca­tion and lit­er­acy for im­prov­ing the abil­ity of peo­ple to use fi­nan­cial ser­vices, a com­pre­hen­sive and high-level project on fi­nan­cial lit­er­acy should be de­vel­oped.”

In to­day’s world, re­li­able fi­nan­cial in­for­ma­tion is more im­por­tant than ever as peo­ple continue to ex­pe­ri­ence hard­ships and are forced to make dif­fi­cult eco­nomic de­ci­sions un­der the strain of the re­ces­sion.

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