Fi­nan­cial lit­er­acy and the wealth gap

“Of course, there is noth­ing new about this screen­play, and per­haps the only thing we can learn from his­tory is that we seem in­ca­pable of learn­ing from his­tory.”

The Pak Banker - - Front Page - Daniel Levin

THE in­creas­ing wealth gap is re­garded glob­ally as pos­si­bly the most so­cially ex­plo­sive is­sue of our time, re­spon­si­ble for the rapid rad­i­cal­iza­tion of large pop­u­la­tion seg­ments that we are wit­ness­ing world­wide. The ris­ing dis­par­ity be­tween rich and poor, be­tween the pow­er­ful and the pow­er­less, be­tween those who are con­nected and those who are cut off, be­tween those on the inside look­ing out and those on the out­side look­ing in, is highly com­bustible and eas­ily se­duced by po­lit­i­cal and reli­gious dem­a­goguery. It is the stuff rev­o­lu­tions are made of, which sev­eral Arab lead­ers have learned first­hand over the past two years.

Of course, there is noth­ing new about this screen­play, and per­haps the only thing we can learn from his­tory is that we seem in­ca­pable of learn­ing from his­tory.

The dis­turb­ing trend of a widen­ing wealth gap is a chal­lenge for lead­ers of all coun­tries. Across the po­lit­i­cal spec­trum ev­ery­one solemnly pro­claims an un­wa­ver­ing com­mit­ment to bridg­ing this eco­nomic di­vide. Un­for­tu­nately, these lofty pro­nounce­ments are rarely fol­lowed by mean­ing­ful ac­tions. In­stead, we are forced to en­dure an end­less loop of the same re­cy­cled plat­i­tudes and grand pledges.

As we wit­ness the de­bate that is rag­ing, par­tic­u­larly in the United States and in Europe, be­tween fis­cal aus­ter­ity and eco­nomic stim­u­lus, those left be­hind fi­nan­cially have lit­tle to cheer about. We are way be­yond the point of cal­i­brat­ing some syn­thetic bal­ance be­tween op­pos­ing eco­nomic the­o­ries, and in­stead of fact­based, ac­count­able poli­cies we are ex­posed to ide­o­log­i­cal, gospel-like de­cla- ra­tions of al­le­giance to Rea­ganesque trickle-down for­mu­las or quan­ti­ta­tive eas­ing mone­tary poli­cies. There cer­tainly are le­git­i­mate pol­icy dis­cus­sions to be had, but for pro­po­nents of any side to claim their par­tic­u­lar recipe to be a panacea for bridg­ing the wealth gap is trite, bor­der­ing on the pre­pos­ter­ous. In­com­pre­hen­si­bly, how­ever, the glar­ing par­al­lel­ism be­tween the ed­u­ca­tion gap and the wealth gap is be­ing su­per­cil­iously brushed aside, a cor­re­la­tion per­haps too ob­vi­ous to be taken se­ri­ously by to­day's great thinkers.

Far too many peo­ple are cut off from their main­stream economies, and con­trary to pop­u­lar be­lief, this is as true for ur­ban res­i­dents as it is for ru­ral pop­u­la­tions. De­fi­cient pub­lic and pri­vate sec­tor fi­nan­cial in­fra­struc­tures cer­tainly ex­ac­er­bate this prob­lem, though the in­creas­ing de­mo­graphic pen­e­tra­tion of tech­nol­ogy such as mo­bile bank­ing seems to be hav­ing a mit- igat­ing ef­fect on the in­fra­struc­ture short­com­ings.

Far more lethal, how­ever, is the stu­pe­fy­ing ne­glect of fi­nan­cial lit­er­acy and pub­lic ed­u­ca­tion. Vast seg­ments of so­ci­ety lack even the most ba­sic knowl­edge and un­der­stand­ing to make sound eco­nomic de­ci­sions, and the abil­ity to con­trol their own fi­nan­cial well-be­ing and in­de­pen­dence. It is hardly sur­pris­ing that the fi­nan­cial knowl­edge and ed­u­ca­tion void is quickly filled by fraud­u­lent ac­tors, tak­ing ad­van­tage of wide­spread ig­no­rance and gulli­bil­ity. This is fer­tile ground for pyra­mid or Ponzi schemes, prey­ing on the un­in­formed with ir­re­sistible in­vest­ment op­por­tu­ni­ties, whose re­turns come from the in­vestors' own money or the money paid by sub­se­quent in­vestors, rather than from profit earned by a le­git­i­mate busi­ness. When these schemes col­lapse, as they all in­vari­ably do once they are un­able to feed the ex­po­nen­tially grow­ing money ap­petite of the beast they cre­ated, peo­ple are left des­ti­tute.

This phe­nom­e­non is hardly lim­ited to so­cio-eco­nom­i­cally dis­ad­van­taged parts of so­ci­ety - as the Bernard Mad­off and Allen Stan­ford scan­dals spec­tac­u­larly demon­strated - but those are the ones left penniless with­out the abil­ity and the op­por­tu­nity to climb up from the bot­tom of the pit. Mean­while, the wealth gap con­tin­ues to widen. What makes this so un­for­giv­able is that it could be thwarted with ef­fec­tive fi­nan­cial lit­er­acy cam­paigns.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.