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Author: Tuk-Arjun Ghimire,
Visiting Professor |
Abstract
Financial literacy and financial education are ever emergent disciplines in this rapidly changing and complex financial world. This article explores meaning and definitions of financial literacy and financial education. It figures out the world scenario of the financial literacy and financial education. Similarly, it devises the modality of offering financial literacy and financial education courses together with their curriculum, and teaching learning activities. Most importantly, this article discovers the financial system of Nepal, and uncovers the relevance and crisis of financial literacy and financial education in Nepal.
Finance refers to the science of money, banking, investment, and in overall wealth management. Literacy has been interpreted in different ways at different times. Traditionally literacy is defined as a composite of three skills, i.e. reading, writing and arithmetic (3Rs.) which is still valid in literal sense. The growing complexities of life and interestingly competitive world have placed a threshold level pressure on these traditional skills of literacy to incorporate many more skills of financial importance ranging from basic several skills to advanced level of skills (Panta, 2009). Literacy thus goes beyond three Rs. or five Rs. or seven Rs. To a computer illiterate person, for instance, no matter how high her/his academic qualification, computer literacy remains to be a thing of genuine pursuit. Information and media literacy and its management has become everybody's concern either of the educated and uneducated ones (Kafle,2009). Above all, financial literacy is essential to involve students in the study of financial issues. Financial literacy is the ability to understand finance. More specifically, it refers to an individual's ability to make informed judgments and effective decisions about the use and management of their money (OECD, & Development Staff, 2005).
The Task Force of financial literacy in Canada (2010) defines financial literacy as having the knowledge, skills and confidence to make responsible financial decisions. Where, “ Knowledge ” means understanding personal and broader financial matters. “ Skills ” are the ability to apply that knowledge in everyday life. “ Confidence ” means feeling self-assured enough to make important decisions. This is often a key factor in galvanizing people into action. By “ responsible financial decisions ,” we mean that people will be able to use the knowledge, skills and confidence they have gained to make choices that are appropriate to their own circumstances.
Its aim is to equip them with pertinent strategy that helps them to deal with real economic world and subsequently prevent them from being overwhelmed by the emergent crisis.
'Policy makers have embraced financial education as a necessary antidote to the increasing complexity of consumers' financial decisions over the last generation' (Fernandes, Lynch, & Netemeyer, 2014, p. 1861). Financial education is a journey from financial ignorance to the ability and confidence to manage personal finances and make best possible financial decisions and planning amid challenging and changing circumstances. 'A process where the user of financial services/investors improve their understanding for financial products, notions and risks and on the bases of information, instructions and objective advice develop the skills and confidence in strengthening information about financial risks and occasions, make decisions on the bases of good information, are acquainted with the fact where to find help and take other effective measures for improving their wealth' (OECD, 2005, as cited in Starček & Trunk, 2013, p. 1446) affirms my definition, too.
The credit for initiation of financial literacy goes to the United States. Raising interest in personal finance is now a focus of state-run programs in the countries including Australia, Japan, the United States and the UK. The importance of finance by the students was felt crucial in some states in the US. Accordingly, financial literacy was made a high school graduation requirement by law makers in Ohio in early 2000s (Ministry of Education, Science and Technology, 2022).
With the objective of providing ways to improve financial literacy and education through the development of common financial literacy principles, the Organization for Economic Co-operation and Development (OECD) started an inter-governmental project in 2003. In the UK, the Financial Services Authority (FSA) started a national strategy on financial capability in 2003. Thus, the English people prefer to use the terms 'financial capability' rather than financial literacy. However, the world has chosen the terms 'financial literacy' which have become much popular buzz words as well.
In 2003, the US Government established Financial Literacy and Education Commission for the first time in history. In 2005, an international OECD study was published. It comprehensively brought forth the financial literacy surveys in OECD countries. The survey asserted that about 72 percent Australian students have problem in calculating compound interest. The English were discovered inactive seekers of financial information. Unfortunately, the Canadian were also found lethargic in choosing the best investment from the available menu. Likewise, Korean students failed the financial knowledge test. In the similar manner, the Americans were diagnosed unaware of retirement saving.
Realizing the gravity, the OECD commenced the International Gateway for Financial Education only in March 2008. It started acting as the mega clearinghouse for financial education programs, information and research worldwide.
'Financial literacy research in Asia reveals that due to limited cognitive ability and financial literacy demand has been suppressed. And, demand is logically low because formal financial services are expensive and are of relatively low value to the poor' (Dube, & Shivam, 2018, p. 44). Hence, many Asians cannot make the right financial management, decisions, and planning owing to the lack of financial education.
Finance is associated with all walks of life. A good financial decision leads to successful life. In today's digital world, the financial market offers a wide range of instruments, products and introduces a lot of systems. To attain the maximum possible satisfaction through the best possible choice, the consumers should possess high degree knowledge and skills. Moreover, it helps the consumers to prevent the life-spoiling options. Khan, Putthinun, Watanapongvanich, Yuktadatta, Uddin, & Kadoya, 2021) assert that 'financial literacy is a rational decision-making instrument that protects people from irrational behaviors' (p.13).
Apparently, financial literacy programs have several points of benefits. The financial literacy and education activities can assists customers participate in the financial system. It provides a working knowledge of financial products, and financial planning. The financial literacy program teaches to avoid the mistakes related with finance. It enhances a bank’s visibility in the communities. It empowers to become responsible in the mobilization of capital, find out the right area of investment, pay tax on time, know the negative impact of tax invasion and tax avoidance, form capital, and make balance between consumption and saving. Moreover, it provides practical business knowledge and helps customers to take right financial decision and avoid abusive lending practices. However, the impact of financial literacy and financial education differs from place, time, culture, gender, and level of education and income.
In nutshell, financial literacy and education helps people to know the proper way of collecting, mobilizing, and investing resources . They mainly teach three 'hows': how to earn legally, how to utilize properly and how to save securely. In conclusion, the following are the importance of financial education:
Financial Literacy and Financial Education Activities
'Financial education leads to financial literacy and to financial capability' (Świecka, Grzesiuk, Korczak, & Wyszkowska-Kaniewska, 2019, p. 1) .Financial literacy and financial education activities are run by various institutions and organizations. In this context, some examples of financial literacy activities are worth mentioning.
Outside intervention as financial literacy and education campaign, school savings programs and savings clubs, field trips to financial institutions, guest speakers, investment clubs, stock market simulation games and school-based bank branches, beneficial video games, trustworthy lottery
Presentations to local community and religious organizations, consumer credit education programs and providing staff and materials for credit-training classes, educational outreach tailored to consumers with community based organizations, counseling, and training
On-the-job financial literacy seminars conducted in conjunction with employers
The financial literacy is offered through different modalities; a semester long course, stand above course, a blended course, and through existing schedule. In a semester long course, the students can be provided with a separate one, two, three or more subjects as per required. The blended modality seeks certain topics of financial literacy and education as per the nature of subject and grade. For example, the topics of financial literacy and education can be blended with Social Studies, Economics, Geography, and other Social Sciences from the late primary via middle to high school. In stand above course, the students or trainees are offered a package of financial literacy and education, and given certificate for that by the schools, financial institutions or any other organization. In addition to this, the schools or other organizations and institutions may develop a calendar and launch the financial literacy and education programme according to the schedule. While doing so, Goyal and Kumar (2021) advise that 'the influence that financial literacy exerts on financial planning and behaviour' should always be taken care of (p. 80).
Despite the fact, most of the schools and financial institutions run just the blended course and the courses of the existing schedule. In such programmes the students or trainee don't get enough theoretical rigor and practical exposure. Therefore, there can be possibility of financial illiteracy or lack of proper financial education among the graduates.
On the curricular side, young and adults receiving the financial literacy curriculum will be financially responsible as the mature (Lamichhane, 2009). A practical financial education curriculum will enable them to utilize every single moment of their life. For actualizing maximum success for adults and other learners through the implementation of financial literacy and education curriculum, it is essential to focus on important life lessons that are normally overlooked in the teaching learning process. 'Children and adolescents can only realize their full potential as citizens if they are financially empowered and capable; the buildings blocks in this respect are financial education, social education, and financial inclusion (CYFI, 2013, as cited in Amagir, Groot, Maassen van den Brink, & Wilschut, 2018, p. 56)
The curriculum of financial literacy and education may differ according to place and time. However, most of the topics may be more or less similar all over the globe. Money, money exchange, banking, banking tools and techniques, financial systems including financial markets, financial instruments, insurance, cooperatives, stock exchange, tax, support economics (for environment and people), investment, employment, consumer rights, etc. make the major elements of financial curriculum.
Before starting the teaching of financial curriculum it is important to build young adults’ foundational knowledge which supports as backbone to achieve financial success. For this purpose, several steps can be taken which can be presented in the following lines. Identifying students’ passion before implementing the financial literacy curriculum is essential. With this regard, it will be sensible to involve students in brainstorming activity and streaming them subsequently to visualize their vision mission, goals and objectives. Such activity will not only reveal their passion but also map out all necessary details as to how they will translate their passion into reality which will enable them to lay down their carrier. The next important requirement is communication skills. Effective communication skills will help students ensure their success while participating in financial literacy and education course. Enhancing their ability to communicate effectively assist them to exhibit their innate potentiality which will expedite the pace of their advancement. Another crucial factor is organizational skills. Accomplishment of learning achievement as stipulated in the financial literacy course will generate a meaningful by-product in the form of developing organizational and time management habits. This qualification will contribute to effectively implement the financial literacy curriculum and increase their learning potential. In the same ways, high moral character is equally important. It will help students to use the financial literacy course to bring about a favourable difference in their lives. By building a personality with high ethical character they will create better chances and space to attain financial success and become a deserving and a respected member of the community (Lamichhane, 2009).
The educators of financial literacy class must have good knowledge of both eastern and western financial systems and good connection with local and national financial institutions. By exploring interests of the students, such educators can better inculcate and impart the knowledge of financial literacy. Mindset studies show that a person with growth mind-set will always heed positive outlooks culminating into positive events. Therefore, it will be prudent to orient students before implementing the financial literacy and education curriculum to form a mindset that will transform them into financially responsible adults. Students’ positive mind-set guides them to be creative, well-rounded and financially successful. 'Since collaboration forms the basis for trajectories, team members should be open to engaging in activities like sharing teaching experiences and working with colleagues to design educational materials' (Blue, O’Brien, & Makar, 2018, p. 4)
The educators of financial literacy can apply discussion, interaction, symposium, practical and lecture methods. While taking the classes on financial literacy, the educators can use a lot of browsers, apps like Youtube, Instragram, Ticktalk, etc., pamphlets, leaflets and firms and books from financial institutions like banks, finance company, stock market and co-operatives, and government, mobile companies and software companies. Timely excursions and use of resource persons can make financial literacy classes further effective and fruitful.
Nepal is back in the field of financial literacy and education since its history of banking and other financial institutions is not very old. In the past, our financial system was controlled by the money lenders, often doing injustice, forgery and trick. The poor were getting poorer, and the rich never thought about investment. There are records where the rich had buried the wealth in a secret place, and the money found this way was often referred to as Gadhdhan. But now, the situation is changing gradually.
The Central Bank leads, guides, and monitors the finance of Nepal. Under the aegis of this bank, there are Commercial Banks, Development Banks, Finance Companies and Micro-finances. The cooperatives and nongovernmental organizations working in the field of micro-finance are also the part of the system. The Central Bank has categorized the financial institutions of Nepal. The categorization and the number of them as of 2020 are as follows:
Commercial Banks (Class 'A' type): Commercial Banks provide services like acceptance of deposits, business loans and basic investment products. The 'A' class commercial banks must have paid up capital as 8 billion. There are 28 commercial banks in Nepal.
Development Banks (Class 'B' type): Development Banks are established for development of different sectors like industrial, agricultural, infrastructural, etc. through financial, technical and administrative assistance. The 'B' class development banks must have Paid up capital as 500 million to 2.5 billion based on the district coverage. Nepal has 57 development banks.
Finance Companies (Class 'C' type): The Finance Companies in Nepal include the financial institutions that carry out the basic banking functions of recurring the deposits and lending the money to their clients. With the minimum paid up capital of: 400-800 millions, there are 36 finance companies in Nepal.
Micro Finance Development Banks and Others (Class 'D' type): Financial institutions primarily aimed at providing services for entrepreneurs and small business is termed as micro finance development banks. The paid up capital required to run these banks is 100 million. Currently Nepal has, 48 Micro Finance Financial Institutions, 15 Savings and Credit Co-operatives (Limited Banking), 25 Non-Government Organizations (NGOs), and 10 Other Institutions.
An irony with the Nepalese is that still over half of the people don't transact with the formal financial institutions. Of the formal institutions too, most of the customers beheave with 'C' and 'D' types of financial institutions which run in more informal way. Such financial institutions reach lots of people, no doubt, nonetheless, they accept the customers in whatever way possible and charge a very rate of interest and service charge. Still some of the financial institutions don't have any special provision for financial literacy and education. The financial literacy and education campaigners are mostly confined in the urban areas. The catchment is also experiencing ineffective programmes owing to unscientific curriculums, mismatching modality and futile teaching learning activities. The state is unresponsive witness. How long does the state continue to become mare spectator?
Bank account is the details of a person registered by a bank for the transaction of money. In other words, an arrangement with a bank for transaction of money is known as a bank account. To express in more specific terms, the details of an individual or organization registered in the bank for financial transaction is known as bank account. For opening a bank account, banks develop a form called KYC (Know Your Customer). They fill it up mentioning the identity and address of the customers. They also ask for the identity document such as citizenship, passport (zerox), recent passport size photos, KYC details with supplementary profile, signature of account users (Four in numbers), minimum balance as fixed by bank, guardian's citizenship, and photo and an application in case of minors.
After the account is opened, we can deposit our money. We fill a voucher to deposit money mentioning the notes or cheque detail. Out of the two copies, one is kept in the bank and the other is given to the depositors. The voucher contains the stamp of the bank and signature of the recipient. To withdraw money, the customer gets a cheque book. Nowadays, there is system of an ATM or MTM card as well. We can also ask for a statement paper for checking the details of transaction.
Types of Bank Account: Based on need and nature of transaction, there are three types of account: current account, saving account, and fixed Account.
Current Account: The current account has no transaction limit but does not pay interest. In other words, the customers can deposit and withdraw any amount of money anytime in opening hours. No interest is provided by the bank in current account. It simply ensures the security of money and transparency in transaction. It is useful mainly for offices, industrialists and entrepreneurs.
Saving Account: In this type of account, a customer can do the financial transaction as per the limit fixed by the bank. This limit helps banks to invest the money deposited and earn. Besides, the customers get nominal interest too. The account is good mainly for small savers.
Fixed Account: In this account, the customers cannot withdraw their deposits until the maturity of the date mentioned for. Generally, the interest of such account is quite high, but it may differ as per the amount and duration of the time. If the customer needs money, s/he should take loan by mortgaging the document of the fixed account.
The Nepalese don't have good saving habits. Moreover, the savers prefer to save in current and saving account. There is not the right economic decision and best choice of the available alternatives. Due to lack to financial literacy and adequate financial education, the Nepalese haven't chosen the best possible alternatives. Consequently, they haven't enough saving for investment and retirement. The government hasn't any special provisions for them either. Why is the state so much ignorant and reckless?
E-banking is a method of banking in which the customers conduct transactions electronically. In this system, one does not need to visit the bank repeatedly. But, they can do transactions via internet or mobile application easily. The services like the payment of bills, recharging of mobile balance, transferring money from one account to the other, checking of the statement, etc. can be of great help. Nevertheless, the password security needs to be considered strictly.
ATM Card: The electronic card used for money withdrawal is known as ATM card. An Automated Teller Machine (ATM) card refers to a payment card issued by a financial institution that enables a customer to access ATM to perform financial transitions. The modern day ATM card can withdraw cash, deposit and obtain account information. The financial institution along with the ATM card provides the secret pin number, too. The customer can carry out its financial transactions by inserting the card and dialing the pin number in the ATM. S/he can do ATM transaction even during the hours when the bank is closed. The ATM is also called a debit card because you can withdraw only up to the amount that you have deposited.
Credit Card: A credit card allows you to pay amount to the bank after you use it. : A credit card is issued by a financial company giving the card holder an option to borrow funds usually at the point of sale (shop or online). Having said that one can also use a credit card for balance transfer and taking out cash from an ATM.
Mobile / SMS Banking: The money saved in bank serves a lot in time of need. The modern banking service provided by financial institutions to allow customers to conduct financial transaction through the use of mobile devices like mobile cell phone or tablet is known as mobile banking. The internet and SMS (short message service) facility play a crucial role in functioning of mobile banking. The primary transactions accomplished through mobile banking include obtaining account balance, bill payments, fund transfers, etc.
Internet Banking/Net Banking/Online Banking: This is a convenient way to do banking from the comfort of your location. It offers over 250+ services and facilities that give you real-time access to your account. The major features of internet banking are as follows.
- Check Account Statement - Payments using Net Banking
- Transfer Funds - Open a Fixed Deposit
- Pay Utility Bills - Open Deposits
- Recharge prepaid mobile/DTH and a lot more.
- Buy General Insurance - Pay Taxes
- Order Cheque Book - Track your Deliverables
In Nepal, Kumari Bank Ltd. started internet banking for the first time in 2002 AD. By 2019, all the A Grade and B grade banks of Nepal have internet banking services.
Viber Banking: This is the latest solution for financial transaction. It . enables banks and financial institutions enter today’s instant messaging era. This primarily helps customers retain and attract today’s digitally-savvy platforms. With this solution, banking becomes as easy as it can be and conveniently accessible to a high volume of customers. The principal features of Viber banking follows next.
It allows banks to give their customers easy access to various services in a matter of seconds by simply adding the bank’s Public Account to their conversations list
Registered account holders will even be able to check their account information, bank balance and mini statements amongst other related services directly through their Viber app.
The recent introduction of chat-bot automation interface in Viber has opened up new opportunities for creation and deployment of intelligent bots that interact naturally with people.
This solution takes advantage of this feature in Viber, to allow banks to engage in promotion and customer service activities with their customers in a direct, personalized and intuitive manner.
The chat bot integrated with the bank’s Public Account will understand and process user requests instantly and securely.
In 2017, Nabil Bank Ltd started Viber banking for the first time in history. Many other banks have also started and in the process of starting Viber banking in Nepal.
MB Way: The urban Nepalese have just started this service and rural Nepal are yet to start this free of cost service.
Portable Card Machine: The portable card machine associated with the bank went out of fashion prior to its proper introduction in Nepal. The card was used just by the biggest supermarket like Bhatbhatenee.
Mobile banking, internet banking, Viber banking, MB way, and portable card machine are just different in expression. In fact, all of them work with the means of internet. All these banking systems are used by about two third youths of the urban areas while the rural people are unaware of the service. Schools, organizations, and institutions are not taking heed of this matter and nobody knows what the government is waiting and planning for?
Nepalese have been practicing their own way of maintaining financial record from the time immemorial. Almost all the people have been involved in the agriculture where it is difficult to know their exact income. Such people are often spending more than what they have been earning. More or less the same case implies even to most of the other people who have engaged in the occupation other than agriculture. Consequently, they are compelled to borrow loan from various traditional sources of credit. Owing to the lack of financial literacy, these people don’t have easy access to modern or institutional sources of credit. The traditional sources of credit like money lenders, merchants and traders, landlords and friends and relatives charge a very high rate of interest. Often money lenders and borrowers of the traditional sources lose, get burnt and looted which causes capital peril.
Worse to the above mentioned facts, the Nepalese burry the money in a pit, keep money in a whole, traditional wallets and in other insecure places. Such money may be damaged or burnt or stolen or forgotten to be told to the successors. Resultantly, the process of capital formation is too nominal and which is causing acute crisis of capital for fulfilling the unmet needs and carrying out the developmental activities (Joshi, 2021). Earlier the elements of financial literacy and education hadn’t been included in the curriculum and textbooks of up to standard eight (CDC, 2021). Following the blended course modality, the recent curriculum of Social Studies has incorporated some concepts of financial literacy and education. Nevertheless, the textbooks, instructional materials, and teachers haven’t been developed in the same manner which causes lack of financial literacy (Ghimire, 2022).
In the context of Nepal’s drive for scaling up non-formal education both qualitatively and quantitatively, several new approaches and strategies has been adopted. Particularly, to make non-formal education more instrumental to bring about a transformation in the lives of the learners various needs-base learning components have been incorporated in the learning packages and delivery modes have been devised to suit the learners’ psychological requirements. Nevertheless, the need for making the learning domain oriented and more towards the frontline system thereby aligning the learning contents and methods as per the financial crisis and the relevance of financial literacy can’t be ignored (Lamichhane, 2009). On the other hand, semester long courses, stand above courses, and scheduled programmes of formal and non-formal education designed in association with financial institutions are equally essential for the youths and adults of Nepal. Even so, the authorities concerned are silent. Why?
The government of Nepal has just started blended modality of financial literacy and financial education course at secondary level. Still there is a dilemma on whether to initiate stand above course, semester long and scheduled courses in formal or non-formal education system. There is no-doubt that the financial literacy and financial education is quite relevant at all levels and in both formal and non-formal types of education as they develop self-capability. Therefore, it is a high time that this component of learning be given due importance in the course of delivering non-formal educational services through collaborative approach. The above explanation might give the impression that this area is more meaningful for non-formal stream. In fact, in all learning stream the relevance of financial literacy is unarguably essential, since finance is inexorably linked to the life process.
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Labels: Social Discourse
