How Fintech can strengthen financial literacy for everyone

The COVID-19 pandemic, economic downturns, global trade conflicts and climate-related disasters have contributed to significant economic challenges around the world. According to a study carried out by the World Bank, which analyzed data from 35 countries, the economic consequences of events such as loss of income have been so severe that one in four households with children have had to go without food for a day or more. This highlights the significant financial challenges facing many households around the world.

Millions of people around the world are ill-prepared to cope with rapid changes in the economic landscape, which have a knock-on effect on mental health. Here in the UK, April marks Stress Awareness Month – an annual campaign to raise public awareness of the causes and effects of stress. The goal is to educate individuals and organizations about the importance of stress management and to encourage them to take action to reduce stress in their lives.

As part of managing stress, it’s critical to understand the connection between financial well-being and mental health—and the role of financial literacy in improving both. The challenges in today’s economic landscape underscore the importance of promoting financial literacy and access to financial services to help individuals and families navigate these difficulties.

Financial literacy: An essential tool for managing financial well-being

Financial literacy is more than just understanding the basics of managing money. It encompasses a wide range of skills and knowledge related to personal finance, investment and debt management. Without a basic understanding of financial concepts, people may struggle to manage their finances effectively, leading to financial instability and hardship. They may fail to budget and save properly, leaving them vulnerable to unexpected expenses and financial emergencies. It can also be difficult for them to make informed credit decisions, resulting in high levels of debt and interest payments.

A lack of financial literacy can make it challenging to achieve long-term financial goals, such as buying a home or saving for retirement. This can affect psychological well-being: almost 40% of people with mental health problems report that their financial situation worsens their psychological state.

A crucial point to note is that when it comes to financial literacy, it can be cyclical in nature across generations. Without the basic financial education imparted to them by their predecessors, today’s youth may face difficulties managing their finances effectively and risk financial disaster through high debt, bad credit and lack of savings. In turn, they can pass on their lack of financial competence to their own children – and so the cycle continues.

Challenges to achieving financial literacy in the UK and worldwide

A lack of financial literacy is widespread in the UK, where almost nine million residents are in serious debt, with only around a third receiving help. In fact, only 67% of adults were rated as financially literate. This means that over a third of UK adults struggle with basic financial concepts, such as understanding interest rates and managing debt. Addressing this lack of financial literacy is critical to ensuring the financial well-being of individuals and society as a whole.

Where does responsibility for financial competence lie? Ideally, it is shared between stakeholders, including parents, schools, financial institutions, regulators and policy makers. The UK government has already implemented various financial literacy initiatives, including promoting access to financial advice, launching campaigns to raise awareness of financial fraud, and including financial education in the national curriculum.

While more work is needed to ensure all UK adults have the financial knowledge and skills to make informed decisions about their finances, fintech companies can play a significant role simply by their design. They have the potential to revolutionize access to financial services and reduce the knowledge gap by offering innovative solutions that are more accessible than previous decades.

Fintech solutions to promote financial literacy

Fintechs have democratized access to products and revolutionized the way we access and manage our money, offering user-friendly solutions that have made financial services more convenient than ever before. By providing educational resources and tools that promote financial literacy, fintech also narrows the knowledge gap and empowers consumers to make better financial decisions.

In terms of breaking the generational cycles of financial illiteracy, many fintechs are offering “pocket money” apps that aim to help young people manage their finances more effectively. Some examples include apps, such as Go Henry and Natwest’s Rooster, that allow parents to set up an allowance for their children and monitor their spending, apps that collect purchases and store the spare change, and apps that offer refunds for responsible spending. These types of apps can help instill good financial habits in young people from an early age and set them up for long-term financial success.

However, regardless of the age of the end user, fintechs are also uniquely positioned to leverage innovative technologies by creating personalized financial education experiences tailored to individual needs and preferences. They can use data analytics and machine learning algorithms to analyze user behavior and provide personalized financial recommendations and insights. This can help users understand their spending habits, identify areas for improvement and make informed decisions about their finances.

Address the global financial literacy gap

Across the world, fintechs can help bridge financial literacy gaps by providing innovative digital financial services that are accessible, affordable and user-friendly. In this way, fintech companies can help integrate these people into the formal financial system, giving them the means to save, invest and build wealth.

An emerging nation, South Africa, faces significant challenges around economic knowledge gaps. A recent study found that over half of South Africans wished they had better financial literacy. While the country has made progress in recent years to improve access to financial services, a large part of the population still lacks the necessary skills to manage their money effectively.

There are various initiatives underway to address this issue. At Paymentology, we work with Blackbullion South Africa to promote financial literacy among young people in the country. The partnership is an important step towards improving the economic well-being of the youth of South Africa by sponsoring them on the Blackbullion South Africa platform.

By providing the necessary financial knowledge and skills, we aim to equip young people with the tools to make informed decisions and achieve financial success. Blackbullion South Africa’s interactive courses and user-friendly tools provide a fun and engaging learning experience, making it ideal for younger generations. While the focus is currently on South Africa, this type of partnership will also work in all areas of the world.

Ultimately, financial literacy is a crucial aspect of both financial and mental well-being, and fintech companies have a unique opportunity to help promote it worldwide. By leveraging innovative technologies, fintechs can offer tailored financial education. As individuals become more financially literate, they can make better decisions that not only improve their own well-being, but also contribute to the broader economic prosperity of society as a whole. This increased financial literacy can have a generational effect by helping to break cycles of poverty and create opportunities for future generations.