Strengthening financial literacy in Bangladesh

Financial literacy is the ability to understand and effectively manage personal financial behaviour. It encompasses knowledge about budgeting, saving, investing, borrowing, and financial planning for the future of an individual. A financially literate person is able to make informed and responsible decisions related to money, thereby ensuring their economic well-being. In a world of complex financial products and services, financial literacy empowers individuals to navigate financial challenges, avoid pitfalls, and build secure futures.

Financial literacy is crucial because it provides individuals with the tools to manage their finances effectively. In a country like Bangladesh, where many people still rely on informal financial systems, the ability to make informed financial decisions can significantly improve one's standard of living. Here are some key reasons why financial literacy is so important:

Better financial decisions: Financially literate individuals are more likely to save for emergencies, invest wisely, and avoid unnecessary debt.

Economic stability: A financially educated individual can contribute to the country's overall economic stability. People who manage their finances well are less likely to face financial crises, reducing the burden on social services.

Improved standard of living: With the right knowledge, individuals can improve their quality of life by efficiently managing their financial resources and planning for the future.

Increased financial inclusion: Financial literacy encourages people to use formal banking systems, which can help increase financial inclusion and foster economic growth.

FINANCIAL LITERACY STATUS IN BANGLADESH:  Despite significant progress in recent years, financial literacy remains limited among a large portion of the Bangladeshi population. According to Bangladesh Bureau of Statistics' report on Bangladesh Sample Vital Statistics 2022, the literacy rate was 76.8 per cent. While according to Financial Inclusion Insights (2018) Program by Inter Media Research, as of December 2023, financial literacy rate of Bangladesh is approximately 28 per cent, meaning more than 70 per cent of the Bangladeshis lack this fundamental understanding, only a small portion of people in Bangladesh demonstrate a good understanding of key financial concepts.

Many individuals, particularly in rural areas, lack access to formal financial education, making them vulnerable to poor financial decision-making. This gap in knowledge contributes to difficulties in managing personal finances, saving for emergencies, and investing for long-term goals. While female financial literacy rate in rural area is quite negligible.

However, the government and private sector have started to recognise the importance of financial literacy. Various initiatives have been launched to improve awareness, but the progress remains slow. A more concerted effort is needed to address this issue and foster a financially literate society.

IDEAL MODEL FOR INDIVIDUAL FINANCIAL BEHAVIOUR: To effectively manage personal financial behaviour, we can follow the 50-30-20 Model. The 50-30-20 model is a simple yet effective way of budgeting and managing money. It divides our monthly income into three categories:

50 per cent for Needs: Half of your monthly income should be spent on essential needs such as housing, food, utilities, education and transportation. These are non-negotiable expenses that must be covered to maintain basic living standards.

30 per cent for Wants: 30 per cent of your income can be allocated for discretionary spending, such as dining out, entertainment, hobbies, or non-essential items that improve your lifestyle.

20 per cenr for Savings, Investment and Debt Repayment: 20 per cent should be used for saving for future goals, investment or paying off existing debts. This includes building an emergency fund, contributing to retirement savings and reducing high-interest debts like credit card balances.

However, one per cent of total income for charity and 19 per cent for savings, investment and debt Repayment could also be used. This small act of generosity can have a meaningful impact on the lives of others, helping to build stronger, more compassionate communities.

By following this rule, individuals can maintain a balanced approach to their finances, ensuring that they cover necessary expenses while also setting aside some money for the future.

HOW FINANCIAL LITERACY CAN BE IMPROVED IN BANGLADESH:  Improving financial literacy in Bangladesh requires a multi-faceted approach that involves various stakeholders, including the government, financial institutions, educational organisations, and the private sector. Here are some strategies to improve financial literacy in the country:

Incorporating Financial Education in Educational Curriculum: Integrating financial literacy into the educational curriculum can ensure that future generations grow up with the knowledge and skills needed to manage their finances. Teaching children and young adults the basics of budgeting, saving, and investing will create a more financially responsible society.

Government and Private Sector Collaboration: The government should work with banks, mobile financial services, microfinance institutions, and other financial bodies to create nationwide awareness campaigns. These campaigns should focus on teaching individuals how to open a bank account, use digital financial services, and manage money effectively.

Digital Financial Literacy: With the rise of mobile banking and digital finance in Bangladesh, digital literacy programmes are essential. These programmes should educate individuals about the benefits and risks of digital financial products and services, helping them use technology safely and effectively.

Community-Based Financial Education: Community outreach programmes can be particularly effective in rural areas where access to formal education may be limited. Local NGOs, community centers, and financial institutions can conduct workshops and training sessions to enhance financial literacy among underserved populations.

Promoting Gender-Inclusive Financial Literacy: Special efforts should be made to address the gender gap in financial literacy. Financial education programmes tailored specifically for women, particularly in rural and underserved areas, can empower them to make better financial decisions and contribute to the household economy.

ACTIVITIES TO DEVELOP FINANCIAL LITERACY IN BANGLADESH: Several initiatives and activities are already underway in Bangladesh to improve financial literacy:

Financial Literacy Campaigns by Bangladesh Bank: The Central Bank of Bangladesh has been actively promoting financial literacy through various initiatives. It has launched programs aimed at educating people about savings, investment, and use of banking products and services. One such program is the "School Banking" organised by the commercial banks of Bangladesh, which aims to teach young students about money management.

Financial Literacy Training by Banks: Many commercial banks in Bangladesh offer financial literacy training to their customers. These programmes focus on topics such as savings, investment, and digital banking etc. Some banks also offer free seminars and workshops for university students and low-income communities to educate them how to manage their individual finances. Besides, banks are continuously spreading financial literacy awareness via SMS, email, social media marketing, etc.

Mobile Financial Literacy Services: With the growing popularity of digital transformation in banking, mobile financial service companies and banks are offering financial literacy services via SMS, mobile apps, and online platforms. These services aim to educate users about basic financial concepts and how to use mobile banking effectively.

Non-Governmental Organisations (NGOs): Various NGOs in Bangladesh are also playing different roles in improving financial literacy, particularly in rural areas. For example, the Shakti Foundation provides financial education to women, empowering them to manage household finances and save for the future. World Vision Bangladesh in collaboration with Gildan is also doing so to support the economic empowerment of women. The main objective is to provide training to couple workers to enhance their ability on financial literacy and manage their personal finances.

Financial Inclusion and Microfinance: Organisations like Grameen Bank, BRAC, ASA, World Vision Bangladesh, SEHEO and many others have been promoting financial inclusion through microfinance programmes. These institutions often provide financial education alongside loans to help individuals, especially in rural areas, to manage their finances and escape poverty.

END NOTE: Financial literacy is a key driver of personal and national economic growth. In Bangladesh, where many individuals lack basic financial knowledge, improving financial literacy can significantly improve their financial behaviours and contribute to the country's economic development. With ongoing initiatives and a concerted effort from the government, financial institutions, and community organisations, Bangladesh can build a financially literate society, empowering people to make informed financial decisions and create a prosperous future for themselves and the nation.

Md. Rashed Akter is Head of Retail Distribution Division and Chief Bancassurance Officer (CBO), Midland Bank