Financial literacy – An introspect

By Edwin Musonye

Financial literacy can be a tricky subject to understand. This comes from numerous definitions it has depending on the context. Some interest groups have defined it in a more basic way as the ability to comprehend and implement matters of personal finance, including elementary numeracy, interest compounding, inflation, and risk branching out. The focus is to encourage people to understand compound savings rates, changes in value of money as time passes, system of credit and debt, and how these economic apparatuses affect their choices.

However, a more elaborate definition that extends beyond an individual level as preferred by Riyada Consulting and Training in a report they presented to the Word Bank a few years ago is ― the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well being. This latter conceptualisation allows us to criticise elites who have expediently argued that it is the less knowledgeable in the society who are prone to financial illiteracy.

The elites are also prone to financial mischief, plunder, malpractice, and even illegalities that may have consequences that have greater impact on the economy and citizens of a country. Consider the following:

Misappropriating funds

Seemingly well-learned individuals have run down many large state corporations, including legendary names such as Uchumi Supermarkets, Mumias Sugar Company and Kenya Airways. Complaints have also been levelled against wayward auditors who, despite their vast expertise, have abetted the top managers in running down corporations that have impressive growth prospects.

Stashing money abroad

It is an open secret that a lot of money has been hidden abroad by those entrusted with high office. A state intervention under the office of Attorney General -Assets Recovery Agency (ARA) – has been set up and mandated with recovering assets that have been embezzled from public ownership. The culprits have unfortunately not been the low cadre employees who have no idea of the economic consequences of such actions but rather highly travelled and exposed persons who use their knowledge of the world to know where to hide unlawfully obtained money.

Charging exorbitant interest rates

This is especially on loans issued by commercial lenders, which makes doing rational business unattainable. Bankers have continued to oppose adjusting their rates down blaming it on “unreliable small borrowers”. This is sustained even when large corporations default huge amounts to the same lenders. Those advocating for affordable loans to small businesses have termed the high interests as mere profiteering than genuine business pursuit by the lenders.

Mismanagement

There exist numerous circumstances in which management may not have misappropriated funds, but still run down organisation. One of the reasons for this is incompetence in the people hired to be in charge. This is so because there are enough deterrent consequences for those involved in economic crimes despite having an established Special Anti-Corruption and Economic Crimes Division of the High Court, an appointment of 13 Special Magistrates to deal with anti-corruption and economic crimes cases, and 90 Special Prosecutors for economic crimes. Some unethical managers fall into temptation to enrich themselves. The corporate leaders in the affected institutions may also have been arm twisted by powerful individuals, which is, however, no excuse for such economic crimes.   

Wrong priorities

Many are given to assigning priorities to projects that waste foreign exchange. Policy makers at high levels have openly favoured foreign suppliers against local ones even when it is obvious that the latter is superior and would save hard currency for the country as well as contribute to capacity building goals. Beyond that we also have investing in wrong projects that have no value for money.

Careless printing of money

This is common when elections are about to be held and some unscrupulous people with authority influence money to be produced in higher quantities than required. Election years have thus been characterised by hyperinflation caused by increased currency in circulation as technocrats place orders for currency to be minted on behalf of the country. Candidates from the government side use this money to buy voters at the expense of the entire economy.

Other activities revolve around unfair practices ranging from tax evasion, overpricing of supplied merchandise and services, and overpaying or underpaying employees. Some of these can pass as negligence or even human error given that qualified personnel cannot be vulnerable to these guileless faults. However, the effect of the practices is negative to general operation of the economy

Finally, accepting to head a financial institution or a regulating agency while knowing that one doesn’t’ have working competence is a big problem. With harsh life awaiting those without jobs, some people have falsified their qualifications so as to obtain employment. And being aided by lethargic interviewers and lack of serious background checks, they have cunningly found their way into senior echelons of decision-making. These people insist on running businesses without making deliberate efforts to thoroughly understand the concept of money in serving the needs of majority in society.

Financial literacy is therefore a broad subject that affects us all but in different ways. Appreciating this is important especially for those designing coursework to be used in financial education. Much stratification of the knowledge exits for various target groups, from basic knowledge for an individual to save, borrow and purchase insurance services smartly, to complex depths in which a person or institution understands how money is used, and how it is created and multiplied for the benefit of the greater society. Where such knowledge can help us to avoid misusing our little private money, it can help us to build big financial institutions or economies for all of us.

Moreover, this does not dispute that learning will continue as new concepts such as mobile money and crypto currencies such as Bitcoin, gain wider acceptance. This is in addition to traditional special instruments such as letters of credit and futures that are yet to be fully understood particularly in the developing world. ^