Access to financial services remains a catalyst for economic growth in every nation and continues to serve as a leverage to economic activities in an economy. As economies worldwide undergo rapid structural transformation after COVID-19, the issue of financial inclusion has taken centre stage in national discourses among policymakers. Financial inclusion is thus, one of the essential economic barometers for inclusive growth in any country.

The benefits of a sound and virile financial services system in enhancing better distribution of economic opportunities amongst economic agents especially the productive vulnerable groups cannot be overemphasized. Recognized as one of the essential tools for achieving Sustainable Development Goals, particularly Goals 1, (no poverty) 2 (Zero Hunger), 5 (Gender equality), 8 (Decent work and economic growth), and 10 (Reduced Inequalities), financial inclusion holds immense potential benefit for global financial markets.

Financial literacy has earned the crucial place of being the cornerstone of inclusive financial systems that empower governments, companies, and individuals to make well-informed financial decisions, effectively manage their finances, and fully participate in the general economic system. When financial literacy is fostered, the gap between those who have access to financial services and those who do not have such access can be bridged, thus opening up the opportunities for reduction of poverty, promotion of economic growth, and improvement in the overall well-being of the people.

Financial literacy presents enormous potential benefits to the financial market landscape in the world. For example, those who have received financial education are frequently in a better position to make prudent financial decisions than they would have done otherwise. Individuals are usually saddled with crucial life choices and would probably have to make decisions about borrowing, investing, saving, buying insurance, and retirement planning. Participation in a formal financial system is seen as immunity against idiosyncratic risks and sudden shocks. Lack of access to financial services is considered a moral blot, a denial of fundamental human rights imperative and a key roadblock to entrepreneurship.

Despite the benefits of having sound financial knowledge, widespread financial illiteracy is reported worldwide. Globally, about one-third (33%) (just 1-in-3 adults understand basic financial concepts) of the world’s population display an understanding of basic financial concepts with around 3.5 billion individuals in the world considered as financially illiterate. This is alarmingly high compared to 1.7 billion unbanked individuals worldwide, which implies that circa 1.8 billion banked individuals in the world might be financially illiterate. Globally Denmark, Norway, and Sweden top the financial literacy levels. Africa scored the worst of all the continents, with Ghana scoring a 32 per cent financial literacy rate.

Ghana among other countries was one of the least scored/occupied the bottom slot with countries like Somalia among others. This implies with all the calls and efforts by stakeholders to bolster/engender rethinking about personal financial planning in these uncertain times, a report from Standard and Poor’s on global financial literacy indicates that a staggering 68% of Ghanaians are financial illiterates. For instance, many individuals are educated but remain susceptible to Ponzi schemes, financial scams, and irregularities. This can be attributed to the widespread problem of financial exclusion, stemming from high financial illiteracy levels, even among well-educated individuals, globally. Additionally, financial institutions often fail to adequately educate the informal sector of developing economies, instead, they focus their efforts on larger corporations that yield substantial revenues.

Recent debates from developing countries, including Ghana, highlight the role of financial literacy in expanding financial inclusion through increasing access, to quality and affordable financial services. For instance, in Ghana, the majority of the adult population appears to be financially excluded (Account ownership and active usage with financial institutions excluding Momo) despite efforts to ensure that many people are financially included through financially innovative practices. For financial inclusion to have the desired outcomes in Ghana, it needs to be reinforced through sustained financial literacy activities.

Despite efforts to promote financial inclusion, widespread financial illiteracy persists, leading to susceptibility to scams and irregularities. This phenomenon contributes significantly to the challenge of financial exclusion, hindering economies from reaping the full benefits of inclusive financial systems. Promoting access to affordable financial services for productive economic activities demands finding solutions to market failures such as moral hazards and asymmetry information that alarms people and prevents them from engaging in the financial sector.

Therefore, tackling the issue of financial exclusion requires creative and situation-specific solutions. To expand access to and usage of financial services, particularly in developing countries, scholars development practitioners and agencies advocate for financial literacy as the most effective means of bridging the significant inclusion gaps among the unbanked and underbanked population.

Financial Inclusion

Access to financial resources is not just a matter of economic convenience; it is a fundamental driver of development that profoundly influences various socio-economic aspects. A society's ability to provide its members with access to financial services directly correlates with reduced economic vulnerability, diminished income inequality, and lower unemployment rates.

Inclusive financial mechanisms and processes endeavour to make it possible for everyone - irrespective of their income level, educational attainment, or related background - to have ready access to a variety of affordable, safe, and appropriate financial products and services. These products and services include basic financial services such as savings accounts, payment services, and money transfer facilities; credit and loans, which can help companies and individuals to invest in life-changing projects such as healthcare, education, or entrepreneurial ventures; risk and insurance management tools that can protect companies and individuals from financial shocks; as well as financial education that can equip individuals, from diverse backgrounds, with the requisite financial knowledge and skills to make well-informed financial decisions.

Financial inclusion promotes essential habits for economic independence, self-reliance, and social and economic empowerment; helping poor families withstand external shocks and differentiate between legitimate financial institutions and fraudulent schemes, such as Ponzi schemes, and unsustainable financial ventures. The scope and scale of measurement of financial inclusion in recent times even though necessary, is defective because merely owning a financial product such as a bank account or Momo account cannot be conclusively considered as FI. Rather it is when the holder of the financial product and/or service actively uses such product for economic self-reliance and entrepreneurial capacity development that FI can be inferred. Financial inclusion, therefore, stands as a critical indicator of a nation's commitment to fostering inclusive growth and achieving Sustainable Development Goals.

Despite concerted efforts from global development agencies, a staggering 1.7 billion individuals worldwide still find themselves on the fringes of formal financial systems, categorized as unbanked or underbanked. The barriers to financial inclusion are multifaceted, encompassing regulatory constraints that limit accessibility, geographical limitations that isolate remote populations, low levels of financial literacy, and linguistic barriers that impede effective communication with financial institutions inter alia. Addressing these challenges becomes imperative to unlock the full potential of inclusive growth and sustainable development.

Financial Literacy

In an era where financial landscapes are increasingly intricate, navigating the array of financial products offered by institutions becomes a daunting task, particularly for those economically disadvantaged and pro-poor. The complexity of these financial services often leaves individuals grappling with decisions that have profound implications for their financial well-being. Recognizing this, financial literacy education emerges as a crucial tool for individuals in simplifying the decision-making processes associated with these intricate financial services.

Financial literacy includes the ability to discern financial choices, and financial issues without discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy. Financial literacy education equips individuals, especially those in developing countries, with the knowledge and skills needed to navigate the complexities of the financial sector. It seeks to promote participation in financial markets and savvy use of financial instruments. Financial savviness includes among others how to get money, how to manage money, how to save money and how to use money. Financial literacy is a basic need for every individual to avoid financial problems. Financial difficulties occur not only due to low income, but financial difficulties can also occur if there are errors in financial management such as lack of financial planning or misuse of credit.

Unfortunately, a pervasive lack of financial knowledge hinders meaningful participation and perpetuates cycles of financial exclusion. Financial limitations can cause stress and low self-esteem. Governments, worldwide, are acknowledging the transformative power of financial literacy education as a pragmatic solution to empower citizens in mastering their financial hygiene and make informed choices. Financially literate individuals have control over financial tools and can make sound decisions regarding their usage for productive ventures. This empowers them to manage their financial affairs responsibly and to plan and manage life events, such as education and retirement and promote sustainable livelihoods. Financial literacy leads to a spending decision that puts quality first.

The imperative lies in fostering financial literacy as a lifelong asset, instilling in individuals the ability to understand and apply financial skills. This education goes beyond mere knowledge acquisition; it involves developing the skills and confidence to be aware of financial risks and opportunities, make informed choices, know where to seek help, and take effective actions to improve financial well-being. By prioritizing financial literacy, governments can pave the way for a financially empowered citizenry, capable of actively participating in economic activities and contributing to a more resilient and inclusive society.

The Missing Link

Financial literacy, often regarded as the linchpin in the bridge between financial exclusion and inclusion, holds the key to unlocking economic empowerment for individuals and communities. It goes beyond the mere accumulation of financial knowledge and encompasses the practical application of financial skills in real-life situations. The absence of adequate financial literacy creates a substantial gap, perpetuating financial exclusion and exposing individuals to a myriad of challenges.

The repercussions of low financial literacy are far-reaching and impactful. Individuals lacking financial literacy skills often find themselves subjected to higher financial costs, falling prey to exploitative practices, making suboptimal investment decisions, and grappling with the complexities of managing debts. These consequences contribute to a cycle of financial vulnerability, hindering personal financial growth and limiting the potential for economic prosperity.

On a global scale, financial literacy levels present a gloomy picture, with persistent disparities, particularly evident in developing countries. The urgent need for comprehensive financial education initiatives is underscored by the pervasive nature of financial illiteracy and its adverse effects on individuals and communities.

Conclusion and Recommendations

In conclusion, it is evident that financial literacy is paramount to Ghana's financial inclusion efforts, critical for achieving financial inclusion targets, and holds the potential to uplift an increasingly impoverished and vulnerable population out of poverty. To scale up financial literacy and financial inclusion, the following recommendations are offered:

1. Encourage institutions such as the Bank of Ghana (BoG), NGOs, and financial institutions, among other sector players, to implement robust financial literacy education programs. These programs should aim to improve outreach, influence sustainable uptake decisions, and do so cost-effectively for households. Additionally, these initiatives can aid microfinance institutions (MFIs) in identifying innovative options and institutional arrangements, thereby informing policymakers in crafting economically empowering policies.
2. Improve the awareness, knowledge, and depth of understanding among households regarding the benefits of financial inclusion. This step is essential to overcome personal, socio-cultural, and community barriers that affect demand-side decisions related to financial inclusion. Addressing low confidence in the financial skills and abilities of households can eliminate major obstacles to the adoption of improved financial behaviours.
3. Intensify financial literacy efforts and enrich the financial decision-making knowledge and skills of household heads. Enhance financial literacy to support households in financial planning, allocation of scarce resources, record-keeping, financial discipline, responsible use of idle funds, and sourcing of funds for viable income-generating opportunities.
4. Increase awareness through sensitization on financial literacy, wealth creation, and wealth preservation education. Engage stakeholders such as MFIs, the BoG, Metropolitan, Municipal, and District Assemblies (MMDAs), and District Assemblies (DAs) to promote improved financial behaviour and household financial status.
5. Integrate financial propriety and literacy education into the educational curriculum, starting at the Junior High School level and continuing through tertiary education. This approach instils financial discipline in young individuals from an early age.
6. Pursue enterprise development clinics in collaboration with banks, savings and loan institutions (S&L), MFIs and financial NGOs. Engage with third-sector players such as market associations like GUTA to ensure proper bookkeeping and prudent enterprise management practices.
7. Decentralize financial literacy programs through local radio stations to ensure effective dissemination, using local actors and artists to conduct community roadshows for financial wellness and health messages.
8. Integrate financial literacy and wealth creation education into Christian church services on Saturdays and Sundays and during Muslim congregational prayers on Fridays. This will reinforce the drive for financial discipline.
9. Establish a special purpose vehicle (SPV) supported by the government and the BoG to assist struggling MFIs in fostering financial inclusion and sustainability.
10. Banks should transform beyond e-finance using computers or mobile phones as their complementary channels to adopt digital banking based on Fintech partnerships that can eliminate the limits of physical contact, and soft information and interact with customers intelligently. This will, in effect, contribute to the “triple-win” financial ecology for improving banks’ performance, increasing access to financial information and knowledge through extended touch points among other social media handles of vulnerable groups and promoting sustainable development throughout society.
11. Deliberate adoption and deployment of technology, digital infrastructure and platforms/channels to expand, improve and deepen outreach at optimal cost. This can be achieved through spatial infrastructure sharing with telcos, FinTechs and universal banks in the unbanked areas. BoG should waive branch expansion costs.
12. Government should consider abolishing e-levy to drive digital financial inclusion

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The writer, Dr Issahaku Yakubu is a Relationship Manager with Stanbic Bank Ghana