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The Implication Of Financial Illiteracy In Nigeria

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Nigeria is a country with a high Gross Domestic Product (GDP) compared to its colleague in the developing yard Bangladesh. Data revealed that with the high GDP, Nigeria harbors 4-time people living below the poverty line than Bangladesh. The reasons can be attributed to the country’s 56 percent income spend on food (highest in the world) as opposed to its counterpart with less than 40 percent. In Nigeria, approximately 60 percent live below the poverty line. In Bangladesh, however, that number is 24.3 percent indicating 55.3 percent likelihood to live below the poverty line in Nigeria compared to Bangladesh.

Source: Country Economy, 2018

Should appropriate financial knowledge (Literacy) solve this discrepancy considering:

  1. The current situation of education curriculum containing only 5% of studied courses about personal finance for non-business students and only 10% studied financial courses in business colleges.
  2. The literacy rate. In Nigeria, the literacy rate is 59.6%. In Bangladesh, it is 72.8% showing a 22.1 percent more likely to be literate in Bangladesh when compared to Nigeria.
  3. The Gross Domestic Product (GDP) of the two economies as shown in the figure below;

Source: Country Economy, 2018

Asides the high GDP in Nigeria compared to Bangladesh, above all others metric, Bangladesh is a better economy owning to Nigeria’s low level of Education and epileptic education structure; education which can increase the level of financial literacy is in shambles. It becomes imperative for the government of the country to devise actionable plans to improve its citizen’s financial literacy which will invariably repress consumption, at the same time, encourage saving and investment. This is based on the assumption that negative relationship exists between literacy level and consumption. In other words, the higher the financial literacy, the more informed the citizens financial decisions are, hence a moderate consumption. As such, it will be concluded upon that high level of is associated with low consumption level. More so, in a study conducted by Adriaan K. et al (2016)[i] to examine the impact of financial literacy on household consumption. It was found that financial literacy of man plays a large role and a higher financial literacy score of the women decreases consumption.

What is Financial Literacy

In simple terms, it is a skill that helps people to make financial decisions effectively. It ensures having the required and appropriate knowledge, skills, and confidence to make responsible financial decisions. Research has found a positive relationship between financial literacy and financial decisions. Putting that into context, a high level of financial literacy translates better financial decisions and its low level equate poor financial decisions in which the latter is attributable to the current situation of the giant of Africa.

Contextually, the position of literature on elucidating a better understanding of financial literacy defines “knowledge as an understanding of personal and broader financial matters; skills as the ability to apply that financial knowledge in everyday life; confidence as having the self-assurance to make important decisions and responsible financial decisions as to the ability of individuals to use the knowledge, skills, and confidence they have gained to make choices appropriate to their own circumstances”.  It gives the twin benefit of protecting from financial frauds as well as planning for financially secured future.

A poor or low financial literacy is often influenced by family background as found by Lusardi(2008) who claimed that 41 percent of required knowledge for better financial decisions usually comes from parenting and home advice. As such, family wealth accumulation lined in the league of factors affecting individual financial decisions. Others factors attributed to poor financial decisions include Education, household income, financial responsibility, and place of residence. The low level of financial literacy has affected and can be attributed to the slow pace with which Nigerians have adopted financial services in rural and urban areas.

Whose Responsibility?

The APEX Bank of Nigeria, Central Bank of Nigeria (The Bank), has released as part of its mandate to improve the level of financial literacy in the country. The bank in a statement stated that:

“An important mandate of the Bank is the promotion of a sound financial system in Nigeria. A key aspect of this function is the entrenchment of effective consumer protection regime that not only protects the rights of consumers but also engenders public confidence in the financial system. Furthermore, the bank added a commitment in 2011 referred to as the MAYA DECLARATION, to reduce the number of financially excluded Nigerians from 46.3 percent in 2010 to 20 percent by the year 2020”.

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The current exclusion rate in 2018 was about 36.8 percent according to a recent report by Enhancing Financial Innovation and Access (EfinA, 2018). To ensure the fulfillment of this obligation.

A National Financial Inclusion Strategy was accordingly developed and launched on October 23, 2012. The strategy identified consumer protection and its constituent pillars of Market Conduct, Dispute Resolution & Consumer Education as critical to the attainment of its objectives.

Understanding the position of the bank, the metric for financial literacy is financial inclusion. It was claimed that 68.2 percent of the population is financially included of which 56 percent of income is spent on consumption. Should a high level of financial literacy not better position saving or investment ahead of consumption?

What is my Position?

The dominance of financial mistakes will not come as a surprise; this is due to the relative inadequate financial knowledge among households. High level of financial literacy is what differentiates the two countries mentioned earlier. As long as a larger portion of income is spent on consumption, the poor will remain poor.

As such, Quality Education in all sectors of the economy becomes imperative which includes

  1. Review of Education Curriculum to include 30 percent of financial related knowledge.
  2. Provision of incentives to promote savings and investments through financial institutions.
  3. Public sensitization and awareness on the need for better financial decisions through instilled financial knowledge which could involve partnership with media houses and agencies.

In all, a conscious effort must be made to scale financial inclusion in the country, through financial literacy. An increased level and quality of education can enhance better financial literacy.

Worth noting in a country with a high level of illiteracy is that financial knowledge will be abysmally low and higher proportion of the income will be spent on consumption

This poor knowledge will lead to low savings and investment and the cycle of poverty ensues. The implication of illiteracy can never be overemphasized on nation’s economy.

 

[i]Milena Dinkova, AdriaanKalwij, & Rob Alssie (2016), The impact of financial literacy on household consumption

Credit: Taiwo Oyekanmi

Economy

Arab central banks’ chief laud Egypt’s successful economic reform experience

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Governor of the Central Bank of Egypt (CBE) Tarek Amer

CAIRO – 15 September 2019: Governors of Arab central banks and monetary institutions applauded Sunday Egypt’s successful economic reform, which helped restore investors confidence.

This came during the 43rd session of the Arab Central Banks Governors and Arab Monetary Associations, which kicked off earlier in the day at the Central Bank of Egypt (CBE) with the participation of over 200 Arab bankers, central banks’ governors, ministers, economic experts and officials of the Arab Monetary Fund.

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Participants asserted that the Egypt’s economic reform experience over the past four years should be documented as a model to be followed by other countries.

Egypt Today

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Economy

ICRC Partners with Tony Elumelu Foundation to Create Economic Opportunities in Conflict Prone Regions

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Lagos, NIGERIA, September 12, 2019; At the just concluded Forum organised by the International Committee of the Red Cross (ICRC), key speakers Tony O. Elumelu, Founder of the Tony Elumelu Foundation and Peter Maurer, President of the International Committee of the Red Cross (ICRC) proffered entrepreneurship as the most sustainable solution to accelerating Africa’s transformation. During a one-on-one conversation at the event, both speakers called for a new private-sector-led approach to humanitarian development in Africa.

While speaking at the Forum, Peter Maurer commended the Tony Elumelu Foundation’s private-sector-led approach as the gold standard of humanitarian development in Africa focused on impacting lives at scale and transforming the continent.

Mr. Maurer said: “On one side, it is important that we assist and protect people when they are disrupted by violence and war. But what brought me together with Tony is not the white shirt and the blue suit, it is his deep conviction that with longer and protracted conflict we need to bring people much earlier into independence.”

He added: “We need, more than ever, in the most fragile, violent parts of society to show the pathway to independence and to a dignified life and this goes with income-generating activities, productive activities, with small businesses. This is why we partnered with the Tony Elumelu Foundation”.

On his part during the discussion themed “Private Sector Partnerships with Humanitarian Organisations: Putting People First”, Mr. Elumelu commended Mr. Maurer’s leadership and the decision to partner with the Tony Elumelu Foundation to eradicate extremism and violence.

He said: “Through the partnership between TEF and ICRC, a lot is happening that shows the catalytic impact of your vision. Ours was the first ever partnership that ICRC had explored using a different approach to humanitarian development, from the angle of empowering the private sector. Today, the Tony Elumelu Foundation has partnered with AfDB on empowering 1000 beneficiaries, UNDP which started with 1000 entrepreneurs and has now been scaled up to empower 100,000 African entrepreneurs starting with the Sahel region.

The most important thing is that we give economic hope and opportunity to our people and reduce the cases of fragility that we see across the continent.”

In 2018, ICRC and the Tony Elumelu Foundation partnered to sponsor 200 entrepreneurs from the North East and Niger Delta regions of Nigeria to catalyse and accelerate transformation while scaling impact in conflict-prone areas. The intervention is built on the existing Tony Elumelu Foundation’s USD 100 million commitment to empower 10,000 young African entrepreneurs in 10 years across the continent. Driven by the economic philosophy of Africapitalism,  it represents a bottom-up approach with the goal of creating millions of jobs and increased revenue on the continent.

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The ICRC Forum took place in Lagos yesterday and gathered key stakeholders in government and humanitarian development to explore alternative approaches to impacting lives on the continent.  Present at the event were Princess Aderemi Adebowale, representing the Executive Governor of Lagos State, Mr. Babajide Sanwo-Olu; Mr. Babtunde Paul Runwase, President, Lagos Chamber of Commerce and Industry; Juan Luis Coderque Galligo, Head, New Financing Models, ICRC; and Mrs. Ifeyinwa Ugochukwu, CEO, Tony Elumelu Foundation; amongst others.

 

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Economy

World Bank funds 2nd phase of Takaful, Karama by $500M

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Marina Wes, the new country director of the World Bank in Egypt – Photo by Ahmed Maarouf/Egypt Today

CAIRO – 12 September 2019: Egypt signed on Wednesday, Sept. 11 an agreement with the World Bank to finance the second phase of the Social Security Nets Support Project, Takaful and Karama, by $500 million.

The agreement was signed by Minister of Investment and International Cooperation Sahar Nasr and Regional Director of the World Bank in Egypt Marina Wes.

Nasr clarified in a press release that the agreement is part of a $8 billion portfolio between Egypt and the World Bank.

She stressed that this project is an important part of the most important indicators to be followed up with the World Bank, which was announced at its annual meetings in Washington, which is investment in human capital.

Nasr expected that all components of this project will contribute to improving the income of Egyptian citizens.

She pointed out that this agreement came within the framework of projects and discussions that took place between President Abdel Fatah al Sisi, and the new president of the World Bank, who chose Egypt as the first destination in the Middle East.

The minister pointed out that the first phase of Takaful and Karama program contributed to the coverage of about 2 million families, or about 9.5 million citizens, revealing that the project reached beneficiary families in all governorates, and that women represent 88 percent of the total beneficiaries so far.

Based on this additional funding, the project will strengthen the social safety nets for an additional three years based on its achievements and willexpand its geographical scope, Nasrclarified, noting that the second phase is expected to include 12.8 million citizens, to reach 22.3 million.

The minister added that the additional funding will be allocated to develop the productive social protection network and employment program under the name of “Forsa”, and will continue to apply health and education considerations to the beneficiary families.

Meanwhile, Minister of Social Solidarity Ghada Waly explained that the signing of a second financing agreement comes to develop the program and works to expand its activities to shift from cash support only to productive support. This is addition to the transfer of assets and sustainable economic activities, which will achieve great returns for the beneficiary families.

Waly noted that the ministry has always worked to benefit from international experiences and practices in this regard, and from the recommendations of the international assessments.

“The objectives of the project have already been achieved in its first phase, and the funding for this phase has ended.We are working to provide highly concessional financing over a long period of more than 35 years, with a grace period of up to 5 years,” Minister Waly stressed.

For his part, the regional director of the World Bank in Egypt explained,“Through this project, we will continue our commitment to support Egypt’s efforts to develop human capital and create jobs, which are essential for the success of its reform program.”

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Wes pointed out that the project reflects the World Bank’s commitment to promoting human capital development through effective social safety nets targeting eligible groups.

She said the project came in line with the World Bank Group’s partnership with Egypt and the expanded regional strategy for the Middle East and North Africa to promote sustainable and inclusive growth through development of skills and livelihood opportunities for women and youth.

Egypt Today

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