Examining financial literacy in current economic condition

The Central Bank of Nigeria in March 2016 said it has commenced discussions with the National Education Resource Centre (NERC), to introduce financial literacy programs into the education curriculum of secondary schools in Nigeria.

Once the discussions with NERC are finalised, Financial Literacy would be taught as a subject in all Nigerian secondary schools before the end of this year.

According to Investopedia online dictionary, “financial literacy is the possession of knowledge and understanding of financial matters. Financial literacy is mainly used in connection with personal finance matters. It often entails the knowledge of properly making decisions pertaining to certain personal finance areas like real estate, insurance, investing, saving (especially for education), tax planning and retirement.”

It also involves intimate knowledge of financial concepts like compound interest, financial planning, the mechanics of a credit card, advantageous savings methods, consumer rights, time value of money, among others.

Deputy Governor, Corporate Services Central Bank of Nigeria (CBN), Bayo Adelabu summaries financial literacy as the ability to make informed judgments and to take effective actions regarding the current and future use of and management of money, especially in the current economic condition of the country.

“It is the possession of knowledge and skills by individuals to manage financial resources effectively to enhance their economic well-being. Simply, it refers to ability to manage one’s available resources to be sufficient enough to provide both present, future anticipatory and contingent needs,” the Deputy Governor explained at the 2016 graduation ceremony of Lifeforte International High School, Ibadan, Oyo State titled.

While discussing on the topic, “financial literacy:  an antedote to career success,” the Deputy Governor stressed that all life events are affected by how skilled an individual is in financial matters. Some of those life events according to him include buying a car, buying or building a house, renting a house, caring for a loved one, critical illness, death, getting a new job, losing a job, getting an education, getting married or divorced, having a baby or babies, inheriting money, life after school whether secondary or tertiary, planning for retirement, preventing your money or assets from being stolen, preventing fraud, raising a family among others.

Adelabu went on, “How effectively or efficiently you navigate through all these life’s pressure is highly dependent on your financial literacy level or money management skills. Everyone needs money.

According to the deputy governor, the sooner youths start saving, the better off they will be . A Chinese proverb he added, says that ‘the best time to plant a tree was 20 years ago. The second best time is now’. “Start saving now. Little savings can add up to big amounts over time.  The power of compound interest magnifies the power of savings over time. If you save N10,000 every month at the rate of 10per cent for 30 years, you would save the sum of N22.8million in 30 years,” he advised.

Leading a rally to flag-off the global money week in Abuja recently, the CBN Director, Consumer Protection Department, Hajiya Umma Dutse said the commencement of the financial literacy program would assist in improving the savings culture among secondary school students. Global money week is an annual event that creates awareness amongst youth and children by teaching them about savings, investments entrepreneurship and employment generation through interactive activities.

Represented by a Deputy Director in the department, Hajiya Khadijat Kazeem, she said, “At the CBN, we are partnering with numerous agencies to teach our children and youths about financial matters and also to create an enabling environment for them to gain access to basic banking and financial products and services through various initiatives, especially the financial inclusion strategy.

“An important aspect of this strategy is the implementation of financial literacy programmes across various target groups of Nigerian population.”


Deposit Money Banks’ are involved

To underscore the importance of this initiative, Deposit Money Banks in Nigeria have embarked on various financial literacy programmes. For instance, First Bank Plc., under its Corporate Responsibility and Sustainability scheme initiated the Future First Programme to impart financial independence into young people through the acquisition of the right financial knowledge. The bank has to date covered over 40 secondary schools across the country, impacting over 20,000 students.

Also, as part of marking the Global Money Week, Stanbic IBTC Bank recently spent a day enlightening and mentoring students of Ikolaba Grammar School, Ikolaba, Ibadan, Oyo State, on financial literacy.

Every year, during the second week of March, young people around the globe talk, play, create, sing, read, discuss and learn about saving, money, changing economic systems and building a financial future

Chief Executive Officer, Stanbic IBTC Bank, Yinka Sanni who sees lack of financial literacy as a social ill said, “We know that the cure for the social ill of financial illiteracy is to start practicing financial discipline from a young age and that with the right financial knowledge; the future generation will be able to make informed decisions and move themselves forward. Our desire is to equip them to be able to make smarter, more informed decisions than the generation before them. The knowledge that we have impacted in them will surely place them ahead in the learning curve.”

Heritage Bank is another lender that has embarked on Financial Literacy Programmes. It  is a platform for learning and inspiration to help children and young adults establish a positive relationship with money and navigate personal finances as their financial needs mature. Financial Literacy programme is a key enabler to the achievement of financial inclusion for sustained economic growth and development in the country. All these are geared towards inculcating savings culture on the youths.


Standard principles for Financial Literacy

Talking about tips in becoming financially literate and better managers of money, the CBN Deputy Governor listed 8 principles. He said this will assist youths more in their lives through the universities and thereafter, stressing that it is only coincidental    that he is an accountant and also a Deputy Governor of the Central Bank of Nigeria.

But, “my primary inspiration for this topic was from my personal growing-up experience, and application of these simple principles has worked wonders in my life till date,” he said.

He believes that whether young or old, living in Lagos or London, there are standard principles that one must live by to achieve financial success in the areas of personal finance, commercial finance, or self-employment. If one cannot manage ones income as a salary earner, there is the likelihood that the person will also squander his or her business revenue as a self-employed, said the Deputy Governor.

The standard principles are as follows: Know your money personality: this means understanding your personal comfort level with risk and financial loss. Know your personal traits when it comes to money. Determine your long term goals.  This simply asks you to determine and control your taste within the confine of your income.  Know the personality of your current income can accord you and stick to it. Know what you are saving for and have a plan to get there: This second principle entails setting financial goals and deciding how much one need to save. It involves determining how much time you have on your side and keep your finances on track. What you earn today is for both today and the future.

Know your cash flow: another principle requires that youths should know how much they earn and how much they spend. “It will surprise you that many people do not know how much they spend in a given period and it is funny when such people say that their money ‘just disappear.’”

Adelabu wants everyone to have a worksheet that records income (from salary or self-employment) and expenses; advising that the expenses should be divided into –  (a) Living expenses: rent, insurance, electricity, refuse disposal, furnishing/appliances, clothing, phone bills or recharge cards, fuelling and servicing of generators, neighbourhood vigilante expenses, etc.  (b) Personal expenses: child care, hair/body/beauty products, laundry/dry cleaning, etc. (c) Health expenses: medical, dental, eye care and other drugs. (d)Food – Groceries, take-aways, drinks (e) Transportation: bus, ‘okada’, petrol, servicing and spares (f) Entertainment: Hobbies, toys and gadgets, amusement parks, cable TV, cinemas and concerts, videos, parties, funerals, etc. (g) Vacation: Travel, accommodation, food,, rental car, entertainment, etc (h) Education: school fees, lesson fees, forms, etc (i) Others: charity, religious donations or obligations, alms to beggars, etc. This will equip one with the idea of what is the excess of expenses over income or savings and whether one need to borrow?.

Adelabu queries: “How does each of this compare to the other? For example, is entertainment expense greater than the one on food or education?  It’s a matter of priority. It is very useful to know the difference between your wants and needs.  While needs are necessities for everyday living and goal attainment, wants are things that are just ‘nice to have’ or gratify some desire or urge.  For example, is food a need or a want; is Education a Need or Want? Is going to the Movies a Need or a Want?”

Other standards are: Shop around to get the best value for your money; Care more about your money than anyone else does; Be a saver, not a borrower. The seventh is to understand when it is too good to be true and the eightieth is, “the sooner you start saving, the better off you will be.”

Adelabu further advised that people who want to invest should always ask the right questions before you borrow.

The best time to borrow is only if it increases the capacity to boost ones net worth. It is also important to be mindful of the interest rate of borrowing.  If you are in debt, pay off the high-interest one(s) first.  If you must borrow, do not borrow for consumables.  It must be for investment items, he advised.

To him, there is no other way to save than ensuring that one’s expenses are smaller than income or “making your income bigger than your expenses.  This is the savings equation – (s=y-e).

“It is similar for businesses but it is called the profit equation. If you want to make profits as a business, your revenue must be greater than your expenses. Or lower your expenses if your revenue cannot grow at all or as fast as you want it- (p=y-c).”

To drive home this point, the deputy governor recommended a small but important book called the ‘Way to Wealth’.  It was written in 1758 – 258 years ago. As old as it is, its words which are about developing a strong work ethic and taking advice from others are still stingingly true said Adelabu.

Its author, Benjamin Franklin, was one of the founding fathers of the United States of America and a superstar in his days.

Some of the book’s famous quotes are: “If you would be wealthy, think of saving, as well as getting. Beware of little expenses; a small leak will sink a great ship. Buy what you do not need, and soon you will sell your necessities. For want (or lacking) of a nail the shoe was lost, for want of a shoe the horse was lost; and for want of a horse the rider was lost; being overtaken and slain by the enemy, all for want of care about a horse-shoe nail. There are no gains, without pains. One today is worth two tomorrows. A life of leisure and a life of laziness are two things”

Others according to Adelabu are: “Get what you can, and what you get hold. Sloth, like rust, consumes faster than labor wears, while the used key is always bright. Have you somewhat to do tomorrow, do it today. The eye of a master will do more work than both his hands. Early to bed, and early to rise, makes a man healthy, wealthy and wise. Do not kill the goose that lays the Golden egg.