Abstract
The objective of this review article is to show the concepts and significance of financial literacy and how it can contribute to improving socio economic wellbeing, financial sector development, poverty reduction and sustainable growth in developing countries in Africa. The review covered recent literatures on financial literacy; both theoretical and empirical. The review showed that level of financial literacy is low both in developed and developing countries, but policy and academic response in developing countries in general and Africa in particular is at low level. The results of limited empirical studies implemented to evaluate financial education programs, including those in few African countries, showed that enhancing financial literacy and personal financial decision making capabilities of people would enhance the outcome of financial inclusion and other poverty reduction initiatives for the fact financially literate people can demand and properly use beneficial financial services such as savings, microcredit, insurance. Moreover, enhancing financial literacy is at the advantage of financial service providers and contributes to the development of a stable financial system, a sustainable economic growth. Thus, policy makers and academics in African developing countries need to understand the level of financial literacy in the population in order to devise suitable financial education and other related policy interventions to improve personal financial literacy for its benefits of enhancing individual socio economic welfare and building an inclusive financial system and sustainable economic growth. Key words: Financial literacy, concept and significance, developing countries, African.
Highlights
The recent trend in finance and economics made financial knowledge not just convenience, but an essential survival tool because of the fact that lack of financial knowledge leads to poor financial choice and decisions, which could result in undesired financial and economic consequences to individual, financial system and entire economy
The review in this paper highlighted the role financial literacy education would play in poverty reduction and sustainable economic growth
The overall effect of enhanced individual financial literacy to the economy and society at large is pronounced in the literature
Summary
The recent trend in finance and economics made financial knowledge not just convenience, but an essential survival tool because of the fact that lack of financial knowledge leads to poor financial choice and decisions, which could result in undesired financial and economic consequences to individual, financial system and entire economy. These include: New Zealand (Retirement Commission, 1995), United Kingdom (Financial Service Authority, 2000), Canada (Financial Consumer Agency, 2001), USA (Financial Literacy and Education Commission, 2003), and Australia (Financial Literacy Foundation, 2005, and since transferred to the Australian Securities and Investments Commission) (Holzeman, 2010) Researches both survey based and experimental, including few recent studies in Africa, showed evidences supporting the growing interest to promote financial education should be emulated by more countries in developing countries (Xu and Zia, 2012), where majority lacks of basics of personal finance though they are currently dealing with emerging complexity in the financial world and are demanded to take more personal responsibility to their financial future. This suggests that financial literacy improvement in developing countries has a mixed finding, so each country has to first study the level of financial literacy across different groups in the population and design a targeted financial education coupled with other interventions
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