What is Financial Literacy? To a layman, the term itself can sound daunting on its own. Is the jargon pertaining to complex financial calculations or the day-to-day stock market movements? Or is it more in line with financial investments- in different instruments- the options, warrants, bonds, and bank savings? Ask an average citizen in Bangladesh “What is financial literacy” and the standard response would be “I do not know”. Or as even most people would say “I do not have financial literacy”.
However, people as a whole have some modicum of financial literacy inherently. We make decisions based on what knowledge is available and what we know. Simply put, financial literacy is the financial capability of people to manage and take control of their finances (Xiao, 2020). Financial literacy can also be called as the skill or capability to analyze economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions (Lusardi and Mitchell, 2014). Additionally, without a financial buffer, people suffer vastly in their old age even if social benefits are available. The suffering is even more so where such benefits are unheard of.
It stands to reason then financial literacy is of paramount importance for the financial and economic wellbeing of a person throughout their lifetime. In 2015, Standard and Poor’s conducted a global survey across 140 countries with more than 150,000 participants (Klapper, Lusardi and Oudheusden, 2015). The results were varied, with first world countries scoring high- Norway (71), Sweden (71), UK (67) and USA (57)- while third world countries scored very low. Bangladesh scored just 19, with only 10 countries scoring below them. Our neighboring countries scored higher- India (24) and Pakistan (26)- with Bhutan (54) and Myanmar (52) very much out of reach. This lowly score highlighted how little average people in Bangladesh could gasp concepts about financial literacy.
It was clear from the results that more financial education had to be included in Bangladesh. However, the study failed to highlight one important aspect. Who are the ones that lack the financial literacy the most? Research in Bangladesh regarding financial literacy is non-existent and the current scenario is the one and only survey conducted by S&P. On August and September 2021, RPDC conducted two rounds of surveys throughout Bangladesh on financial literacy. With a random sampling technique used, 3,120 responses were recorded. Respondents were asked basic questions relating to knowledge of numeracy, interest, inflation, and risk diversification.
To assess financial literacy, the survey used 5 questions - a similar model has been used all around the world to evaluate concepts of financial literacy amongst the populace.
The survey highlighted financial literacy levels of different demographic population in Bangladesh and the results are discussed below:
| Number of Respondents | Average Financial Literacy Scores | Standard Deviation | |
| GENDER | |||
| Male | 849 | 25.2% | 23.6% |
| Female | 2271 | 22.0% | 23.6% |
| AGE GROUP | |||
| Less than 20 | 150 | 20.9% | 22.5% |
| Between 21 and 30 | 1163 | 26.8% | 23.8% |
| Between 31 and 40 | 869 | 23.6% | 23.3% |
| Between 41 and 50 | 456 | 23.3% | 23.5% |
| More than 50 | 298 | 18.8% | 23.0% |
| EDUCATION | |||
| Below SSC | 928 | 15.1% | 20.2% |
| SSC or Equivalent | 502 | 22.7% | 22.1% |
| HSC or Equivalent | 632 | 25.9% | 22.6% |
| Bachelor's or Equivalent | 710 | 33.1% | 24.6% |
| Master's and above | 348 | 30.8% | 24.6% |
| BUSINESS EDUCATION | |||
| None | 2613 | 23.2% | 23.0% |
| Less than 1 year | 248 | 29.8% | 24.6% |
| 1 year to 2 years | 85 | 28.9% | 26.1% |
| More than 2 years | 159 | 31.9% | 27.5% |
| COMMUNITY TYPE | |||
| A village or rural area | 993 | 19.7% | 21.3% |
| A small city | 1188 | 30.5% | 24.3% |
| A large city (with over 500,000 people) | 722 | 22.5% | 23.4% |
| Native to Dhaka | 217 | 18.3% | 23.0% |
| MARITAL STATUS | |||
| Single | 1137 | 28.2% | 24.1% |
| Married | 1922 | 22.4% | 23.0% |
| Separated/Divorced | 35 | 19.4% | 23.5% |
| Widowed | 26 | 10.4% | 20.3% |
| OCCUPATION | |||
| Unemployed | 98 | 17.1% | 21.9% |
| Housewife | 302 | 11.7% | 19.5% |
| Student | 529 | 29.5% | 23.8% |
| Self-employed/ farmer | 440 | 19.3% | 22.6% |
| Private Job Holder | 497 | 29.3% | 25.3% |
| Government Job Holder | 133 | 33.8% | 23.2% |
| Business | 1121 | 24.7% | 22.3% |
| INCOME | |||
| Unemployed | 641 | 22.0% | 23.3% |
| Less than 15,000 Taka | 1207 | 20.5% | 22.7% |
| 15,001 to 30,000 Taka | 897 | 28.7% | 23.8% |
| 30,001 to 50,000 Taka | 286 | 29.9% | 24.1% |
| 50,0001 Taka or more | 89 | 32.7% | 21.7% |
| Average Financial Literacy Score= 24.6% | |||
Table:1 Financial Literacy Score Distribution
Lusardi, Mitchell, & Vilsa (2009) have found that elderly people have a lesser comprehension of financial literacy concepts which is in line with our findings.
On the other hand, with more years of education completed, the financial literacy levels went up. A steady trend of increasing financial literacy scores can be seen with more years of education. Respondents who had an educational qualification below SSC scored the lowest with 15.1% and respondents with a bachelors or equivalent degree scored the highest with a score of 33.1%.
Interestingly enough though, people with a master’s degree and above scored lower than the previous segment, with a score of 30.8%. This begs the question, do more years of education not increase financial literacy scores? In the end results were not fully conclusive and perhaps further investigation can provide a more definitive evidence.
A similar trend of financial literacy with an interesting outlier can be found in people with business education. Generally, financial literacy scores increased with 23.2% to 29.8% for people with no business education to those with less than 1 year spent studying business. However, in the 1 to 2 year segment there is a drop in scores to 28.9%. Financial literacy picks up again with respondents who spent more than 2 years studying business, with an average score of 31.9%.
More years of business education should add to financial literacy, which is the case in our findings except for the outlier in the 1-2year segment. Interestingly, with more years of business education the standard deviation of scores kept on increasing, showing that the scores deviated more from the average with increased years of business education. However, this segment does show one of the highest financial literacy scores with more years of business education.
Figure:1 Financial Literacy with Business Education
Contrary to popular belief, the capital city of Dhaka did not have the highest financial literacy scores compared to the other parts of the country. In fact, Dhaka scored the lowest 18.3%, even lower than a village or rural area 19.7%, where financial services are less available and education is more asymmetrically dispersed. Surprisingly, respondents from a small city scored the highest with a score of 30.5%, even higher than cities with a larger accommodation, (large cities scored 22.5%) and a lot more than Dhaka natives.
This is another unusual finding through this survey. Dhaka is the symbolic heart of commerce and innovation in Bangladesh. It is the place where most financial institutions, government offices, and the few of the best educational institutes reside. Compared to rural Bangladesh, Dhaka is the equivalent of a nucleus of the country. The fact that Dhaka scored so lowly is quite concerning. On the other hand, large cities scored very high compared to other community types, which begs the question whether there is a higher level of financial education attained by them from their surroundings.
It is generally assumed that married people have higher financial literacy, mainly pertaining to the fact that married couples start to make financial decisions for their future wellbeing- buying a house, maintaining family finances, saving and investing. Yet, the results of the survey in Bangladesh show a completely opposite viewpoint. Single respondents recorded the highest scores with an average of 28.2%, while married couples scored low with scores of 22.4%. Divorced/Separated people scored 19.4% while widowed individuals scored only 10.4% according to our analysis. However, due to a very low sample size from these two sample classes, the financial literacy of the populace cannot be fairly evaluated.
Firstly, the outliers of this data set need to be addressed. The “Unemployed” category in “Occupation” and “Income” have different sample sizes. This could be related to participants’ disinclination to share such information or a misinterpretation of the term in the categories. For our analysis, we will ignore the results from the Income bracket, since people are generally less inclined to share about their income levels rather than occupations.
On to the other occupations, government job holders scored the highest (33.8%), followed by students and private job holders both scoring 29.3%, then business personnel 24.7% and, finally self-employed people/farmers (19.3%). Unemployed people scored low with scores of 17.1% and finally, housewives scored at only 11.7%. This highlights that women in the household have very little knowledge of basic financial concepts.
From the collected survey results, it is evident that self-employed people and farmers and housewives are vulnerable in terms of financial literacy. While employees (private and government sectors) have high financial literacy scores. In fact, government job holders have the highest financial literacy scores amongst the full sample size.
As seen from the data above, there seems to be a positive relationship between income and financial literacy. With financial literacy steadily increasing with income. The highest financial literacy scores 32.7% can be seen from the respondents in the highest income bracket (50,0001Taka or more). From there on there is a decreasing financial literacy score. With the income bracket of less than 15,000 Taka scoring the lowest, 20.5%
Then what is the overall scenario in Bangladesh? It is not very encouraging for the country at the moment. With a nationwide average of 24.6%, the financial literacy scores in Bangladesh are still quite low. Respondents with an educational qualification below SSC, people aged over 50, self-employed people, Dhaka natives, housewives and farmers have the lowest scores in the survey. Moreover, varying levels of financial literacy have been shown in the different demographics, none of which is too promising.
The solution? According to Mändmaa (2019), integrating topics of economics and finance to all academic disciplines can be the way forward. Including such subjects can help increase financial literacy if incorporated properly into the educational curriculum.
Moreover, Klapper, et al.(2015) have reason to believe that behavioral insights show effective ways to use financial services. Such as, assisting new customers to use ATMs and PIN numbers, as well as sending text messages as reminders for loan repayments and or encouragement to start saving. While the actions themselves may not have a direct increase in financial literacy scores, it will allow the populace to reap the benefits that come with having a sound knowledge of financial products and services.
Finally, a well-designed and executed financial education can have a major impact on the overall population (Hastings, Madrian, & Skimmyhorn, 2013). However, will the cost incurred deliver the appropriate knowledge to the masses? It is without a doubt, that incorporating financial education on a national level can help alleviate illiteracy, however, to design such a program more information needs to be unearthed-what works, on what scale, to whom. As Hastings et al. (2013) have rightly put, financial education programs that don’t improve financial outcomes can hardly be considered a success.
There is still a long way to go for Bangladesh when it comes to financial literacy. But with appropriate planning and the correct education, it can be done, and when it is so, the people of Bangladesh can be more aptly prepared to manage their finances for a better way of life.
References:
Klapper, L., Lusardi, A., Oudheusden, P.V., (2015) Financial Literacy Around the World.
Hastings, J. S., Madrian, B. C., & Skimmyhorn, W. L. (2013). Financial Literacy, Financial Education, and Economic Outcomes. Annual Review of Economics, 5(1). https://doi.org/10.1146/annurev-economics-082312-125807
Lusardi, A., & Mitchell, O. S. (2014). The Economic Importance of Financial Literacy: Theory and Evidence. Journal of Economic Literature, 52(1)
Lusardi A., Mitchell O.S., Curto Vilsa., (2009) “Financial Literacy and Financial Sophistication Among Older Americans” National Bureau of Economic Research Working Paper 15469. 2009
Mändmaa, S. (2019). FINANCIAL LITERACY – WHAT AND WHY SHOULD WE IMPROVE. EURASIAN JOURNAL OF SOCIAL SCIENCES, 7(2), 26. https://doi.org/10.15604/ejss.2019.07.02.002
Xiao, J. J. (2020). Financial Literacy in Asia: A Scoping Review. SSRN Electronic Journal. Published.