Impact of financial literacy on financial inclusion

What is it about?

Financial literacy (FL) plays an important and fundamental role in financial decision-making. According to Kozup and Hogarth (2008), FL is a collection of thinking skills that allow an individual to critically assess the benefits and drawbacks of a financial decision relative to their own criteria of needs, values, and goals. As such, FL also plays a key role in national economic growth and has attracted the attention of organisations such as major banks, government agencies, grassroots consumers and community interest groups, among others.

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Why is it important?

Concerns from groups, including policymakers, are that FL deficiencies can lead to poor financial decision-making such as overspending, taking on high-interest debt, the inability to save for home deposits, seeking higher education or financing retirement, among others. Poor money management behaviour can lead individuals to be vulnerable during financial crises. FL skills are more important post-COVID-19 as many people have lost jobs and face inflationary pressures caused by supply chain issues due to global instability. Consequently, eroding savings, reducing households’ ability to service mortgages and being faced with an increase in natural disasters (cyclones, flooding and bushfires), mean that people need their funds to travel further and/or have access to finance.

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