Unlocking the potential of Financial Literacy to Absorb Future Economic Shocks

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Unlocking the potential of Financial Literacy to Absorb Future Economic Shocks

 What does financial literacy have to do with economic resilience at the household, firm, industry and national level? The answer is – a lot. The outbreak of COVID19 and the subsequent lockdowns rattled economies of most countries worldwide. In Uganda and the rest of Sub-Saharan Africa, the lockdown meant that many urban poor lost their sources of regular income, creating financial instability as they had little or no savings to resort to. It is estimated that about 23% of Uganda’s urban poor were close to losing 100% of their daily income (Financial Sector Deepening-Uganda (FSD) & MoFPED, 2020)

Most people in Uganda were not prepared for this mega economic emergency and their resilience was low partly due to inadequate financial literacy. Low financial literacy limits people’s ability to assess and make effective, prudent decisions regarding personal finance. Among the poor, this manifests in little or no savings. The COVID19 lockdown forced many of the low-income earners to consume the little capital they had and then cry out to Government or wait for the smile of providence. Given that they could no longer make daily sales or earn daily wages that sustained their livelihoods, these people were very prone. Government had to divert part of its dwindling budget to but and distribute food to the urban poor a few times during the pandemic.

But there were quite a few low-income individuals and households that had earlier developed a habit of saving from their meagre incomes, and these did not suffer as much. Financial literacy promotes financial capability which in turn strengthens resilience against shocks.

As FRIENDS Consult, we believe in providing capacity building programs on financial literacy for people of all categories. This enables individuals to understand the value of saving, investing for the future, and preparing for retirement. To a good extent, this prepares them for the uncertain.

By better understanding how to budget and save money, individuals can create plans that set expectations, hold them accountable to their finances, and set a course for achieving financial security.

Joseph Sserunjogi & Keren Obara – FRIENDS Consult Ltd