How fintech can boost financial inclusion and literacy

Fintech has emerged as a new tool for promoting financial literacy.


By Carlo Sala, Associate Professor, Department of Economics, Finance and Accounting, Esade

Just like math, literature, and the basic skills people learn as children, financial literacy should be a common price taught to every student in every school. A person who understands finance early in life has more time to benefit from compounding, can take more risk, and build a better credit rating. Additionally, positive spillovers benefit the entire community. Evidence is mounting that financially literate people are less likely to go bankrupt, invest more and make better risk-weighted decisions under uncertainty – paving the way for a life with less worry and stress . Financial literacy can improve the overall well-being of society.

At the start of the Fourth Industrial Revolution, an era of increasing uncertainty, opportunity and risk, fintech has emerged as a new tool to promote financial literacy. The removal of (often not fully trusted) intermediaries, and the fact that almost everything can now be performed using a friendly tool – a smartphone – is shortening the distance between the financial world and many young users. Research by institutions such as the World Bank and the OECD shows that low levels of financial literacy hinder the use of financial products. Fintech removes this barrier.

The best example of how fintech can improve financial literacy are apps like World of Money, an American nonprofit that provides young people with a good financial education through online videos by age group and topic. Other similar examples include Zogo, Rooster Money, Guardian Savings, Prism, Savings Spree, Mint and Investmate. They all offer easy-to-use, intuitive and interactive apps that teach personal finance to different age groups.

Fintech can also improve financial inclusion by making banking more accessible. A significant portion of the world’s population still does not have access to a bank (about 1.7 billion people, according to the World Bank and the latest Findex report), but has access to a smartphone. App-based smartphone solutions such as Tala or Branch International are helping the unbanked access a range of Crypto products for the first time, such as instant loans, money transfers, bill payments, high-yield investing and savings.

Fintech can also inspire other literacy, starting with environmental literacy. This can happen indirectly by saving a lot of paperwork, as most traditional non-fintech contracts are usually printed out rather than stored on a single device (contracts are usually only stored by the issuing company); and directly through innovations that help fight pollution Fintech company. This is the case with the new kids on the Kakubi block, which greatly simplifies access to otherwise hard-to-buy EUA carbon allowances (exchange-traded certificates representing the right to emit a ton of carbon dioxide). Getting every quota through Kakubi means that polluters will not be allowed to pollute a ton of CO2.

Obviously this only works in some cases. Not all that glitters is gold. Fintech can only play a positive role if other fundamental literacy is in place, such as media literacy (the ability to access and critically analyze media information) or technological literacy (the safe, effective and responsible use, understanding, management and analysis of technology) Ability). Furthermore, fintech technologies can harm financial health as they can lead to impulse buying and irrational investing. Without adequate training and knowledge, mobile applications that facilitate operations and shorten the time between purchase and consumption can lead to impulse purchases and overspending, which are often detrimental to consumer welfare.

A good example of a potentially harmful technology for users without sufficient financial literacy is the world of cryptocurrencies, which brings unexpected surprises to a very small number of people (early adopters, sophisticated investors, and lucky investors). wealth, while others suffered huge losses. Recent research has shown that financial literacy and cryptocurrency trading are negatively correlated. People with financial literacy seem to be more aware of the existence of crypto and are less prone to transact, possibly due to their higher ability to perceive risk. While cryptocurrencies require media and technical knowledge, the most important skill remains financial literacy. These cryptocurrencies are not isolated by a “universal” economy, and like all financial assets, they are highly dependent on the economy’s fundamental macro drivers, such as interest rates. Not surprisingly, much of their astonishing performance appears to be tied to long-term near-zero interest rates.

The Fourth Industrial Revolution has ushered in an exciting and challenging era. New technologies can help improve the world’s well-being by improving financial literacy, but only if properly introduced into study programmes. Countries are becoming aware of this, and financial literacy is being cautiously involved in some policy decisions. Leveraging the emerging world of fintech can help with this process.

Source of information: Compiled from FORBES by 0x information.The copyright belongs to the author and may not be reproduced without permission

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