By Drisha Kirkman, Head of Programme Management and Sustainability at Paymentology.

The world has been hit by a series of overlapping crises in recent times, including the COVID-19 pandemic, economic downturns, global trade disputes, and climate-related disasters, leading to significant Financial challenges. The resulting stress levels have impacted all sections of society, and in the UK, May’s Mental Health Awareness Month is an attempt to alleviate this by educating individuals and organisations about the critical relationship between financial well-being and mental health.

During times of collective crisis, Financial Literacy becomes even more crucial in helping people to navigate everyday life. As income losses have left adults in one in four households with children going without food for a day or more, fintechs have a role in empowering greater financial literacy – which has never been more critical.

Why Financial Literacy Matters

Financial literacy is essential for financial well-being, encompassing skills and knowledge related to personal finance, investing, and debt management. A lack of financial literacy can lead to economic instability, hardship, and difficulties in achieving long-term financial goals. Almost 40% of people with mental health problems report that their financial situation worsens their psychological state.

The UK is not exempt from the lack of financial literacy, with over one-third of its adults grappling with basic economic concepts, such as understanding interest rates and managing debt. Arguably, responsibility for financial literacy is shared among stakeholders, including parents, schools, financial institutions, regulators, and policymakers – and the UK government has implemented various financial literacy initiatives, including financial education in the national curriculum, promoting access to financial advice, and launching campaigns to raise awareness about financial scams.

However, more effort is necessary to ensure that every adult in the UK possesses the financial knowledge and skills required to make informed decisions regarding their finances, and fintech companies could play a unique role due to their very design.

The role of fintechs

Fintech companies can play a crucial part in promoting financial literacy by providing innovative digital financial services that are accessible, affordable, and user-friendly. They can potentially transform access to financial services and diminish the knowledge gap by presenting inventive solutions that are more accessible than they were in past decades.

To break the cycle of financial illiteracy across generations, numerous fintechs have developed “pocket money” apps, like Go Henry and Natwest’s Rooster, that teach young people to manage their finances more effectively. Such apps allow parents to set up an allowance for their children, monitor their spending, round up purchases, save spare change, or offer cash-back rewards for responsible spending. These applications can help instil healthy financial habits in young people from an early age, setting them up for long-term economic prosperity.

When entering new markets, fintechs must also be attentive to the nuances of the region and design their products for the audience they are serving. In order to improve financial literacy, fintechs need to focus on providing more affordable credit and facilitating access to finance, rather than promoting a financial product built for a different market.

Essentially, fintechs have revolutionised how we access and manage our money, offering user-friendly solutions that have made financial services more convenient. By providing educational resources and tools that promote financial literacy, fintechs also empower consumers to make better financial decisions and narrow the knowledge gap.

Obstacles to Financial Literacy in the UK and Across the Globe

Fintechs globally have the potential to narrow the financial literacy providing creative digital financial services that are user-friendly, affordable, and accessible. This allows these individuals to be integrated into the formal financial system, allowing them to save, invest, and accumulate wealth.

It is a global opportunity affecting both developed and also emerging economies. South Africa is an example of a developing economy with a significant financial knowledge gap. Over half of South Africans wish to have better financial literacy, according to a recent study – a large portion of the population still lacks the necessary skills to manage their money effectively.

Despite efforts to enhance access to financial services in recent years, a large portion of the population still lacks the skills to manage their finances efficiently. In this sense, fintechs can contribute to bridging financial literacy gaps by offering innovative digital financial services that are accessible, affordable, and user-friendly. However, it is key that fintechs provide these services with a strictly ethical approach; moulding solutions to fit the society, as opposed to putting pressure on people to change their ways of life to conform to the new status quo.

One relevant initiative on this front is a partnership between Paymentology and Blackbullion South Africa to promote financial literacy among young people in the country. Paymentology and Blackbullion South Africa aim to equip young people with the tools to make informed decisions and achieve financial success by providing the necessary financial knowledge and skills. Blackbullion South Africa’s interactive courses and user-friendly tools provide a fun and engaging learning experience, making it ideal for younger generations – and this type of partnership would also work in all areas of the world.

In conclusion, financial literacy is a critical component of both financial and mental well-being. Fintech companies hold a unique opportunity to promote such literacy worldwide by utilising innovative technologies to deliver personalised financial education. Expanding financial literacy can create a generational impact by breaking the cycles of poverty and opening up opportunities for future generations – promoting greater long-term economic prosperity for all.

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