Making the Case for Financial Literacy in Guyana

May 21, 2017 News

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Dr. Terence Smith, Deputy Governor, Bank of Guyana
Ensuring that all Guyanese communities become financially capable is a key component in helping our Government build economic stability in the future. In fact, we must focus on exploring various ways of deepening financial capacity in Guyana.
By this we mean thinking of ways of developing the financial infrastructure so that individuals and communities, including our indigenous and rural ones, have better access to a suitably wide range of financial services.
The successful implementation of the Bank of Guyana’s financial literacy strategy during my tenure as Deputy Governor is not only in the interest of the consumers of financial services. The Government also stands to benefit from a population that is financially capable and therefore more productive.
In addition, financial institutions benefit from increased uptake of financial services and the economy as a whole will benefit from a deeper and broader financial system.

The Importance of Financial Literacy for Individuals and Families
For individuals and families, the benefits of financial literacy are significant. The financially astute develop the skills and confidence to be aware of financial opportunities, to make informed choices, and take effective action to improve their financial well-being.
Financial literate people make better financial decisions, appreciate their rights and responsibilities as consumers of financial products, and generally understand and manage risks. For both poor and rich alike, financial literacy provides greater control of one’s financial future and reduce vulnerability to fraudulent schemes.
In fact, more financially literate consumers increase the demand for, and responsible use of, financial services, help to unpin financial market stability, and contribute to wider economic growth and development.
Equally important, with Guyana’s remote and isolated communities, financial literacy education has come to play an increasing prominent role in financial reform. In this regard, the literature seems to indicate that uneducated and financially illiterate households do benefit from such programs, in that providing such households with financial literacy education does induce them to open formal bank accounts.

The Importance of Financial Literacy to the Financial System
At times the lending behaviour of financial institutions can create danger for over-leveraged borrowers and by extension, for the financial institutions themselves, especially if the economic downturn is sharp or prolonged.
For example, during my tenure as a U.S. Federal Reserve Banking Regulator working out of the New York Fed we experienced a banking crisis in 2008. A huge part of the problem had to do with subprime mortgage lenders luring many consumers into risky mortgages they could not afford.
It was quite clear that loans were made to borrowers unable to qualify for a traditional mortgage; the borrowers never fully understood the risks of borrowing this way. This crisis proved very costly for the US economy and for the global financial system.
The existence of a stable financial system has much to do with the prudent management of risk by our financial institutions, for example credit risk; which is the risk of financial loss arising from the default of customers. Although, credit losses can never be eliminated completely, good internal controls and systems can help contain it.

The Importance of Financial Literacy to the Economy
Economic development is very much about the successful channeling of domestic savings into productive investment opportunities. So, as we encourage households to save in our financial education series, it is not just good for them, it is also very much in the longer-term national interest.
Similarly, promoting the sensible and prudent use of credit is both good for the individual households and for the wider economy. Used wisely, access to credit can provide households with a number of economic benefits. For example, it allows them to purchase goods and services, notably a home, much earlier than they could by relying on just their own income. This will help boost economic activity.

Financial Literacy and Monetary Policy
Some of my colleagues in the financial sector at times remind me about the limitations around financial education; that no matter how good our financial education programs, they will never do away with financial hardship within our communities.
A review of the literature indicates that in every society there will always be some individuals and families who fall on hard times, often no fault of their own: job losses, serious illnesses and innocent casualties of a breakdown of law and order.
In my view, while some level of financial hardship may be inevitable, public policy can certainly do much to contain it. Central bankers, yours truly included, feel that we are playing an important role in minimizing financial hardship. There is also this idea that sound monetary policy and the maintenance of low inflation is one of the foundations of a prosperous society – one in which everyone has a decent shot at achieving a good standard of living. This is my hope for the Guyanese people.

Conclusion
For emerging economies like Guyana, financially educated consumers can help ensure that the financial sector makes an effective contribution to the real economic growth and poverty reduction.
Financial literacy is very much about empowering individuals so that they manage their financial affairs and improve their standard of living. But it also makes an important contribution to the soundness and efficiency of the financial system and to the performance of the economy.

Next week I will discuss another aspect of our strategy and need for financial education in Guyana. Please send your comments and suggestions to [email protected]

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