While Sri Lanka boasts an impressive literacy rate, its financial literacy remains worryingly low. Only 58% of Sri Lankans are financially literate, with a concerning gender gap, as this 58% comprises 55.2% women and 61.1% men.
Individuals in the 18-29 age group consistently demonstrate higher financial literacy, as evidenced by superior financial knowledge, attitudes, and behaviour scores compared to other age groups. Conversely, those aged 60 and above exhibit significantly lower financial behaviour scores, likely due to comparatively reduced engagement in economic activities and financial management in their daily lives.
Sri Lankans have long grappled with the detrimental effects of inadequate financial literacy. From selecting their leaders to recognising loan sharks, many citizens face an arduous journey.
Recently, the mushrooming of pyramid schemes in Sri Lanka has affected numerous individuals. Financial literacy is crucial in identifying and avoiding these schemes. By educating oneself about sound financial practices, investment strategies, and recognising red flags, individuals can significantly reduce their risk of falling victim to fraudulent schemes.
Soon after the economic crisis of early 2022, many local economists commented that Sri Lankans should possess high economic and financial literacy in order to make independent judgements on whether this crisis had been created by the then Government, or whether the sole factor that had led to the prevailing state of the economy had been the pandemic that began in early 2020, or whether it had been the decades-long policy mismanagement of consecutive governments.
These comments are particularly pertinent this year, as Sri Lanka faces an election where the public must make crucial decisions. Voters must choose whether to entrust the country to leaders who will guide a sound and stable economic recovery or risk plunging into yet another unprecedented economic crisis.
Financial Literacy Roadmap
In this backdrop, the Central Bank of Sri Lanka (CBSL) launched the country’s first-ever Financial Literacy Roadmap 2024-2028 last week. Spearheaded by the Central Bank through the National Financial Inclusion Strategy (NFIS) and with active participation from various entities, this roadmap claims to embody a shared commitment to empower citizens with the knowledge and skills necessary to make financial decisions.
CBSL Assistant Governor W.A. Dilrukshi stated that this roadmap was designed to cultivate a culture of informed decision-making and responsible financial behaviour among Sri Lankans of all ages. She added that central to the roadmap’s vision was the recognition of the pivotal role that education played in shaping the financial behaviour of both present and future generations.
“By providing evidence-based guidance and fostering collaboration, it aspires to not only promote financial inclusion but also to enhance consumer protection and contribute to overall financial stability. I’m confident that our collective efforts will lead Sri Lanka to a more financially secure and inclusive future. Together, we can create a lasting impact that will benefit generations to come.”
Expert studies
A study titled ‘Impact of Financial Literacy Levels Among Sri Lankan Investors on Investment Choices’ by S.T.M.S. Tennekoon and C. Liyanage (2021), published in the South Asian Journal of Finance, reveals that the majority of investors in Sri Lanka possess low levels of both objective and subjective financial literacy.
Furthermore, these investors demonstrated poor understanding of the relationship between interest rates and bond prices. The study’s second key finding is that financial literacy has a statistically significant impact on current and future investment choices, influencing the main sources of investment.
The Organisation for Economic Co-operation and Development (OECD) argues that financial education is only one component of an economic development strategy. It can complement other policies that enable financial access, provide substantive protection in the financial marketplace, and offer mechanisms for redress.
The OECD states: “It is necessary to note that education may need to be accompanied by advising. Although general education and financial education courses can be helpful, consumers need to apply what they learn to their families and their situations. In the end, personal finance is, after all, personal. Making the link between financial education and community economic development outcomes is a bit thornier. Logically, financially-educated consumers should make better decisions for their families, increasing their economic security and well-being.”
CBSL view
According to CBSL Governor Dr. Nandalal Weerasinghe, this roadmap is one of the mandates that the Central Bank has been given under the new legislation.
“It is one of our main responsibilities. We also want to support this agenda and get the support from all stakeholders,” he said.
Weerasinghe noted that financially-inclusive and literate individuals made informed decisions about savings, investment, and business. He further added that they were more likely to understand the impact of monetary policy decisions of the Central Bank and respond appropriately in line with the monetary policy stance, contributing to effective policy implementation.
“Financial literacy can also increase public trust in the financial system by supporting individuals who understand how the financial system works. This understanding is also very important for the public to make those important decisions.”
Weerasinghe noted that more importantly, financial literacy could support reducing or alleviating poverty and breaking poverty traps, adding that this was also an issue the Central Bank had been observing in Sri Lanka. Many people fall into poverty traps due to lack of financial education and literacy and improving these will help alleviate poverty and help people come out of poverty.
Informed access to financial services enables people to manage their finances better, save for the future, and invest in opportunities that improve their economic situation in the long run. This will reduce the burden on the Government-funded social security programmes, particularly given the fact that the exit rate under social security programmes remains alarmingly low, as pointed out by LIRNEasia in a recent report.
Strategic priorities
The roadmap launched by the CBSL directs all stakeholders to achieve four strategic priorities.
The first strategic priority is improved coordination and harmonised content, which aims to strengthen the coordination between stakeholders and standardise the financial literacy content to be delivered by them.
The second strategic priority is improved positive financial behaviour, which seeks to support Sri Lankans to transform their financial knowledge and skills into positive financial behaviour. The third strategic priority is empowered and vigilant financial consumers, aiming to address the dire need of the current financial environment in Sri Lanka with regard to improving consumer protection.
The fourth strategic priority focuses on generational behaviour change. This aims to improve the financial capabilities of youth and schoolchildren to ensure positive behavioural change in the future generation of Sri Lanka.
The operational front of the roadmap serves as a guidance for all financial literacy service providers in Sri Lanka, offering direction to achieve such behavioural changes across all target groups, including children, schools, universities, and the general public.
“I sincerely hope that the implementation of this roadmap will be efficient, effective, and successful with the active support of our donors, including UN agencies,” Weerasinghe stated.
Similarly, we too can only await the improvement of Sri Lanka’s financial literacy rates via this roadmap, encouraging the public to make better decisions both for their benefit and for the betterment of the country.