Empowering Individuals, Strengthening Communities: The Link Between Financial Literacy and Social Sustainability
Few things empower individuals more than understanding how money works and how they can use this knowledge to ensure a financially secure future for themselves and their families. Every life decision they make – from pursuing higher education and choosing a career, to selecting a job, car, or credit card, taking out loans, starting a business, getting married, having kids, and planning for retirement – is intricately linked to their understanding of money. How well they grasp the financial ramifications of these decisions will directly affect the quality of their lives.
Yet, one-third of the global population lacks this knowledge and understanding, and many live paycheck to paycheck, steeped in debt, and unprepared for retirement. This is largely the norm for a large chunk of the population. These individuals are less likely to save, more likely to make impulsive purchases, and more likely to max out their credit cards. The consequences of these actions are not limited to the individual or their family, but they also affect communities and the nation at large.
According to the World Bank, social sustainability involves creating more inclusive societies, enhancing the empowerment of citizens, and fostering more resilient communities. Promoting financial literacy has an indisputable role to play in all of these aspects.
Financial Inclusion and Financial Wellbeing
Financial literacy is an important tool in ensuring and promoting financial inclusion. It can help individuals navigate the financial system and access financial services. Financial literacy also helps in reducing poverty, social inequality and promoting financial stability in communities. It aids individuals in making better financial decisions that can lead to improved financial outcomes, such as higher savings, lower debt and greater wealth accumulation. It can also help individuals avoid financial pitfalls, such as high-interest debt and fraudulent financial products. A study published in the Journal of Financial Planning found that individuals who were more financially literate were less likely to engage in risky financial behavior.
More informed financial decision making, higher levels of financial confidence and financial wellbeing are the evidence-based outcomes of financial literacy campaigns. There is also evidence to suggest that financial literacy can have a positive impact of economic growth. A study by the World Bank found that countries with higher levels of financial literacy had higher levels of saving, investment and economic growth.
Mental Well-being and More
As heartening as this is, there’s more to strengthening communities than just promoting financial wellbeing and economic growth. There’s the crucial aspect of mental wellbeing to consider, which is righty getting a lot of attention in recent times. However, financial literacy initiatives can also deliver on this front.
Research shows that financial stress is associated with increased risk of mental health problems including depression, anxiety and substance abuse. A study published in the Journal of Family and Economic Issues found that financial insecurity was associated with increased levels of psychological distress and lower levels of life satisfaction.
Financial literacy initiatives can help improve mental health outcomes by reducing financial stress and promoting financial well-being. The Journal of Consumer Affairs found that individuals who experienced improvements in financial wellbeing also experienced improvements in mental health outcomes, including reduced stress and improved quality of life.
While the link between financial literary and mental health is more commonly studied, it’s a small leap of logic from here to see how this impacts physical well-being. Financial stress has a detrimental effect on an individual’s health, causing headaches, backaches and digestive problems, among others. Empowering individuals with the financial education that helps them make financially sound decisions directly combats the source of stress and seems like an easy win.
Inclusive. Empowered. Resilient.
It is thus abundantly clear that financial literacy has a major role to play in the building of inclusive, empowered and resilient societies. This is not just in terms of financial and economic wellbeing but also in terms of physical and mental wellbeing as well.
These outsize positive outcomes that are an effect of financial literacy initiatives should spur us on to advocate for, and invest in these initiatives if we truly value social sustainability.
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