92% of Malaysia’s adult population had active deposit accounts as at end of 2015 allowing them to save, transact and access cash using electronic channels available nation wide. This is in proportion to Financial literacy levels in the country. In addition, more than 70% of Malaysia’s adults in the labor force are account holders of unit trusts (mutual funds) which enable them to invest their savings in the local stock market. http://documents.worldbank.org/curated/en/703901495196244578/pdf/115155-WP-PUBLIC-GFM08-68p-FIpaperwebversion.pdf
The above statistics also confirm the level of understanding that the citizens in Malaysia have in terms of Financial literacy that enables them to utilise these financial products. Financial Education is one of the best ways to empower the working poor to take control over their financial lives, which has a ripple effect to all areas of their lives. It can be broken down into: understanding of financial products, appreciating savings, easiness of doing electronic transactions and ability to understand english (most financial institutions’ contracts are in english). Financial literacy is thought to enable unlocking of other dimensions of financial inclusion such as: insurance, client protection, pension, prevention of indebtedness among others.
In most countries, investment in stock market is a preserve of the rich due to a knowledge gap amongst the low income earners. This limits this group to bank’s savings account which have negligible interest rates and makes them susceptible to shortcuts such as pyramid schemes that promise high return on investments. Most low and middle income groups lack knowledge about how the equity market functions which gives relatively high returns over a longer time horizon as compared to other kinds of investments.
Financial literacy programs can be used to help clients understand how to utilise financial services and build confidence of participants in utilising such services. This is important to low income earners who are sceptical of banks and such trainings will help build trust in the system and increase utilisation. A financially literate person is able to understand the importance of savings, benefits of having a bank account, the loan products available, interest rates, benefits of savings, importance of pension schemes, Insurance etc. They are also able to chose the best savings products factoring in the macro-economic factors such as inflation.
To ensure financial inclusion, we must focus on impacting financial knowledge. To the banks, financially literate communities mean more customers/ market for their products, to the government it means increased development in the country due to utilisation of financial products elevating the standards of living and to the individuals it means empowerment, freedom and flexibility.