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Sri Lankans rich in financial knowledge but poor in practice: CB
- Says this issue demands “careful consideration” of policymakers
- Stresses poor financial behaviour intensifies vulnerability of individuals to economic shocks
- Develops first-ever Financial Literacy Roadmap (2024-2028) to help improve financial behaviour
- But says, “Path ahead is fraught with challenges albeit promising opportunities awaiting to be optimised”
The financial knowledge of Sri Lankans is at satisfactory levels when compared with the other countries but the island nation is lagging behind financial behaviour, the financial sector regulator, the Central Bank said.
With the results of the Financial Literacy Survey highlighting more is to be done in improving financial behaviour in the country, the Central Bank asserted that this demands the “careful consideration” of the policymakers.
Financial behaviour refers to the way a person manages his or her money, makes financial decisions and deals with financial issues.
“Translating financial knowledge into actual financial behaviour is a multifaceted issue stemming from a range of reasons such as issues in financial attitudes, behavioural biases, lack of practical experience, socioeconomic barriers and emotional factors,” the Central Bank pointed out in its recently published Annual Economic Review 2023.
“These elements collectively contribute and widen this gap, making it challenging for individuals to apply their understanding of financial principles in real-world scenarios effectively,” it added.
The Central Bank went on to stress that poor financial behaviour intensifies the vulnerability of individuals to economic shocks. It contributes to macroeconomic instability through reduced savings and higher debt, increases inequality and also impacts public resources, due to increased reliance on government assistance programmes.
However, even though there is no gender gap observed in financial inclusion, a modest gender gap was observed in the financial literacy levels of Sri Lanka.
To address this, the Central Bank suggested that gender-sensitive approaches should be introduced to bridge the gender divide.
Therefore, introducing targeted behavioural interventions to support the translation of financial literacy, i.e. financial knowledge and skills, into positive financial behaviour of Sri Lankans should be considered a policy priority in the current context, the Central Bank stressed.
To tackle the issue, the Central Bank, in collaboration with over 40 stakeholders, including financial sector regulators, ministries, academia and other public and private sector institutions, led the development of the first-ever Financial Literacy Roadmap of Sri Lanka.
The roadmap consists of a five-year action plan to be implemented from 2024 to 2028, with the fundamental objective of improving the financial behaviour of Sri Lankans. The action plan currently consists of 48 actions developed to reach 10 objectives, across the four strategic priorities of the roadmap.
These actions will be mainly focused on inter alia, strengthening the coordination, standardising the financial literacy materials used by the stakeholders, supporting the transformation of the schoolchildren to financially capable individuals by the time they leave school in collaboration with national level public and private education partners and utilising existing resources for the effective delivery of the financial literacy interventions.
However, the Central Bank said that despite the remarkable policy commitment and successful development of the roadmap, “the path ahead is fraught with challenges albeit promising opportunities awaiting to be optimised”.The success of the roadmap depends on several critical factors: aligning with national policies, adapting to the evolving financial landscapes and global trends, creating accessible and inclusive financial literacy interventions, fostering partnerships and establishing effective monitoring and evaluation frameworks, etc.
“These steps are crucial to maximise the impact and sustainability of financial literacy interventions, ultimately leading to a financially literate and empowered population,” the Central Bank said.
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