Financial Literacy for Migrants in Europe – What Could Be Done to Up the Ante

Why is Financial Literacy Necessary?

It is no brainer that everybody in the modern world needs to be literate in finances to engender personal development and to correlate that development to the social and economic functioning of society. This relationship between literacy, personal development and state’s functioning is dependent on the structural patterns of educational policies enacted by national governments and how such policies are implemented and expanded as society evolves. It is like Isaac Newton’s law of motion where he propounded three laws of classical mechanics that described the relationship between the “motion” of an object and the “forces” acting on it. In this context, the level of the state’s deliberate investment in education will directly affect the literacy rate of its citizens.

That is to say that, every country has a responsibility to improve the financial literacy of the citizens of its country by designing such knowledge according to the needs of the composition of citizens. For those who are enrolled in formal education and for those who are not enrolled in formal education.

Since Financial Literacy education is Necessary, What Then is Financial Literacy?

The Organization for Economic Cooperation and Development (OECD) defines financial literacy (FL) as “the knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life.” (OECD, 2019).

Financial literacy implies having a working knowledge of and comprehension of several financial theories, as well as loans, credit cards, investments, and budgeting. Informed financial judgement and competent personal financial management are also included. In Europe, financial literacy has become an important issue as individuals are increasingly responsible for their own financial well-being.

How is Europe Faring on Financial Literacy?

According to a study by the Organisation for Economic Co-operation and Development (OECD) in 2021, financial literacy levels vary widely across Europe. The study found that the top performing countries in financial literacy were the Netherlands, Denmark, and Finland, while the lowest performing countries were Romania, Bulgaria, and Greece.

From the study, it was found that 56% of Europeans have basic financial knowledge, such as understanding the concept of inflation and interest rates. Only 25% of Europeans have advanced financial knowledge, such as understanding financial products and risks associated with investing. While it was found out that women generally have lower financial literacy levels than men and older individuals tend to have higher financial literacy levels than younger individuals. The percentage of Europeans who are financially literate is only 43%, according to a research by the European Central Bank. This number raises concerns since it indicates that a large portion of the population in Europe may be at risk of making poor financial decisions that could result in debt, unstable finances, or even poverty.

How Does it Affect Migrants?

The research study above by the OECD highlights a significant knowledge gap for the population of an advanced democracy. One would then wonder about the level of knowledge of migrants on financial literacy who are mostly from vulnerable nations with less developed formal and informal educational systems on the one hand and on the other hand an indescribably disproportionate development of financial services.

Kenneth De Beckker et al (2020) in their publication on cross-country evidence on financial literacy concludes that national cultures affect financial literacy and it is essential to account for cultural dimensions in future international financial research. This assertion resonates with the financial socialisation theory and the heuristic psychological theory that underlies behavioural finance. The infrastructural deficits in emerging economies from which migrants emigrate to advanced economies makes them vulnerable to contribute to their full potential in the new countries if adequate financial literacy education is not available to enlighten them.

What is Being Done?

The European Union and national governments, financial institutions, and non-profit organisations have all taken steps to decolonise the educational system and made quantum leaps to increase financial literacy throughout Europe. To increase financial literacy among Europeans, the EU, for instance, has a financial education policy. The strategy calls for actions like building adult financial education programs, teaching financial literacy in schools, and promoting financial literacy online.

In order to combat economic illiteracy, there is an increasing demand for economic education and training, as well as for financial success and independence. This is especially true for social groups like migrants, who already confront a number of challenges. An essential structural component for achieving each person’s financial empowerment is basic financial literacy.

The complexity of financial services and products is one of the factors contributing to the lack of financial literacy in Europe. Many financial products are complex, and as a result, consumers may not be able to properly analyse them. Credit cards, loans, and mortgages, for instance, can include complicated terms and conditions that are difficult for the typical individual to understand.The absence of personal finance education and training is another factor contributing to the lack of financial literacy in Europe. A lack of understanding and information on the issue of financial literacy might result from the fact that many people do not obtain any formal education in the area. This is especially true for young people and migrants who might not have been exposed to principles of financial literacy.

What Steps Can Be Taken to Raise Financial Literacy in Europe, Then?

More instruction and training in personal finance could be a solution. Schools, community centres, and online resources could all be used for this. Programmes for financial literacy might be participatory and interesting, using real-world examples to assist individuals learn financial concepts. The preparatory steps should begin from the family level, as it is the fundamental unit of society, therefore parents need to up the ante in raising children.  

While we submit that the EU and national governments are at the forefront of shifting the burden to the lowest level, we recommend that more tailored  investment should be provided for the ADULTS and VETs providers to reinforce  its need for well-organised training programmes on financial education from VET institutions, and boosting their position in the EU.

Furthermore, simplifying financial services and products to make them more user-friendly and available to the general public is another option. The use of simple language and a reduction in the fees and charges related to financial goods could be part of this. To assist clients in making more informed financial decisions, financial institutions could be urged to give them access to more accessible information.

How the Project INFINITY is Playing its Part

Finally, financial literacy is a critical skill that everyone should possess. To improve the financial well-being of people and society as a whole in Europe, it is important to address the serious problem of financial illiteracy, which is why we are carrying out the infinity project to help improve the general financial literacy of migrants in Europe.  The infinity project is creating an educational toolkit for migrants financial literacy that includes a tailored, cutting-edge curriculum (financial literacy with elements of entrepreneurship, soft skills, and sustainability) and a guide for VET (Vocational Education and Training) educators on the subject, as well as a user-friendly and simple-to-use digital learning game and an e-Learning platform.

Upon conclusion of the project activities and delivery of the tailored curriculum and digital learning platform, it will assist people in making better financial decisions and enhancing their financial literacy by increasing personal finance education and training and streamlining financial products and services.

Contributed by:

Ignatius Oli

Institute for Sustainable Education and Development

and

Solomon Eko

Project Manager

Europe Africa Solutions