The complexities faced because of the 2007â2008 financial meltdown made governments from all over the world undergo some introspection to determine what went wrong and how to prevent future pitfalls. After conducting research on their population, most governments believed that a main factor behind the financial crisis was the low level of financial literacy among their populace. The level of financial literacy is quite low in developed nations and even lower in developing countries. Thus, it was imperative for governments to implement policies and initiatives to increase the level of financial literacy of their citizens.
This chapter seeks to review the policies and initiatives of governments in the Caribbean including Trinidad and Tobago, Barbados, and Jamaica and internationallyâNew Zealand, Australia, the USA, and the UKâwith respect to financial literacy and education. Financial literacy entails the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan ahead, and respond competently to life events that affect everyday financial decisions, including events in the general economy (Orton 2007). A financially literate person must be able to make sound financial decisions regarding the use and management of money (Gale and Levine 2010).
According to Sonja Spiranec, Mihaela Banek Zorica, and Gordana Stokic Simoncic (2012), there are two distinct characteristics for financial literacy. They entail handling everyday financial matters and the ability to make the right choices/decisions based on available information. Adele Atkinson and Flore-Anne Messyâs (2013) definition of financial literacy encompasses all the key concepts of financial literacy. In their research, financial literacy was defined as âa combination of awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and ultimately achieve individual financial wellbeingâ (Atkinson and Messy 2013).
Financial literacy has become critical worldwide given the prevalence of personal overspending contributed in part by the improper and uncontrolled use of credit cards and poor corporate governance by companies due to the rippling effcts of such events, that it has been placed at the forefront for governments in both the developed and developing countries.
From mid-2007 into 2008 the world experienced a global financial crisis and a number of large financial institutions collapsed or were bought out, and there were several government bailouts. The reasons for the crisis have been well studied and analyzed and although the reasons for it are said to be numerous and complex, one major reason stands out: that is, the mispricing of financial risk. Investors and institutions took decisions on short-term gains (Gallery and Gallery 2010).
Trinidad and Tobago
In the 2007 annual budget presentation , the Former Prime Minister of Trinidad and Tobago the Honorable Patrick Manning highlighted the need for a comprehensive approach to financial literacy. Mr. Manning also the Minister of Finance and Head of the Cabinet said:
Rapidly changing lifestyles have forced the bulk of the population to open bank accounts, to use ATMs, to own credit and debit cards and generally to participate actively in the formal financial system. The average consumer is now required to make complex financial decisions such as contracting mortgage and installment loans, choosing from a range of checking accounts and selecting savings instruments. In too many cases, these decisions are made on the basis of insufficient knowledge and appreciation for the financial implications. This has been accompanied by a sharp increase in private consumption and rising consumer debt. Personal savings have in fact declined and with life expectancy increasing significantly many workers are ill-prepared for emergencies or retirement. This is not only so in Trinidad and Tobago but is in fact a worldwide problem. Accordingly, governments in both developed and developing countries are recognizing the need to promote financial literacy programmes to educate individuals to make better financial decisions. The Government is of the view that it is now critical that we launch a comprehensive National Financial Literacy programme to help our citizens deal with the basics of everyday financial management.
Launch of the National Financial Literacy Programme (NFLP)
On January 31, 2007, the Government of the Republic of Trinidad and Tobago (GORTT) officially launched a National Financial Literacy Programme (NFLP). The mandate was given to the Central Bank of Trinidad and Tobago (CBTT) to spearhead this very important initiative and work in tandem with the Ministries of Education, Community Development, Culture and Gender Affairs, and Legal Affairs, the financial sector, Non-Governmental Organizations (NGOs), and a host of organizations such as the trade unions and credit unions. The CBTT was identified as the most appropriate organization since the bank is capable of identifying gaps and other relevant issues that may arise in the market place. This action prevents any confusion that may arise between information and advertising since the CBTT has a high level of credibility in the provision of unbiased, impartial, and accurate information that is consistent with its supervisory and regulatory function within the financial services sector.
To ensure rigor and provide focus the CBTT established a new department to provide financial literacy training in Trinidad and Tobago. At the âCommonwealth Committee on Financial Inclusion in the Caribbeanâ on August 28, 2012, the former Governor of the CBTT Ewart Williams said that although initially the financial regulator (CBTT) was a good choice, he opined that to expand and grow the program a separate entity is required with a singular mandate to deliver the program. Mr. Ewart Williams also confessed that he expected the programâs reach to widen and be more impactful. The government launched the program to promote financial literacy, that is, educate individuals to make better financial decisions. According to Mr. Manning, the government was of the view that it is critical to launch a comprehensive NFLP to help citizens deal with the basics of everyday financial management.
The objectives of the NFLP are:
- To provide education on a range of issues related to personal financial management;
- To sensitize citizens about the importance of personal financial planning, budgeting, and informed money management so as to improve the quality of their lives;
- To provide the population, particularly the socially disadvantaged, with the tools and skills needed to handle basic financial transactions with confidence;
- To develop among citizens, a better understanding of the general financial environment, the products, services, and instruments therein; the opportunities they present for getting the most out of their finances and improving their financial well-being.
The Introduction of Financial Literacy Training at the University of the West Indies
The University of the West Indies (UWI), St. Augustine is the first tertiary education institution of its kind in Trinidad and Tobago to launch a financial literacy program for its students. This program (Financial Literacy: Train the Trainers Program) was introduced in the first semester of the 2010â2011 academic year. This financial literacy program was a joint effort between the educational institution (UWI) and the CBTT. The program was further enlarged to allow all participants to graduate as trainers of financial literacy and is referred to as, âFinancial Literacy: Train the Trainers.â This means that students are also trained in researching various financial products and making presentations and are expected to function as a vessel to transfer financial knowledge to family, friends, the elderly, schools, and communities at large.
The rationale for the introduction of this program at the UWI were many and varied. It is a misnomer that all university graduates are financially literate. Moreover only the students majoring in finance, accounting, and economics would really have some true exposure to financial issues, investments, and financial instruments. However, this financial literary training exposes participants to almost all the financial products and services internationally, gives a clear indication of how financial markets operate, and provides a clear understanding of the relationship between risks and returns. Therefore even students of accounting and finance at the university recognize the benefits and are participating in the program. In addition to this, students learn the importance of saving, investing, budgeting, goal setting, managing debt, homeownership, and planning for retirement.
By participating in this financial literacy program, the students are better prepared to make financial decisions, especially on leaving the university. Moreover in line with the UWIâs mandate of âthe Distinctive UWI Graduate,â participants of the financial literacy course also add much credence to their degree. The UWI describes a âDistinctive UWI Graduateâ as one who has a regional frame of reference and epitomizes the following attributes: a critical and creative thinker, a problem-solver, an effective communicator, knowledgeable and informed, competent, a leader, a team player, IT skilled and information literate, socially and culturally responsive, ethical, innovative and entrepreneurial, and a lifelong self-motivated learner.
This âSmart Money Financial Literacy Trainingâ program was also introduced to support an existing programâCampus Chapter, Habitat for Humanity. The Campus Chapter works independently but also provides support for its sponsor, Habitat for Humanity. This partnership has provided the opportunity for not only social responsibility but also mentorship of our students. Habitat for Humanity builds homes for the underprivileged and also conducts training programs in areas of financial literacy such as budgeting, savings, and entrepreneurship. This training program is not only for the beneficiaries of the program but also for the communities in which they reside. Therefore in addition to providing labor, and building and financing homes, the program also allows the students to provide training in financial literacy to deserving communities. This means that students are equipped to serve the financial education needs of the community and are able to engage in service learning and meaningful community engagement.
The maximum enrollment figure for students pursuing the Train the Trainer course is usually 50. However, given the demand for the program, the first cohort comprised 67 students from the faculties of the UWI, St. Augustine and the second cohort comprised 68 students. Due to the rigorous structure of the program, only 60â70% of students graduated from the first and second cohorts. However, in order to maintain and add more credence to their certification, graduates are expected to conduct at least three to four training sessions each year at various groups in their communities. The CBTT also provides employment opportunities to graduates of the program.
The success of this program is so overwhelming that financial literacy is now offered as a cocurricular three-credit course each semester. Students pursuing this cocurricular course also graduate from the program and are given certificates upon completion. The financial literacy initiatives of the UWI are expected to be further expanded to include training for staff and the number of graduates from the initiatives is expected to drastically increase in the upcoming years. The importance of this program cannot be overemphasized given the low levels of financial literacy worldwide and given the recent global financial crisis.
The Collapse of Colonial Life Insurance Company Limited
The devastating effects of the recent financial meltdown which took place in 2007â2008 have also confirmed and justified the dire need to educate people on financial instruments and issues. After 15 years of consecutive positive economic growth, the Trinidad and Tobago economy declined in 2009 as a result of the global crisis and more specifically, the collapse of the Colonial Life Insurance Company (CLICO) Limited (Soverall 2012). Commercial giants such as CLICO Limited and its parent company, CL Financial Limited, suffered tremendous losses because of bad investment decisions and poor corporate governance structure.
Due to the sheer size and scope of CLICOâs operations, the governmentâs intervention was imminent to buffer the risk posed to the financial system. CLICOâs operations contributed to 10% of the gross domestic product (GDP) in Trinidad and Tobago (Soverall 2012). Therefore, the government of Trinidad and Tobago had to engage in bailout plans to assist these companies and buffer the effects (loss of savings) of this heart r...