Savings culture key to financial inclusion

The relatively low and declining savings rate of the country is one of the biggest stumbling blocks impeding the growth of the countrys nascent financial industry. Promoting a culture of savings and investments mandates the formulation of a comprehensive and sustainable plan to promote financial literacy. The public sectors contribution towards gross domestic saving is low, as the countrys saving rate fell to 13.8 percent of GDP in FY11, as against 15.4 percent a year earlier, according to the Economic Survey of Pakistan. A majority of the countrys population lacks basic money management skills, which would have been effective means to inculcate saving culture and increase financial deepening. Similarly, people are afraid of investing on account of unfamiliarity to investment risk and return concepts. Prospective investors presume that investments are largely speculative in nature. Many also fear the repeat of market crises as those witnessed in 1998, 2005 and 2008. Such behaviour results in investors deploying surplus funds in risky or less productive investment vehicles. The importance of financial literacy can be determined from the fact that economists relate the lack of financial literacy as one of the several reasons responsible for the global economic crisis. This implies a strong need to add financial education topics in the curriculum of primary and secondary schools and to support awareness programmes and campaigns targeting a larger audience. Financial literacy has been gaining momentum for the past several years with a large number of initiatives being taken by various NGOs and corporations to sponsor and promote activities of financial education. But to address and reach out to such a large population, there is an urgent need for collaborated efforts to develop a nation-wide programme. Lately, Visa, a leading payment solutions provider, has launched a website, which provides personal finance information in both Urdu and English. Moreover, South Asian Federation on Exchange is planning to launch "Financial Literacy Initiative" in Pakistan. In essence, financial capacity building is a precondition for financial inclusion. Moreover, it not only will promote habits of saving, but also would help the public-at-large in setting long-term financial goals and managing the gap between incomes and spending requirements.