Dr Lynn Wee Ling Min 

Financial literacy has gained considerable attention and importance as it has become a vital topic of discussion among governments and policymakers globally. 



At the micro level, financial literacy relates to a person’s ability to effectively manage their finances, and make sound choices regarding saving, spending and investments that will affect their general well-being in the immediate and distant future. On a larger scale, financial literacy contributes to improved financial planning, competent debt management, and effective risk mitigation. This in turn reduces the financial fragility of individuals and businesses, contributing to economic stability that is essential for stable and sustainable economic growth.

Moreover, financial literacy also supports the effective use of financial and natural resources that leads to higher efficiency and productivity across diverse economic sectors, potentially boosting GDP.  For example, financially literate individuals and businesses will prioritise their investments by allocating funds to productive ventures to optimise resource allocation. This minimises wastage and ensures the long-term viability of investment return. 

Indeed, the United Nations (UN) has recognized the importance of financial literacy in achieving two specific Sustainable Development Goals (SDGs): Goal 1 (No Poverty) and Goal 5 (Gender Equality). Given its significance, it is worthwhile for us to delve deeper into the subject and understand the essence of financial literacy.

Building Financial Capability

The Organisation for Economic Co-operation and Development (OECD) has defined financial literacy as: “A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.” Financial literacy significantly contributes to reducing poverty and fostering sustainable development through the following means.

Firstly, an individual from a low-income community when educated on the financial “know-how” on business planning, financial management and assessing microfinance will subsequently have the skills and capacity to start small income-generating ventures. This will not only lift him out of poverty but at the same time cultivate economic advancement within the nation. 

Secondly, a financially literate individual will excel in budgeting and financial planning, allowing for more efficient management of income and expenditures. Consequently, this will increase savings, decrease debt, and promote financial stability, ultimately enhancing the economic well-being of households and communities. 

Thirdly, financial literacy advocates the inclusion of individuals, regardless of socio-economic status and background, in the financial system by imparting knowledge on how to effectively utilise financial services and products ranging from daily financial transactions, saving, borrowing, investing, etc. 

Consequently, financially literate individuals will better understand credit terms, interest rates, and repayment structures, enabling them to prudently employ credit for business expansion, education, homeownership, and making other investments. This, in turn, diminishes poverty, elevates financial security, and propels economic growth. 

Fourthly, financial literacy programs targeting women and marginalised groups empower them with knowledge and skills to adeptly manage their finances, make informed choices, and participate in income-generating pursuits. For instance, having financial literacy empowers women to negotiate their salaries with greater effectiveness, understand their rights within the workplace, and push for fair compensation. This, in turn, helps in addressing the wage gap between genders, promoting a movement toward more balanced and equitable societies.

Last but not least, financial literacy encourages long-term planning, including retirement planning. People who plan for their retirement increase the likelihood of achieving financial stability in their later stages of life. This, in turn, alleviates pressure on social welfare systems and contributes to economic stability. 

Fostering Financial Literacy: A Shared Responsibility

Who, then, holds the responsibility of providing financial education? While schools and governmental organisations in numerous countries, including Malaysia, are tasked with this primary responsibility, it is crucial to recognise that parents also bear an equally significant role.

Numerous studies have emphasised that parents are the primary financial socialisation agents for their children. Parents serve as vital role models, and their children often observe and replicate their financial behaviours and habits, both good and bad, in shaping their financial comprehension that can well endure into adulthood. With this understanding, parents should create a financial environment where basic but fundamental money management skills like budgeting, saving, and responsible spending are introduced to their children at an early age.

They should also encourage open dialogues about financial topics, addressing any queries or uncertainties their children may have as they learn about money. Furthermore, as children mature, it is beneficial for parents to involve them in age-appropriate financial decisions to help them understand the outcomes of their choices.

Last but certainly not least, parents should impart non-differential financial knowledge when it comes to educating their children about money regardless of their gender. This is essential in reducing the disparity in financial knowledge between men and women over time. 

In sum, financial literacy contributes to poverty alleviation and sustainable development by enhancing financial inclusion, promoting responsible financial behaviour, encouraging sustainable consumption, fostering entrepreneurship, promoting gender equality and empowering individuals and communities to make informed and sustainable financial decisions. Financial education is a joint responsibility involving schools, governmental organisations and parents.  

While schools and governmental bodies play a significant role, parents are crucial financial socialisation agents for children. As the financial landscape is not stagnant but constantly evolving, parents as adults should keep themselves abreast of these changes. Only financially competent parents have the capability and confidence to impart positive and healthy financial knowledge to the next generation.