Recently, the Ministry of Finance, Planning and Economic Development rejected a proposal by the Ministry of Public Service to withdraw the Retirement Benefits Bill which seeks to liberalize Uganda’s pension sector.
Finance officials insist the Bill would make the pension sector more efficient and competitive by allowing new players to enter the market. It is also necessary, if Uganda is focused on encouraging a savings culture to take hold and ultimately steer people towards better money management to fund their eventual retirement. On the other hand, for all the controversy surrounding the Bill, the public is very much in the dark, because many ordinary people do not understand what all the fuss is about.
This raises the pressing question of financial literacy. Do we have the basic knowledge to make rational decisions about our money?
We need people or a generation with the ability to understand how money works in the world, how someone manages to earn, how that person manages money and invests it and probably how that person donates it to help others. Simply put, the only way the public will appreciate the importance of the Retirement Benefits Bill is when they truly understand it.
To achieve this, we have got to start at an early stage, both at home and school, but school being the most important probably because students and pupils spend most of their time away from home.In August 2013, the finance ministry launched a strategy for Financial Literacy that holds five major channels, two of which include incorporating Financial Education in the secondary and primary school curriculum through the development of supplementary materials and teacher’s trainings. The strategy further targets the youth through universities, trainings, youth clubs and associations, the core messages including personal financial management, savings, loans, investments, insurance, planning for old age, making payments, and financial service providers.
In line with this, several stakeholders have willingly joined the effort to instill financial literacy in schools. Recently, Stanbic Bank (Uganda) in partnership with the Ministry of Education launched the 2017 National Schools Championship. It involves over 3000 students from 40 secondary schools in each of Uganda’s four main regions. The main aim of the competition is to popularize financial literacy, life skills, logical thinking and general knowledge through classroom debates, essay writing and quiz competitions.
Currently at its fourth stage, the Stanbic Bank competition has already held regional finals in Northern, Eastern, Central and Western. These are represented by Sacred Heart SS, Teso College Aloet, Kibuli SS and Mary Hill High School respectively. The four schools have been given the task to create a bank simulation project which will be presented to a panel of judges on April 29th, 2017 during the grand finals.
The general idea is that regardless of when a young person’s formal education ends, they will be thrust into situations where they need to know how to manage daily living expenses or understand how financial institutions work. This ability to manage their money effectively comes in handy for the rest of their lives. The Retirement Benefits Bill comes at a time when many employees are phasing out pension schemes and replacing them by defined contribution retirement programs. These impose greater responsibilities on young adults to save, invest and ultimately spend retirement savings wisely to avoid becoming a significant economic burden on society.
Now a handful of financial analysts cannot shoulder the burden. Everybody must get involved, preferably from an early age to acquire the skills and understanding to manage financial resources. This is the only way to develop financial literacy.
With the rapid evolution of the financial sector, making sensible financial decisions has become crucial. The public needs to understand how financial institutions work, the implications of aspects such as financial aid, loans, debts, credit, inflation, insurance and even the national budgets that run nations.
According to the S&P Global FinLit Survey, a detailed and comprehensive analysis of worldwide financial literacy that was carried out in 2014 by the World Bank, Uganda was ranked 76th in the world with 34% of the Ugandan population ranking as financially literate. This is not nearly enough if we are looking to attain the promised middle income status by 2040.
We need more events such as the Stanbic National Schools championships to be incorporated in the school curriculums. Let’s create tests and exams that will help us determine the level of participation and understanding among the students. Parents need to also play a pivotal role when handing out money to their children, teach them how to prioritise, make budgets and account to themselves. Also, parents should be exemplary; remember, children are most of the time influenced by how they see you spend and treat your money.
Financial literacy is therefore not a handout, but rather a helping hand that gives individuals the knowledge and skills to solve financial management problems. So perhaps to appreciate the Retirement Benefits Bill, we need to understand the importance of a rainy-day fund and the savings one can make through improved financial literacy.