What you need to know:
Prosper Magazine’s Henry Mulindwa spoke to Mr Daniel Ayebare, the chairperson of Financial Literacy Association of Uganda(FLAU) on the status of financial literacy in the country.
Financial literacy involves having the knowledge, skills, and confidence to make smart decisions with money. This also takes into account one’s economic and social circumstances. Prosper Magazine’s Henry Mulindwa spoke to Mr Daniel Ayebare, the chairperson of Financial Literacy Association of Uganda(FLAU) on the status of financial literacy in the country.
What led to the formation of the Financial Literacy Association of Uganda (FLAU)?
Like any other body of professionals, financial literacy trainers across the country had the urge to come under one umbrella body to be more effective in improving themselves as professionals but also contributing to Uganda’s national agenda of financial inclusion for all, through financial literacy.
What does financial literacy entail?
Financial literacy is having the knowledge, skills, and confidence to manage money well taking into account one’s economic and social circumstances. It seeks to simplify money matters in a way that enables everyone to magnify their financial lives.
Why should people care about financial literacy?
On an individual or household basis, it is impossible to prosper sustainably without sound financial literacy. It does not matter how much money you make, you must have the skills and knowledge to manage it well. At the national level, we seek to contribute to the National Development Plan and more so, the country’s Vision 2040 starting with the basics of the understanding and practice of financial literacy.
One of the key challenges across all government and development interventions in trying to financially empower communities has always been a lack of basic financial literacy. We seek for all resources availed to people to be done after financial literacy to enable them to have an idea of utilising and growing, especially the revolving funds provided by the government.
Overall, financial literacy is a life skill that everybody needs to achieve financial independence, wellness, thrive in society, and be socially included.
What is the status of financial literacy in Uganda?
According to the recent Bank of Uganda capability report 2022, 50.4 percent of Ugandans exhibited the right financial knowledge and behavior given their circumstances. Therefore, the level of financial literacy is average. We are aiming to move it to 80 percent in the next five years with collaboration and support from all stakeholders ready to work with us.
What are the three main financial pain points for Ugandans?
Attitude towards formal financial institutions need to improve and increase trust and thus increase levels of financial inclusion, access to key financial literacy information, and slow rate of embracing technology, and increasing levels of cyber security, thus the need for digital financial literacy.
The Financial Capability Survey 2020 showed that only 15 percent of Ugandans save their money in a deposit-taking financial institution regulated by the Bank of Uganda, while 17 percent save on their phones using mobile money. Up to 44 percent of our people rely on Village Savings and Loans Associations, and 42 percent resort to savings boxes at home. What explains this apathy for saving with banks?
Lack of financial literacy. Many Ugandans believe that banks are only for middle-income and rich people. They believe bank charges would wipe away all their little savings. We thus seek for more knowledge about the formal financial institutions being the safest but also, we seek to bridge the gap between formal and informal financial institutions.
For example, if many Ugandans are saving in Village Savings and Loans Associations (VSLAs), can the VSLAs open a bank account for safety. If many are using saving boxes, can they learn to transfer accumulated money to the bank periodically for safety? A lot more can be done to enhance sustainable access and usage of required financial products and services.
What are those mistakes to avoid when borrowing money, especially for a startup?
Never borrow without counting the total cost of the loan, including interest, insurance, and any other related costs. Save to start up and borrow to grow the business after testing the ability to pay back from the cash flows established.
Is there such a thing as ‘good debt’ and when is it applicable?
Absolutely. Simply put, good debt is that debt that you need. It is invested and will generate or save income in the short, medium, or long term. It puts more money in your pocket. Bad debt is spent on consumption or purchase of liabilities that keep taking money out of your pocket. The purpose for which the debt is taken determines whether it is good or bad.
What is the financial literacy strategy in Uganda as per the Bank of Uganda?
It is a road map of actions and agreed-upon steps by the public and private sector to achieve a set of financial literacy objectives.