The Importance of Digital Financial Literacy for Low-Income Households
The financial technology landscape has changed in the past decade. From simply using mobile phones to transfer money, almost every banking transaction can be done anytime and anywhere given the right tools and technology. With the rise of financial technology comes the rise of financial inclusion, and according to The World Bank report in 2018, 515 million adults have opened bank accounts in 2014. That number has increased a lot today, especially in the time of COVID-19 where banking remotely has become the preferred option to curb the spread of the virus.
With the arrival of these innovations, the importance of digital literacy and financial literacy must be highlighted. We cannot assume that people simply know how to operate these technologies, especially people in low-income households living in rural areas. A lot of people are hesitant to use technology for financial transactions because of the lack of physicality of operating digitally. To assure their worries about using financial technology, promoting digital and financial literacy will assuage them.
Digital literacy is the ability to use digital technology to find, evaluate, and create information in various digital platforms, while financial literacy is the ability to make informed financial choices regarding saving, investing, borrowing, etc.
When combined, there is digital financial literacy. This is awareness of digital financial risks and knowledge of digital financial products and services. While one of the benefits of digital financial literacy is that it widens people’s options to conduct banking transactions, understanding how they work can also lower the chances for them to make costly mistakes or become a victim of fraud.
Both digital and financial literacy are integral components in promoting financial inclusion, which in turn plays a significant role in reducing poverty and lowering income inequality all over the world as it empowers people to become productive concerning their money. Low-income households can grow their money by starting a small business or investing in their children’s education — both of which have long-term positive effects that can last until retirement.