FLEC Stresses the Importance of Financial Literacy and Inclusion

Federal Reserve Governor Michelle W. Bowman spoke about broad-based financial literacy at the Financial Literacy and Education Commission (FLEC) Public Meeting on Thursday in Washington, DC.

According to Bowman, providing consumers with the necessary tools and information to help them make sound financial decisions will enhance everyone's economic well-being.  Access to financial education, in particular, provides the foundation for this goal as well as furthering the Fed's broader goal of promoting a healthy economy by providing consumers with critical skills to evaluate options and make sound decisions, she added.

After all, consumers make better decisions when they understand the consequences of their financial decisions, which leads to more opportunities to build financial capacity that establishes credit, leading to savings and other wealth-building activities, Bowman said in the speech.

Talking about financial education, the Fed Governor said they are providing online resources like education guides and videos to help not just teachers but also students and communities understand how economics impacts their day-to-day lives.

Financial education, according to her, also advances financial inclusion.  Bowman then elaborated on the Fed's inclusion efforts which have three aspects:

• Access to a banking account
• The availability of responsible small-dollar lending products for short-term financial needs
• The expanded reach of financial initiatives to indigenous communities

She cited different surveys' showing that 94% of adults have a bank or credit union account, and 95.5% of all US households are banked. Even minority groups like Black, Hispanic, and Native American Alaskan and Indian communities have high bank account ownership at 86.8%, 89.5%, and over 93%, respectively.

While there has been “significant improvement over the past decades,” Bowman noted there is still progress to be made, with survey data showing that income and education play a factor in not having access to a deposit account.

“We also know that there are many factors that may lead consumers to choose not to engage in the banking system, whether from a distrust of the banking system or prior mishandling of a banking relationship being an impediment to account ownership,” said the bank governor.

Bowman noted that besides affordable banking services, responsible small-dollar lending products could help in financial inclusion by helping meet immediate credit needs from emergencies or unexpected expenses, unplanned income shortfalls, or temporary cash flow disruptions.

“Financial inclusion for all, including underserved communities, like Indigenous groups, is important for the economic strength of our country,”

How can Bitcoin Help with Financial Inclusion?

Interestingly, crypto assets like Bitcoin aim to advance financial inclusion, much like the Federal Reserve. However, it is not limited to just the US, rather, it expands globally with a much higher rate of the unbanked population.

According to a World Bank report, worldwide account ownership reached 76% and 71% in developing countries in 2021. Most importantly, 55% of the unbanked population worldwide is female. This report also found financial literacy a significant problem in achieving financial inclusion. And crypto assets, particularly Bitcoin, aim to achieve just that.

Bitcoin is a peer-to-peer payment system verified by network nodes through cryptography and recorded in a public distributed ledger called the blockchain. However, unlike fiat money, there can only ever be 21 million Bitcoin, making them a truly valuable asset to own.

The crypto asset was created by pseudonymous Satoshi Nakamoto in 2008 as a response to the Great Financial Crisis and the reliance on banks.

Compared to traditional fiat currencies or payment systems, Bitcoin offers the benefit of decentralization, meaning it is not subject to the control of any central authority and has the immutability to ensure transactions cannot be reversed or tampered with. Bitcoin is also global, permissionless, transparent, and pseudonymous in the way that Bitcoin addresses are not linked to real-world identities.

All these qualities mean that Bitcoin can help with financial inclusion in several ways.

• First, it can help by providing a way for people to access banking services who may not have access to traditional banking infrastructure.
• Second, Bitcoin can help by providing a way for people to send and receive money without going through a traditional financial institution. This can be especially helpful for people who are living in countries with unstable economies or those who are living in remote areas.
• Finally, Bitcoin can help by providing a way for people to store a value that is not subject to the fluctuations of traditional currencies. This can be helpful for people living in countries with high inflation rates or those looking for a way to store their money safely.

Bitcoin Already Driving Financial Inclusion Across the World

Cryptocurrencies are already helping countries, especially developing economies, boost financial inclusion. For instance, global adoption of cryptocurrency reached its all-time high in Q2 2021, and emerging markets dominate the Global Crypto Adoption Index, according to blockchain analysis firm Chainlaysis' 2022 report.

Vietnam, Philippines, Ukraine, India, Pakistan, Nigeria, Morocco, Nepal, Kenya, and Indonesia are the lower middle incomes recording increasing cryptocurrency adoption along with Brazil, Thailand, Russia, China, Turkey, Argentina, Colombia, and Ecuador.  However, it's not just developing countries or nations like Venezuela, where hyperinflation is rampant, that are seeking the safety of Bitcoin.  Developed nations like the United States and the United Kingdom are also just as interested in cryptocurrency.

In 2021, El Salvador became the first country to adopt Bitcoin as a legal tender, and more than half the Central American nation's population downloaded the Bitcoin Wallet in a month.

Meanwhile, in Kenya and Nigeria, Bitcoin is helping to provide access to financial services for people otherwise excluded from the formal financial system. In addition, Bitcoin is also helping to reduce the cost of remittances, making it easier for people to send money to family and friends.

In counties like Lebanon, where there is an ongoing financial crisis, many people are turning to Bitcoin. Operating outside the reach of bankers and politicians, Bitcoin emerged as a salvation when banks limited or barred people from withdrawing their own money from their accounts. Furthermore, Bitcoin is also helping to create new jobs and businesses in several countries.

Financial Literacy Just as Important in Crypto

Bitcoin adoption continues to rise worldwide, but it doesn't mean the cryptocurrency space doesn't have its limitations or need for education. As a matter of fact, the nascent technology is in need of more financial literacy, given the complexity and nature of the space.

With the rise of digital assets, financial literacy is more important than ever. With so many people investing in cryptocurrencies and other digital assets, it's important to understand the basics, including how to read financial statements, know the different types of investments, and understand risk.

In 2022, this became starkly clear, first with the collapse of the stablecoin Terra-USD and then the cryptocurrency exchange FTX's bankruptcy. The contagion effects of these big hits have affected not only retail but also big institutions.

Moreover, many cryptocurrencies are inherently volatile and can be subject to manipulation as well. So, it's important to understand these risks before investing in any digital asset.

The crypto industry is also fraught with scams and a lack of safeguards, which makes financial literacy especially important for those involved in the industry. After all, without a solid understanding of financial concepts, it is easy to fall prey to unscrupulous actors or make careless decisions that could have devastating consequences.

Crypto financial literacy must go beyond the basics of understanding the type and returns on investment. Those active in the industry need to be well-versed in the risks associated with crypto and the various strategies for mitigating those risks. They must also be able to identify red flags that may indicate a scam.

While crypto promotes self-custody, it is not as easy, especially for newbies. There's no denying that hardware wallets are the best options to protect your funds, but they can be complex and often require a lot of effort to set up and maintain. Moreover, if you are not careful, you could easily lose control of all your funds.

With so much at stake, those involved in the crypto industry must prioritize financial literacy. Only by doing so can they hope to protect themselves and their investments.

Final Word

In recent years, there has been an increasing focus on financial inclusion – ensuring everyone has access to basic financial services. This is especially important in developing countries, where many do not have bank accounts or access to formal financial institutions.

In many developing nations, Bitcoin is helping to promote financial inclusion by providing access to financial services which do not have access to traditional banking services. BTC can actually be used to send and receive money quickly and easily without the need for a bank account. This is particularly helpful in countries where banking infrastructure is not well developed.

In addition, Bitcoin is also helping to provide microloans to people in developing countries who would not otherwise have access to credit. Another major way Bitcoin is helping is by providing easy, cheap, and fast cross-border remittances to people.

But digital assets are still a new and exciting way to invest and come with their own risks. Financial literacy here is of great importance as understanding the market, risks, and investment can help both investors and the industry grow.