Equitable Access Requires Financial Literacy

As a nonprofit organization, we at SDF talk a lot about our mission to create equitable access to the global financial system. But what does creating equitable access mean?

Sometimes, we look at it from SDF and Stellar’s ability to unlock the world’s economic potential by making money more fluid, markets more open, and people more empowered. Or we talk about the access that comes from connecting the world’s financial infrastructure across the interoperable Stellar network in a way that makes low-cost financial tools available to underserved communities and geographies. All of these are important ingredients of our recipe for creating equitable access.

But what we can’t overlook, even in our zeal to discuss Stellar’s technology, is a more fundamental ingredient of equitable access: financial literacy. After all, what good are financial tools without the knowledge to use them and what better way to empower people than by educating them?

April is National Financial Capability Month, a new initiative coming out of the Biden Administration to shine a light on financial literacy today. While financial literacy isn’t a new challenge — predating Stellar, blockchain, and many of the innovative digital financial tools available to consumers today — its effects have been felt acutely over the last two decades. Many were not prepared for the one-two punch of the Global Financial Crisis and the Covid-19 pandemic. And while financial setbacks can happen to anyone, it can be harder, and take longer, for those lacking basic financial knowledge to recover. The Standard & Poor’s Ratings Services Global Financial Literacy Survey (the Global FinLit Survey) of over 150,000 people from 140 countries found that 57% of American adults are financially literate, compared to 33% of adults worldwide. While that puts the U.S. in the top tier for financial literacy globally, it still leaves nearly half of American adults without a basic understanding of the financial world they live in.

The Global FinLit Survey uncovered other trends that should inform and shape an approach to greater financial literacy that increases access to the global financial system. For example, women, the poor, and the less educated are more likely to suffer from gaps in financial knowledge, which holds true for both developed and developing economies. The Global FinLit Survey also found that adults who use formal financial services generally have higher financial knowledge, regardless of income. This suggests a two-way relationship between financial literacy and the use of financial services: increasing one increases the other. For us, creating equitable access to the global financial system means increasing both.

An added challenge is that what it means to be financially literate changes as technology changes. For example, financial literacy used to mean knowing how to balance a checkbook. Today, it means knowing how to use a digital wallet. A February 2021 survey of over 30,000 U.S. adults indicated 25% already own cryptocurrencies with another 27% planning to buy crypto this year. Coinbase alone reported 56 million verified users as of March 31, 2021. Another recent survey found that 9% of American teens have traded cryptocurrencies. With few options for formal blockchain education and training, most of these millions of new crypto users have had to self-teach. No doubt many have learned tough lessons. What constitutes financial literacy education must keep up with these societal and generational trends. This is where we think we can help.

We face a dual problem: the world needs more financial literacy, and financial literacy education needs to better prepare learners for a digitally native future. As creators of the technology, the blockchain industry has an important role to play in educating the future users of its products.

We often think of financial inclusion and literacy as an issue more pertinent to developing countries, but as the Biden Administration is right to point out this month, these issues clearly exist in the United States, too. And if we want blockchain technology like Stellar to deliver on its mission of creating equitable access to the financial system, we need to play a part in educating those sitting on the periphery of today’s system, unsure of how to use the tools and services available.

At SDF, we want to lead by example. To date, we’ve worked hard on a number of resources to help people understand blockchain and Stellar in particular, like Blockchain Basics, Intro to Stellar, and a primer on Cross-Border Payments.

But there is certainly more work to be done! With an initial focus on the United States, we’re working to identify partnership and volunteer opportunities with organizations dedicated to expanding financial literacy and who are already delivering it to communities around the country. We are also looking for opportunities to advocate for legislation that would prioritize financial literacy education and provide necessary funding. The Stellar network creates the access — it is through efforts like these that we will make it equitable. Stay tuned!