Financial literacy is one of the key competencies of a modern person. In the era of easily accessible credit and digitalized financial services, the ability to manage money properly and understand basic financial concepts is of fundamental importance. Nevertheless, in many countries of the world, financial literacy of the population remains low, which leads to serious consequences – especially in the form of over-indebtedness, foreclosures and taking out disadvantageous loans.
Financial literacy includes the ability to plan a personal budget, save, understand credit terms, invest and make informed financial decisions. In practice, this means not only being able to read a bank statement or compare credit offers, but also understanding the long-term consequences of financial decisions and being able to recognize risky products.
Low financial literacy is often associated with impulsive borrowing, the inability to build up a financial reserve and poor income management. This situation is further exacerbated in environments with low social security, weak regulation of the credit market or a lack of education.
In many countries, people end up in foreclosures or so-called debt spirals because of relatively small financial obligations that have grown to unbearable amounts due to penalties, interest and fees. These are often individuals who were socially or economically disadvantaged and did not have sufficient knowledge to navigate complex contractual terms.
Across continents, it has been shown that particularly vulnerable groups – such as seniors, young people, single parents or low-income households – are disproportionately represented among those facing foreclosures or repeated debt.
The market for credit products is extremely diverse in many countries – from completely legitimate banking services to high-risk non-bank loans. Non-bank providers often take advantage of the ignorance of the client, who does not understand concepts such as APR (annual percentage rate of charge), hidden fees or penalties for late payment.
Marketing slogans such as “loan without registration”, “without proof of income” or “instant cash in hand” target those who are in acute financial distress – and at the same time the least protected. This group then falls into the so-called “debt trap”, when they take out another, even less advantageous loan to repay one loan.
One of the main problems is insufficient financial education. In many countries, financial literacy is not part of compulsory school education, and the adult population acquires these skills late – if at all. Added to this is information overload: even those who want to gain an overview often encounter contradictory or unclear advice.
There is also a lack of accessible, independent financial advice. People in a difficult situation often do not know who to turn to, and if they use advice services at all, it is often only when the situation is already critical.
Financial literacy is not just a technical skill, but a life skill. In a globalized world where a loan is a matter of a few clicks but debt can last for years, education, regulation and support are key to protecting individuals and society as a whole. Prevention is always cheaper and more humane than dealing with crises afterwards.
