July 2017: One coin at a time

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Pink Piggy Bank and a Lot of Coins.

For a week every year in the month of March, time has been designated in the national calendar to look at, deal with and check progress in the access to financial services by the general populace. A large part of the general populace (60%) is excluded from accessing financial services. In my view the main reason is because the design of the financial services infrastructure is driven mainly by the banks who are unable to capture everyone that needs to use it. They are not in business to capture everybody by being physically present everywhere. Banking is like any business, there are costs, capital and operational constraints at play. As such, financial services, according to the banks, has improved but not significantly. Mobile banking has been one of the most innovative services on offer. Other services in the sector includes a proliferation of micro finance institutions, money transfers (including forex transactions); and transfer of funds using mobile phones. These services are accessible in the market places, on the streets, in the supermarkets etc., which are not banks. The services are in all sizes and at costs which are affordable.

Both parents, children and small businesses are primary users of these new ways of storing, transferring and payment systems. Parents can send lunch money through mobile money and avoid driving distances. Anyone with a mobile phone can send and receive money in this way. Utilities, and several other services can be paid for in this way. The speed and level at which this system has been accepted is astonishing. There are many permutations to mobile money. It stores balances and facilitates the cash needs of people throughout the country as long as there is network. All without walking into a bank.

The collaborations and/ or interface between technology and other sectors is limitless. More and more entities must start to accept these forms of transactions like hospitals and restaurants. The registration of sim cards has facilitated the registration, safety and growth of the number of transactions carried on these phones. What started off as a security measure to track terrorist activities makes such transactions possible. The phone number has now become a traceable form of identification unique to each individual in case of fraud and other undesirable activities. There are no two numbers which are alike and each number, once issued, is designated to a person who can be identified by their official documents. When the registration of numbers was made compulsory, nobody thought that transactions in mobile money would be automatically facilitated!

When financial literacy is being taught to school children, the youth and women, the mobile phone which they all have can prove to be an enabling gadget to teach them about cash management. The phone can store cash; transfer cash to borrowers and receive cash from them. For very small businesses, mobile money really means mobile money in your hands. So the phone is not just for making voice calls.

The mobile phone companies have been ahead of the curve in this respect. They offer cheap rates for internet access and, whether one is off the line of rail or not, as long as there is available network applications like Facebook and Whatsapp are ready services. Given this characterisation, financial literacy messages must be targeted towards the use of this gadget primarily. It has revolutionised money transfers in a way no one ever imagined. Children however, must still be taught how to start small savings using piggy banks. Starting even through collecting coins wherever they are and dropping them in these given piggy banks. But more importantly teaching them the relationship between work and money; like doing chores and other errands for them to earn money is still at the core of learning about money and savings. Work, whether for self or for others equals money. Money does not fall from the sky. A case in point, collecting coins should not be for its own sake. It is either they are paid for doing so or the money they collect accrues to them as reward. In other words, there must be motivation for these children to collect these coins otherwise it is just duty.

Children must be taught all about money. What is it? anything that is legal tender. What is it for? To buy goods and services. How does it grow? Through earning interest etc. The arithmetic that follows will show how this happens and you can be sure that children will get the hang of it and will ask more questions. What started out as collecting coins to turn in at the bank will translate into lessons about money and its uses.

Financial literacy should help teach children to understand that making money is about incentives and rewards. Without motivation opportunities will go begging while poverty abounds. Teachers and all of us in the financial consultancy business should be talking about the value of money rather than the units of money. The value, even of the coins which are being collected is what is at the core. Once the value of money is understood, it will automatically motivate children to pick up coins wherever they find them. Money is organic, like a plant, it accumulates and grows.

The first lessons about money is to collect all unwanted and discarded coins, count them and take them to the bank. In return, banks can open small savers accounts where the accumulating values of these coins can be deposited. There is a sizeable portion of currency in circulation which is not circulating. These are the coins that are being ignored and literally being thrown away by consumers. Piggy banks are a first step to accumulation and schools champion this role. The children everywhere can be incentivised to collect and turn in coins by paying them for doing so and offering them small accounts. The central bank is clearly worried about the coins that are stuck in peoples’ hands and not circulating. If young people can find a way of collecting this coinage on a continuous basis they can make themselves some money and help the economy mobilise and re-channel these coins back into the trading system.

On the supply side, banks are no longer the only medium for dealing in cash. Previously, banks had a physical presence where people could go to transact through their bank accounts. Where there was no presence, people hat to keep their cash at home or had to travel long distances away from their localities to access banking services. The internet and mobile phone technology has revolutionised the art of banking. Mobile banking has enabled people to transact without going into a bank, transfer money safely from one account to another using your computer.

The advent of mobile money enabled the non-bank institutions to focus more on the needs of smaller clients, ensuring that they provided facilities like short-term loans. In recent years, traditional banks are facing direct competition in providing credit to clients. Clients now have the option to choose where and who will provide their financial requirements. Unfortunately, this fierce competition has not translated into cheaper cost of money. Institutions are not competing on the basis of price which ideally should benefit the borrower. On the savings side there is talk of rewarding savers of money even on the phones through accumulation of credits or points. Giving of incentives will encourage people to not only transact using the phones but also keeping credit balances for longer as you would on a savings account.

The wide availability of credit or the introduction of specific products for youth and/ or women are accessible to those that are able to demand them. Even though access barriers have been lowered significantly and people are able to walk into a mobile phone company and transfer or receive money, it is still left to those that have the money. There are still a lot more people who must be taught savings strategies that will bring them some wealth. Without savings it matters not whether the services are near or not.

In conclusion the story of financial literacy goes hand in hand with the story of recognising the need for people to focus on savings first. If one does not have sufficient savings, borrowing can be expensive even where it is easily and readily available. People rush to borrow money which is another persons’ savings. They must understand this. Any money availed to them as a loan is really someone else’s money. It therefore helps them to strive to save up something of their own in order for their borrowing costs to go down. Anything of value that they can accumulate and store and are able to use to negotiate at a price is useful. Cattle, equipment, goats, chickens, crops etc., will do as long as it can be valued.

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