Using Banknotes in the Drive to Improve Financial Literacy

Following the partnership announcement between Koenig & Bauer Banknote Solutions (KBBS) and Aflatoun International in the financial literacy space (see page 1), we were curious to learn more about why a traditional machinery supplier is diverging into this new field. We caught up with Roeland Monasch, CEO of Aflatoun, and Mark Stevenson, KBBS Market Development Manager, at Aflatoun’s headquarters in Amsterdam, to find out more.

Eric Boissonnas, Managing Director of KBBS (left) together with Roeland Monasch of Aflatoun (centre) and Mark Stevenson of KBBS (right).

Q: Can you tell us a little more about what ‘Financial Literacy’ actually means and why it is important?

MS: Globally, almost half the world’s population possess limited or no financial literacy skills. Financial literacy levels range from 13-71%, with a loose correlation between higher economic development and higher literacy rates.

Financial literacy is actually a really simple concept but unfortunately it is frequently misunderstood. It essentially refers to a person’s ability to understand various financial concepts, and develop the necessary skills, and to navigate through the economic aspects of life. Financial literacy is an absolute pre-requirement for national socioeconomic development and quality of life improvement for people and consists of the five pillars of understanding, namely Earn, Spend, Save, Borrow, Protect.

Without adequate financial skills, enormous sectors of the population in emerging nations will be left behind as government initiatives to improve financial inclusion, largely through Mobile Money Agent services, continue to make a positive impact in this space. But in achieving financial inclusion without equipping people with the requisite skills to use financial infrastructures and products may expose these people to significant risk of exploitation.

Financial inclusion without adequate financial literacy and education is like giving a child a car full of fuel but not teaching them how to drive…Lots of potential but also lots of risk.

Q: So is there some sort of correlation between cash usage rates and financial literacy levels?

MS: Yes, there is a direct correlation between societies with the highest level of cash dependency and highest levels of financial illiteracy. These people tend to live in predominantly rural areas where access to financial education and services (particularly for women) is limited or absent.

Cash is king in these regions and the infrastructures supporting cash access and usage are far more sustainable and efficient than in developed nations. Whereas in developed nations, cash frequently acts as a payment tool and a store of value mechanism, in emerging nations, cash is principally a transactional tool and therefore direct and immediate access to cash is vital.

Outside of urban regions, traditional cash access infrastructures (commercial banks or ATMs) are absent and the gap has been filled by mobile money agents who provide a critical service, enabling people to send, receive, deposit and withdraw cash from their mobile money accounts via mobile phones. In many of these societies up to 90% of all transactions are made in cash. Simply put, people in these regions like cash, they understand cash, they use cash every day and they do so very effectively and efficiently.

Q: Why is KBBS, as a banknote machinery supplier, moving into this space?

MS: Financial literacy is a core component in any nation’s journey towards socioeconomic and quality of life development.

The absence of such basic financial skills represents the most important challenge to human development since any programme to develop a national economy is built upon the assumption that people will play a fundamental role in driving sustainable GDP growth and this depends on their capacity to manage their money.

As a supplier of banknote printing technology, we have a duty to ensure that the very people using the products created on our machines have the necessary life skills to manage their finances.

In emerging nations, managing finances largely equates to managing cash. Cash dependent societies will grow up using banknotes and coins as their primary payment tool, so it makes sense for us to utilise the reach and familiarity of banknotes in these societies to do something more than act as a payment tool.

While many people frequently associate banknotes with payment or a store of value, they actually have an important third role in society – a unit of account. By leveraging this characteristic of banknotes and applying some innovative technology that connects the physical banknote to digital learning platforms, we can create an engaging educational tool that has a direct link with how people will manage their finances in the real world.

So, in summary, we are moving into this space because we believe that banknotes can do more for society!

Q: Who is Aflatoun International and why have you partnered with KBBS? What do you expect to come out of this relationship?

RM: Aflatoun International is a not-for-profit organisation based in the Netherlands that has been at the forefront of promoting social and financial education for over two decades, reaching millions of young people through our financial literacy programs in more than 100 countries with the use of our unique social franchise model - and the network of 300+ partners globally.

By integrating knowledge on financial literacy, social and emotional learning, and entrepreneurship, Aflatoun equips young individuals with the skills and mindset necessary to navigate an increasingly complex and interconnected world.

The partnership between Aflatoun and KBBS represents a significant step toward expanding access to educational resources and ensuring that young people across the globe have the opportunity to develop vital financial literacy skills. Through this partnership, our common mission is to explore and develop new ways to enable access to vital financial literacy resources using banknotes as a familiar and logical tool for financial skill development.

Q: In this new partnership, what exactly are you doing to improve financial literacy and with whom?

MS: The iLearn financial literacy service was born out of a recognition that banknotes hold the capacity to act as the perfect learning tool for both children and adults to develop numeracy and fundamental financial skills.

It is a hybrid financial learning ecosystem that is inclusive, accessible, engaging and cost-effective, providing a series of win-win value propositions for all stakeholders involved in the successful development and deployment of a sustainable National Financial Literacy Programme.

When it comes to financial literacy we must consider the context in which we will be working. It is not as simple as providing textbooks or instruction manuals to a highly literate youth community. Today, in sub-Saharan Africa, over 50% of the population are under 25 years old and 9 out of 10 children are illiterate and have limited access to formal education. This situation is significantly worse for girls and women. The World Bank forecasts that by 2050 over 1 billion children will live in sub-Saharan Africa. If we do nothing to support education and in particular, basic life skills such as financial education, how will these young people build a future?

While technological solutions exist and are working to improve financial inclusion, it is vital that people develop skills to embrace, understand and use these tools wisely…otherwise we will simply propel the most vulnerable and fragile sectors of society into a digital future without the appropriate skills to understand and manage it.

Regardless of age, demographic, internet access, iLearn enables everyone to learn financial literacy skills and provides ministries of education and central banks with vital success metric data on how the programme is evolving and progressing.

Q: What is different/new about iLearn?

MS: To date, financial literacy initiatives tend to struggle with the scale and scope of coverage required to make a significant impact on national financial skill development. While smaller, regional/local initiatives have achieved success, they have not fundamentally changed the national or global picture. In fact, according to the World Bank, global financial literacy levels are only improving at 0.5% per annum since 1985.

We need to do more if we are going to empower emerging societies to play an active role in socioeconomic development and benefit from financial tools and services.

iLearn overcomes all current known challenges by providing a physical and digital learning ecosystem that is connected with existing societal touchpoints (homes, schools and mobile money agents) to provide a truly innovative and fully-scalable solution for a national financial literacy initiative.

A further difference to iLearn is that scalability actually drives cost down as the more on-line users there are, the more quickly the investment in content and ecosystem operation is amortised.

The iLearn model, when integrated into a national financial literacy programme, will enable national governments to achieve 10 times more financial literacy improvement and 10 times less cost per child every year.

And finally, iLearn deployment follows a well-defined and pragmatic road-map. iLearn can be inserted into a national curriculum, providing an educational gateway through which every child in and out of school will pass. The ideal gateway positioning is the 10-13 year old age group. This systemic approach means that national governments will elevate financial literacy levels to over 90% in the space of one generation, preparing citizens for a more productive life and equipping them with the necessary skills to enjoy a better quality of life while contributing more to national socioeconomic development.

Q: Who are the principal stakeholders in a typical national financial literacy initiative and what motivates them?

RM: Actually, there are many of them and the list is long.

The government is a key stakeholder as it sets policies, provides funding, and coordinates efforts to promote financial literacy.

Banks, credit unions, and other financial institutions should aim to create a financially literate customer base that can use their products and services responsibly. Additionally, improved financial literacy can lead to reduced default rates and a healthier credit market.

Educational institutions also play a vital role in providing financial education to teachers, children, youth and their families. Their motivation lies in preparing the next generation to be financially capable, responsible, and equipped with the skills needed for personal financial management.

Non-governmental organisations and non-profits often focus on social impact and aim to empower individuals with financial knowledge and skills. Our motivation is to alleviate poverty, reduce economic inequality, and promote social welfare through financial literacy initiatives.

We should not forget about the private sector who benefits from a workforce that can manage their finances effectively, leading to reduced financial stress and increased productivity.

The regulatory bodies have an interest in ensuring that consumers are protected from fraudulent practices and that financial markets operate fairly and efficiently. Financial literacy can aid in consumer protection and market transparency.

Also, international organisations - entities like the World Bank, IMF, or regional development banks - may have an interest in supporting financial literacy initiatives in various countries as part of their development and poverty reduction goals.

Financial literacy can lead to improved personal financial management, responsible use of financial products, reduced financial risks, and enhanced economic stability and growth. By promoting financial literacy, stakeholders aim to achieve both individual and societal benefits, fostering a more financially resilient and prosperous nation. Their motivations should revolve around creating a financially educated and empowered population.

Q: How much will it cost to bring financial literacy educational resources to those who need it most and who will pay for it?

RM: It varies depending on the programme’s size and complexity. It includes curriculum development, training, technology, outreach, evaluation, and administrative expenses.

Funding sources typically involve governments, international NGOs, corporate sponsorship, international aid, public-private partnerships, and donations.

Sustainable initiatives require long-term commitment from multiple stakeholders, with governments playing a crucial role in coordination and promotion.

Q: And on a more human note, what will happen if we do not address financial literacy levels in emerging nations?

RM: Insufficient financial literacy in emerging nations can have dire consequences for individuals and the economy.

Financially illiterate people struggle with personal finances, investments, and savings, leading to reduced economic participation and growth

Persistent poverty traps individuals, as they lack knowledge about budgeting, saving, and investing. This can also result in increased debt, financial stress, and vulnerability.

Limited financial knowledge hinders access to essential services like credit and insurance, impacting retirement planning and burdening the government with supporting ageing populations. Moreover, it leads to inefficiencies in the financial markets and stifles entrepreneurship and innovation.

To tackle these issues, prioritising financial education programs is crucial. Collaborative efforts between governments, NGOs, financial institutions, and educational bodies can empower individuals with the necessary financial skills to make informed decisions, boost economic growth, and create more secure futures.

The iLearn Financial Literacy platform will be launched at the Global Social & Financial Skills Conference that will take place from 1-3 November, in Utrecht, Netherlands. You can find out more by contacting finlit@koenig-bauer.com.