It's time to think beyond financial wellbeing when focussing on financial literacy. It an serve across multiple levels in an individual's holistic wellbeing. Image Credit: Shutterstock

A rose by any other name smells as sweet - so should sustainability.

The fact the UAE will host the COP28 climate summit later this year has fixed a spotlight on the issue of sustainability in all its forms – environmental, economic and social. And while the first two get the major share of the attention, it’s worthwhile taking a closer look at the third dimension – social sustainability.

According to the World Bank, social sustainability involves creating more inclusive societies, enhancing the empowerment of citizens, and fostering more resilient communities. Financial literacy has an indisputable role to play in all of these aspects.

Few things empower individuals more than understanding how money works and how they can use this knowledge to ensure a financially secure future for themselves and their families.

Yet, a third of the global population lacks this knowledge, and many live paycheck to paycheck, steeped in debt, and unprepared for retirement. These individuals are less likely to save, more likely to make impulsive purchases, and max out their credit cards. The consequences are not limited to the individual or their family, but they also affect communities and the nation at large.

Financial inclusion

Financial literacy is an important tool in ensuring and promoting financial inclusion. It can help individuals navigate the financial system and access financial services, and in making better financial decisions that can lead to improved financial outcomes, such as higher savings, lower debt and greater wealth accumulation.

It can also help them avoid financial pitfalls, such as high-interest debt and fraudulent financial products. A study published in the ‘Journal of Financial Planning’ found that individuals who were more financially literate were less likely to engage in risky financial behavior.

There is also evidence to suggest that financial literacy can have a positive impact of economic growth. A study by the World Bank found countries with higher levels of financial literacy had higher levels of saving, investment and economic growth.

Mental well-being

As heartening as this is, there’s more to building sustainable societies than just promoting financial wellbeing and economic growth. There’s the crucial aspect of mental wellbeing to consider. However, financial literacy initiatives can also deliver on this front.

Research shows financial stress is associated with increased risk of mental health problems, including depression, anxiety and substance abuse. A study published in the ‘Journal of Family and Economic Issues’ found that financial insecurity was associated with increased levels of psychological distress and lower levels of life satisfaction.

Financial literacy initiatives can help improve mental health outcomes by reducing financial stress and promoting financial well-being. ‘The Journal of Consumer Affairs’ found that individuals who experienced improvements in financial wellbeing also experienced improvements in mental health outcomes, including reduced stress and improved quality of life.

While the link between financial literary and mental health is more commonly studied, it’s a small leap of logic from here to see how this impacts physical well-being. Financial stress has a detrimental effect on an individual’s health, causing headaches, backaches and digestive problems, among others.

Empowering individuals with the financial education that helps them make financially sound decisions directly combats the source of stress and seems like an easy win.

A clarion call

The immense positive outcomes of inclusiveness, empowerment and resilience are a result of financial literacy initiatives, underscoring the inseparable link between financial literacy and social sustainability.

It’s time to take action, to collaborate, advocate for and invest in a nationwide financial literacy initiative. This issue cannot be solved by a single financial app or a gamified quiz. It will require funding, a well-planned strategy, and a team of experts with relevant experience, devoid of bias to any financial product.

This scope of the financial literacy problem is too big for any single entity to handle necessitating a collaborative, multi-stakeholder strategy. Educational institutions, educational authorities, government bodies, financial institutions and other corporate entities should be included.

This multi-pronged strategy will ensure a standardized, scalable approach that drives social sustainability.