Resetting financial education in Ghana: A call for enhanced financial and investment education amid economic turbulence

Introduction

In recent months, Ghana’s economic landscape has been marred by significant financial challenges, most notably the government’s failure to meet its treasury bill (T-bill) targets for two consecu­tive months. Between July and Au­gust 2024, the government missed its target by GH¢991.61 million, securing only GH¢4.094 billion against a target of GH¢5.088 billion. This shortfall is not just a reflection of tight liquidity in the money market; it also highlights a deeper issue and a critical gap in financial and investment education across all levels of society.

The COVID-19 pandemic, which severely impacted global and local economies, has further underscored the need for robust financial literacy and education. In a world where economic condi­tions can change rapidly, the ability to understand, adapt, and make in­formed financial decisions is more important than ever. This feature calls on educational institutions, businesses, corporations, and gov­ernment bodies to prioritise and enhance financial and investment education to build a more resilient and informed Ghana.

The status of financial educa­tion in Ghana

The status of financial education in Ghana remains underdeveloped, with significant gaps in knowl­edge and awareness across the population. A 2022 survey by the World Bank revealed that only 34 per cent of Ghanaians possessed basic financial literacy, highlighting a critical need for improvement. This lack of financial education is evident in the low levels of investment diversification and risk management among individuals and businesses, as demonstrated during economic downturns like the 2014 currency crisis and the financial strains exacerbated by the COVID-19 pandemic. Despite efforts by financial institutions and NGOs to promote financial liter­acy, such as the Bank of Ghana’s financial literacy week launched in 2021, the impact has been lim­ited, with large segments of the population still relying heavily on informal financial practices. This situation underscores the urgent need for comprehensive financial education initiatives to be integrat­ed into the national curriculum and made accessible to all citizens.

Understanding the funda­mentals: Why financial and investment education matters

Financial and investment educa­tion forms the backbone of sound economic decision-making. It is the key to understanding personal finance, investment options, risk management, and the broader fi­nancial markets. For Ghana, where T-bill rates are closely watched indicators of economic health, the recent shortfalls raise critical ques­tions about the financial literacy of various stakeholders.

In the first half of 2024, the government issued short-term securities with a 91-day bill yielding approximately 30.05% and a 182- day bill yielding 31.15%. Despite these competitive rates, tight liquidity in the market resulted in an under-subscription, with only GH¢2.532 billion raised for the 91-day bill and GH¢1.357 billion for the 182-day bill. This situation highlights the need for a deeper understanding of financial markets, especially during periods of eco­nomic instability.

What should be understood differently?

1. Individuals: For individual investors, the shortfall in T-bill uptake underscores the importance of financial literacy and diversifica­tion. Relying solely on government securities is no longer sufficient, especially in a volatile market. Historical data, such as the per­formance of diversified portfolios during past economic downturns, demonstrates the benefits of spreading investments across var­ious asset classes. Understanding risk tolerance and asset allocation is crucial for individuals looking to secure their financial futures.

2. Businesses and Corporations: Businesses and corporations must prioritise strategic financial man­agement, especially in the wake of the COVID-19 pandemic, which led to a 2.1 per cent contraction in Ghana’s GDP in 2020. The pandemic highlighted the need for businesses to be prepared for eco­nomic shocks. Financial education for management teams is essential to ensure informed decision-mak­ing, particularly in areas like cash flow management, investment in growth sectors, and risk mitigation.

3. Regulators: For regulators like the Bank of Ghana, the recent T-bill shortfalls highlight the need for stronger financial oversight and communication. Since the Central Bank’s reforms began in 2017 to stabilise the financial sector, progress has been made, but the challenges persist. Regulators must enhance transparency in financial markets and ensure that financial institutions are resilient enough to withstand economic shocks. Additionally, promoting financial literacy among the general popula­tion is essential to foster a culture of informed decision-making.

4. Government: The Ghanaian government, with a projected budget deficit of 7.5 per cent of GDP in 2024, must reconsider its borrowing strategies. The reli­ance on short-term securities has proven risky in a tight liquidity environment. Since the onset of the COVID-19 pandemic, Ghana’s debt-to-GDP ratio has increased from 62.8 per cent in 2019 to over 80 per cent in 2024, emphasizing the need for fiscal discipline and innovative financing solutions. Diversifying funding sources and enhancing financial management practices are crucial steps towards stabilising the economy.

What can be done differently?

1. Promoting Financial Literacy: A nationwide campaign to enhance financial literacy is urgently need­ed. A 2022 World Bank survey revealed that only 34 per cent of Ghanaians had basic financial liter­acy. Educational institutions, from primary schools to universities, should incorporate financial edu­cation into their curricula, ensuring that students are equipped with the knowledge to make informed financial decisions. Additionally, businesses and corporations should offer financial education programs to their workforce, empowering employees to manage their financ­es effectively and contribute to the overall financial stability of the nation.

2. Encouraging Diversification: Both individuals and businesses should be encouraged to diversify their investments. During econom­ic downturns, such as the 2014 currency crisis, diversified portfo­lios proved to be more resilient. Financial advisors and institutions should actively promote the ben­efits of diversification, helping in­vestors understand the importance of spreading risk across different asset classes.

3. Enhancing Financial Regula­tions: The Bank of Ghana must continue to strengthen financial regulations, ensuring that finan­cial institutions remain stable and transparent. Regular stress testing and stringent capital requirements are essential to safeguarding the financial system. Additionally, improved communication between regulators and market participants will help build confidence and en­able more informed decision-mak­ing.

4. Government Policy Adjust­ments: The government must diversify its borrowing strategies to reduce reliance on short-term securities. The missed T-bill targets reflect the need for fiscal reforms, including measures to reduce the budget deficit and improve reve­nue collection. In light of the $1 billion World Bank disbursement planned for 2024 to stabilize the economy, the government must adopt sound financial management practices to ensure long-term sustainability.

5. Learning from COVID-19: The economic impact of COVID-19, which saw a 1.9% contraction in global GDP in 2020, serves as a stark reminder of the need for preparedness. Individuals and businesses should build emer­gency savings, invest in resilient sectors, and create contingency plans for future economic shocks. The government should also prioritize economic diversification to reduce dependence on volatile sectors.

Conclusion

The recent challenges in Ghana’s money market, marked by missed T-bill targets and tight liquidity, underscore the urgent need for enhanced financial and investment education. As the nation continues to navigate the economic after­shocks of the COVID-19 pandem­ic and other global uncertainties, all stakeholders including individuals, businesses, regulators, and the gov­ernment must take proactive steps to strengthen financial literacy.

Educational institutions at all levels must integrate financial edu­cation into their curricula, equip­ping students with the knowledge and skills necessary to navigate a complex financial world. Busi­nesses and corporations should invest in the financial education of their workforce, ensuring that employees are financially literate and capable of contributing to the economic resilience of their organisations.

By understanding the funda­mentals of financial management, promoting diversification, and implementing strategic changes, Ghana can overcome its current economic challenges and build a more stable and prosperous future. The lessons of the past, combined with a commitment to continuous learning and adaptation, will be key to shaping a resilient and thriving financial ecosystem in Ghana.

BY PROF. SAMUEL LARTEY