The Costs of Poor Financial Literacy

Post pandemic, business entities in the capital, beginning from garment shops to restaurant owners and others see very few customers, compared to the pre-pandemic days.

While some say that this could be due to less income generated or the probable loss of job, several connect this with indebtedness wherein people are paying off their debts to money lenders, financial institutions, amongst others.

While this may be the case, a financial expert based in Thimphu says that indebtedness is directly linked to the lack of saving culture and poor financial literacy.

“Indebtedness is caused because the person didn’t save. To save, one needs certain kind of incentives and one should know why they want or have to save. People usually want to save for health purpose, education purpose but then it is free in Bhutan, so that means you do not have any incentives to save,” the expert said. 

He also opined that people have poor grasp over personal finance and that people definitely fail to distinguish what is want and need. “If a person spends 60% of his earnings on needs like house rents, essential good, amongst others then the person can save 20% and remaining 20% on other miscellaneous expenses. But with poor personal finance management, it will be difficult to cultivate such habits that would help one during the unforeseen circumstances,” he added.

Underlining the importance to educate the people on financial literacy, he said that people need to be engaged in education programs on financial literacy.

“Financial literacy is a life skill where ultimately in any profession, in the end it is all about how you monetize yourself and if you don’t know how to monetize money then that means the person is failing somewhere and it is where they need financial literacy,” he added.

He also mentioned that it is important to cultivate the culture of saving as saving is the only fund which will help during unforeseen circumstances such as covid-19 pandemic, funerals, retirement, amongst others.

“Why do the people need to save? It is because you will need to add productive values to your savings. In Bhutan you need the savings for retirement as one day how comfortably you want to retire will depend upon how you save and invest just now and that is how it is a life skill and it is very important,” the expert said.

In addition, the expert said that savings can be used during emergencies where the person will not have to worry and borrow from the money lenders putting one into tension and worries.

He noted that the habit of saving should be cultivated and people should know how important financial literacy is as even developed nations have realized the importance and now are incorporating it within the main stream curricula.

“With financial literacy, people will not be a responsible person but become a financially disciplined person,” the expert said.

While this may be the reasons, people in small businesses are affected. A garment shopkeeper in the capital said that unlike before, customers have reduced drastically. “Some days, I have to close the shop and do other business to just fetch the shop rent,” he said.

Similarly, a cafe owner said that she has lost many customers as compared to years before the pandemic. “I don’t know the reasons for this drastic reduction of customers in my café but what my instinct says is that the people have shortened their leisure time as my regular customers visit only once or twice in a month.”

Sonam, a resident in Thimphu, who also worked as a guide agrees that financial literacy and a saving culture is required. “I never used to save as I always knew that more guests were coming and that I would be able to make up,” he said, adding that when the pandemic struck, he had nothing. “I realized how important it is to save,” he said.

Likewise, Tashi Wangdi a corporate employee said that due to the pandemic, his little savings were all used and that he has now begun to double his savings. “From the pandemic, I have learned that it is very important to have some savings with you or else nobody is there to help you financially when you need the most.” Tashialso shared that this is a reason why he has literally cut down on spending on things which are unnecessary.

Sherab Dorji from Thimphu