Money under the mattress does not work!
Like fuel for a car. If a canister of gasoline lies somewhere in the garage, and does not power the engine, then there is little sense from such fuel. Moreover, there is a risk of leakage, fire, etc. So is the money stored under the mattress: not only useless, but also detrimental to the economy. Let’s figure out why.
Financial inclusion – accessibility for everyone and everyone of basic financial services, such as a bank account, online payment, mobile wallets, deposits and loans, participation in investment funds and transfer of funds for management, money transfers, etc. It is on financial inclusion that the World Bank places great hopes in the fight against extreme poverty and as a source of economic development. The National Bank of Ukraine also announced its intention to develop financial inclusion in the Ukrainian market in order to stimulate economic growth and reduce social inequality. However, it is fundamentally wrong to rely solely on the state in this matter. The role of non-state companies, private investment funds, management companies is very important – from informing to providing innovative financial products.
How does access to a wide range of financial products and services affect economic growth?
The most traditional entry point for a person into the formal financial sector can be considered the opening of a bank account. This is the most common way. But even according to this indicator, Ukraine still has room to develop. According to the World Bank data on the global state of financial inclusion (Global Findex), by 2017, 95% of the adult population opened accounts in the eurozone, while in Estonia and Latvia this figure even aspired to 100%. In Ukraine, only 65% of the adult population had accounts in financial institutions by 2017. This means that more than a third of the population of Ukraine are outside the global financial system in principle. What can we say about the practice of using more advanced non-banking financial products. The percentage of citizens who are aware of the possibilities of obtaining passive income is very small. Few people know about the existence of individual financial management companies and use a wide range of their tools. In fact, the vast majority of Ukrainians receive less part of their income every month.
There are several reasons for this.
All adults have long been convinced that money lying quietly in a safe place does not work and does not benefit its owner. Inflation is slowly and inexorably eating away at their purchasing power like rust. Money must work, be in circulation – this is the only way to save their value and get benefits. But why do people continue to keep money in cabinets, books, safes and even drains – anywhere but to open deposits or invest?
One of the reasons is simple ignorance. And we, for our part, carry out the practice of increasing information literacy.
In addition, a serious obstacle is the objective lack of confidence among the population in state financial institutions. Ukrainians also have doubts about commercial banks, which is mainly due to the recent banking crisis and the closure of a number of institutions.
According to Global Findex research conducted by the World Bank in 2017, about 30% of respondents in Europe and Central Asia (ECA) do not open accounts with financial institutions due to a lack of confidence in banks. At the same time, in Ukraine this figure was 50%. This means that every second adult Ukrainian is afraid to keep his funds in bank accounts.
Without the formation of such trust, it is impossible to force people to get money from under their mattresses and use even the most advanced financial instruments. Since the financial sector is similar to all other sectors of the economy, the presence of the state in it is more bad than good. If you take a look at the period of Ukraine’s independence, you can see that state intervention in any sector of the economy brought negative rather than positive results more often. The state, by and large, should create the rules and act as a regulator, not a player. Business should manage money – management companies that know how to create real profits.
The reasons for the unpopularity of financial products in our country could be attributed to the low level of income of the population. But by and large, this reason is often false. First, financial inclusion itself is one of the tools to combat poverty. Secondly, most financial products are available to almost any citizen of our country. You can start making money on capital management even with a symbolic amount of UAH 100, 500 or 1000. In addition, there are a million ways to save money and start investing for your own benefit. For example, quit smoking or drink one less latte. It may sound unrealistic, but the systems approach that all financial advisors talk about works.
