Financial literacy: why it matters

PORTFOLIO POINT: Eureka Report readers have already donated almost $20,000 towards a pioneering financial literacy project in the Philippines. With your additional help, we hope to reach our goal of $60,000.

On March 9, Eureka Report launched a campaign to raise $60,000 for a pioneering financial literacy project in the Philippines, in partnership with microfinance charity Opportunity International Australia (see Foundations of financial literacy).

Already, in less than a month, the response from readers has been overwhelming, with donations reaching almost $20,000. Not only are we a third of the way towards our goal of $60,000 by June 30, but the campaign has sparked widespread interest in the important work of Opportunity, which Eureka has supported for several years (if you would like to visit our campaign’s website, click here).

Rather than a handout, Opportunity offers a hand-up to more than one million people living in poverty in India, Indonesia and the Philippines. Through small loans, as well as other services such as savings accounts and micro-insurance products, Opportunity helps build sustainable and resilient economic change from the bottom-up. Empowering households and, in particular, women (over 90% of Opportunity’s supported clients are female), families are freed from usurious debt owed to loan sharks, new businesses are established, new skills are gained and the cycle of poverty is broken.

To complement these existing services, and with the support of Eureka readers, Opportunity is launching a pioneering financial literacy pilot program in the Philippines. Financial literacy and business skills are already taught across many locations where Opportunity’s partner microfinance institutions operate, but this project aims to provide a more scalable and targeted solution, using a series of interactive multimedia education modules that will be run by live trainers in a game-show format popular with Filipinos.

Alongside accompanying resources such a comic, comprised of the key learnings from the DVD-based presentational material, the game show’s host, 'Fast Eddie', teaches concepts such as the importance of savings, the use of interest rates, budgeting and so forth. It may seem a bit too fun for poverty alleviation, but it works. A similar project in Malawi, Southern Africa, resulted in 53% of participants developing a budget to track their spending, compared to just 6% of the control group. Rarely are such life-changing achievements made in international development work for such a small investment.

A better kind of Fast Eddie'¦

Source: Opportunity International Australia

The material, of which this campaign aims to fund the roll-out, also includes presentations from other Filipinos addressing the importance of financial literacy. Romulo’s story (the image below links through to a video) is particularly poignant. Having had no money saved for hospital bills or insurance for healthcare, his wife died when she became very ill. Without access to microfinance, the only way he could pay for her funeral was to borrow from local loan sharks and be further placed into ruinous debt.

Making your own safety net'¦

I spoke recently to Allan English, who may be familiar to Eureka readers as the chairman and founder of Silver Chef Limited (ASX:SIV). Silver Chef was featured in our Under the Radar column in October 2010 (click here), but it is a happy coincidence that Allan is also a big supporter of Opportunity’s work in microfinance and financial literacy, as is another name readers may be familiar with, Malcolm Broomhead, the former CEO of Orica (see James Kirby's interview here).

Allan English says it is the cost-effectiveness of things like financial literacy education and microfinance in alleviating poverty that most attracts him. “As a businessman, I like to see my donation money used very effectively.”

Microfinance and financial literacy is no cure-all, but it’s an important building-block, he says. “It’s also measurable in terms of impact.”

One way of measuring that impact is Opportunity’s 'Progress Out of Poverty Index’, a quantifiable score that can not only assess a program’s success, but aid in continual improvement.

Most of all, however, by lending money, the results can be most readily seen in the repayment rate on the loan books of Opportunity’s field partners and the economic impact that microfinance loans have on the wider community. As someone who understands business finance intimately, this is another thing that appeals to English, and I’m sure the generous readers who have donated money so far.

After all, in terms of return on your charitable or philanthropic investment, there are few better things around.

Readers can visit http://eurekareport.gofundraise.com.au to learn more and to donate. Donations over $2 are tax deductible.