Financial literacy in credit institutions

Abstract

The global financial crisis of 2007, triggered by the failure of risky mortgage loans, drew governments' attention to the need for improving their citizens' financial literacy. This growing concern stems from increased individual responsibility, driven by factors such as longer life expectancy, rising education costs, and reductions in social benefits. Additionally, there has been a significant expansion in the supply and demand of financial products and services.

Financial literacy, especially among bank customers, plays a pivotal role in shaping the behavior of bank directors. It influences the mechanisms for provisioning loan losses and opportunistic actions. Clients with strong financial literacy represents more stable sources of funding and contribute to more predictable loan loss provisions, thus fostering more consistent bank revenues. Furthermore, financial literacy enhances clients' ability to monitor banking performance and assess risk-taking, reducing the opportunities for opportunistic profit manipulation by bank directors.

This article serves as a theoretical synthesis aiming to provide a comprehensive perspective on key concepts while shedding new light on the understanding of financial literacy among clients of the Banque Populaire and the financial support extended to small and medium-sized enterprises. In addition to offering financial advice, banks should actively engage in community initiatives aimed at bolstering the financial literacy of their clients. This commitment significantly impacts the enhancement of citizens' financial skills, leading to a better understanding of financial issues and an accumulated stability in the banking sector. Ultimately, the financial literacy of client’s benefits society as a whole.

Keywords: Financial Literacy; Performance; Financial Sector; Debt Management; Investment.

Classification JEL: G53

Paper type: Theoretical Research