Financial literacy is necessary, but it is not sufficient on its own

KAMPALA, June 16, 2026 — For decades, financial literacy has been viewed as the answer to financial exclusion. The assumption has been simple: if people understand financial products, they will naturally use them.

Yet experience in Uganda suggests otherwise.

Over the last decade, access to formal financial services has improved significantly. According to Uganda’s National Financial Inclusion Strategy 2023–2028, formal financial access reached 66%, up from 28% in 2009. However, 34% of adults remain formally excluded, and many who have access to financial services do not actively use them.

This highlights an important reality: financial knowledge alone does not automatically translate into financial action.

People make financial decisions based on trust, convenience, accessibility, affordability, and personal experience, not simply on what they know.

This is where the conversation around financial literacy must evolve.

Traditional financial education programs often focus on classroom teaching and awareness campaigns. While these are important, they do not always address the everyday realities that influence people’s behaviour.

In Uganda, many adults save, borrow, and insure themselves informally. In fact, about 75% of adults borrowed money in 2021, yet only 18% borrowed from formal financial institutions. Many continue to rely on family members, friends, savings groups, SACCOs, and informal lenders. Similarly, millions of Ugandans prefer informal savings mechanisms because they are familiar, trusted, and easier to access.

The challenge, therefore, is not simply whether people understand financial products. The bigger question is whether they are confident and motivated enough to use them.

Financial literacy programmes need to become more practical and experiential.

People need support in managing real-life situations:

• Saving for school fees.
• Managing small businesses.
• Preparing for emergencies.
• Using digital financial services safely.
• Understanding borrowing costs.
• Avoiding fraud and scams.
• Planning for retirement.
• Building financial resilience.

Equally important is cultural relevance.

Programmes delivered in local languages, through trusted community channels such as churches, farmer groups, SACCOs, VSLAs, and community associations, are more likely to influence behaviour than generic classroom, hotel presentations.

Financial education must be embedded in the realities of the people it intends to serve.

At the same time, the rapid growth of digital financial services is changing the meaning of financial capability.

Today, being financially literate is no longer enough.

People must also understand digital payments, cybersecurity, fraud prevention, and responsible use of technology.

Recent developments in Uganda’s payment ecosystem demonstrate this shift.

According to Bank of Uganda, electronic credit transfers have become the dominant mode of transactions, with transaction volumes increasing from 87.71% in Financial Year 2017/18 to 93.53% in Financial Year 2025/26. Similarly, the value of electronic credit transfers increased from 79.33% to 93.00% during the same period.

Mobile money payments have continued to grow, averaging 25% of transactions annually since Financial Year 2020/21. These trends indicate increasing consumer trust and preference for digital channels.

Bank of Uganda’s planned introduction of over-the-counter cash withdrawal limits from January 2027 further reinforces the country’s transition towards a digital economy and highlights the importance of equipping consumers with digital financial capabilities.

This means financial literacy programs must now incorporate:

• Digital confidence.
• Cybersecurity awareness.
• Consumer protection.
• Fraud prevention.
• Responsible digital borrowing.
• Understanding electronic payments.

Success should also be measured differently.

Attendance numbers tell us very little.

The real indicators of success are:

• Higher savings rates.
• Improved financial resilience.
• Increased use of formal financial services.
• Better borrowing decisions.
• Greater trust in financial institutions.
• Increased digital adoption.
• Stronger household financial security.

Interestingly, evidence from other African markets suggests that institutions that combine education with affordable products, customer-centric solutions, digital channels, and continuous engagement achieve better outcomes than those that focus on awareness campaigns alone.

Consumer education is most effective when accompanied by accessible and affordable solutions.

Financial literacy is necessary, but it is not sufficient on its own.

One encouraging development is that some financial institutions are beginning to move beyond traditional financial literacy approaches.

For example, institutions such as UGAFODE Microfinance are increasingly combining financial education with customer-centric products, digital channels, group-based approaches, and community engagement to ensure that financial knowledge translates into practical outcomes.

By bringing services closer to underserved communities, supporting women, youth, refugees, and small businesses, and embedding financial literacy into people’s everyday realities, such approaches demonstrate that meaningful financial inclusion is achieved not merely by teaching people about money, but by empowering them to confidently use financial services to improve their lives.

Sustainable financial inclusion happens when education is combined with trust, accessible products, strong customer experience, digital capability, and continuous engagement.

Ultimately, the institutions that will lead in this space are not those that simply teach financial concepts, but those that enable people to make better financial decisions in their everyday lives.

Perhaps the future of financial inclusion lies not in asking, “How much do people know?” but rather, “What can we do to help people act on what they know?”

What has been your experience?

In your view, what is the one thing we should do differently to close the gap between financial knowledge and financial action?

SOURCE:  https://www.linkedin.com/pulse/financial-literacy-necessary-sufficient-its-own-ugafodemicrofinance-exnlf/

The writer, Jonathan Mugalu is the Executive Director UGAFODE Microfinance

https://thecooperator.news/kapchorwa-sacco-and-school-partner-to-boost-students-financial-literacy/

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