Beware of debt, because it begins with worry and ends with war (Umar ibn Al Khattab)
We need to talk about finances.
The FinTech revolution paved the way for technology to solve age-old financial problems. From 24-hour challenger banks to high-tech digital verification products, the archaic boundaries of financial services are evolving to keep pace with the needs of the 21st century consumer.
And yet age-old problems still prevail. All the more so as we dive into one of the ghosts of the old world of finance: debt at interest rates.
We live in an age where our entire lives and aspirations are tied to debt, whether through the homes we live in, the cars we drive, and, increasingly, the everyday items that we live in. we buy. This situation has been exacerbated by the rise of ‘Buy Now, Pay Later’ and other subscription models, which have recently emerged. dominated the headlines. The promise of interest-free payment plans has led a generation of consumers to adopt unsustainable spending habits based on financial products that are largely unregulated.
Money worries and mental health
This has enormous implications for mental well-being that cannot be ignored. Recent research from the Institute for Monetary Policy and Mental Health suggests that consumers with mental health issues are more likely to use credit offered by retailers. Other data from the UK’s Citizen’s Advice Bureau suggests buyers were billed Â£ 39million in late fees over the past year. Of those who were referred to a debt collector for missed payment, 96% experienced negative consequences, including sleepless nights; borrow money to pay off their debt and suffer from their rapidly deteriorating mental health.
The ramifications of this financial pipeline negatively impact attempts to build a financially inclusive society. Financial well-being and quality of life are often linked to security and understanding finances. Primary education in the various financial products available to consumers is crucial to ensure that consumer mental health is prioritized beyond profit margins which can be lucrative for financial services companies and the new wave of FinTech innovators.
The debt cycle
Many consumers are increasingly trapped in a cycle of debt that impacts their daily lives and further entrench them under the ramifications of bad credit decisions. A recent International Adult Financial Literacy Survey suggests that financial literacy in OECD countries is lower than expected. This has enormous implications for working populations, with a growing number of employers realizing that a lack of adequate financial security is linked to stress at work.
Young people are also disproportionately affected by this crisis, with recent financial products anchoring the burden of stress and enormous financial responsibility on a generation ill-equipped to handle any disruption to their monthly wages.
As we mark World Mental Health Day this year, we need to highlight the need for financial literacy and the role FIs need to play in helping clients make informed decisions about their finances. This includes an uncomfortable conversation about credit and creating space within the FinTech space to unlearn some of the most exploitative tactics of the old world of finance.
Financial literacy is essential
Education and mediation should be a key objective (for financial institutions and policy makers) to ensure that the next generation is not trapped in an unhealthy relationship with finance and prioritizes their mental well-being when these not-so-average purchases. A lack of understanding of the traditional financial system leads to a cycle of indebtedness that will leave millions of people around the world behind and further reinforce inequalities and mental deterioration for many.
There are signs that the dialogue is evolving – there are programs and tools such as Redstart and MoneyHelper that opened the door for the next generation to critically examine financial literacy. Nonetheless, more steps need to be taken to improve the system. Total debt exceeds total assets globally – telling you that you can’t really break the debt cycle completely, and those most affected are those most in need of mercy and kindness in the world. the society.
Aspiration should not mean that victims of debt cycles should be grossly excluded from the formal financial system. Instead, the financial industry as a whole should take an integrated approach to literacy in order to create a positive social and mental impact on the society it serves. This not only ensures that new innovations are brilliant technical solutions for consumers, but also long-term mental well-being.
About the author: Umer Suleman is UK Managing Director of the ethical financial platform Wahed. He has over 10 years of experience and a qualified governance, risk and compliance professional with a global mission.