Financial education is an essential component for the economic and social development of nations. In an increasingly interconnected world, understanding how personal finances and markets operate is an indispensable skill for individuals and economies alike. However, in countries like Colombia, the lack of financial education negatively impacts financial inclusion, investment, and economic growth. From a liberal perspective, this issue can be analyzed through the principles of authors like Leonard Read, Friedrich Hayek, and Milton Friedman, who emphasize the importance of individual choice and free markets as engines of progress.
Financial Education: A Tool for Economic Freedom
Leonard Read, in his iconic work I, Pencil, illustrates how markets enable cooperation among millions of people, even without direct interaction, to produce complex goods and services.
Similarly, financial education equips individuals to understand this system, empowering them to participate more effectively in the economy. Without basic knowledge of concepts such as compound interest, savings and investment, people cannot make informed decisions to maximize their well-being. The lack of financial education not only limits individual potential but also restricts markets’ capacity to generate wealth and growth.
Friedrich Hayek contributes to this discussion with his concept of “dispersed knowledge.” According to Hayek, knowledge does not reside in a central authority but is fragmented across society. Financial education, therefore, should not be viewed as a set of top-down rules but as a means for individuals to acquire the tools needed to interpret and use the knowledge available in markets. A financially educated citizen can act autonomously, making decisions that not only enhance their personal well-being but also contribute to market dynamism.
The Impact of Financial Education Deficiency in Colombia
According to the World Bank, approximately 2.5 billion people worldwide do not use formal financial services, and 75% of the poor do not have a bank account. Inclusion is key to reducing poverty and fostering prosperity. In Colombia, access to the financial system remains limited. According to data from Banca de las Oportunidades, in 2023, 15% of the adult population still lacked access to basic financial services such as savings accounts. Moreover, many individuals who access credit are unaware of how to manage their debts, leading to over-indebtedness problems. This not only affects families but also creates inefficiencies in the financial system and limits economic growth.
Milton Friedman, in Capitalism and Freedom, notes that a market-based economic system depends on individuals making rational decisions. Without financial education, this rationality is compromised, affecting both consumption and investment. In this context, financial education should be seen as a strategic investment to empower citizens and strengthen the national economy.
Financial Education and Investment: A Virtuous Circle
Financial education not only fosters saving but also promotes investment, a fundamental pillar of economic development. Hayek argued that savings and investment are essential for capital accumulation and innovation. In Colombia’s case, improving financial education would allow more people to participate in the stock market, invest in ventures, and generate employment.
Moreover, in a global context where technological innovation and the digital economy are redefining markets, financial education enables citizens to seize opportunities in areas such as crypto assets, crowdfunding, and e-commerce. These tools can serve as catalysts for Colombia to diversify its economy and reduce dependence on traditional sectors such as extractive industries.
Financial education is more than a practical tool; it is a pathway to ensuring economic freedom and social progress. As Leonard Read emphasizes, every economic choice we make is interconnected with millions of others’ decisions. For these choices to yield the best outcomes, citizens must be empowered with the necessary knowledge.
Colombia, and the world, face the challenge and opportunity of strengthening their populations’ financial education. This effort will not only drive economic development but also help build freer societies where individuals can fully enjoy the fruits of their labor and creativity. Ultimately, financial education is not just a matter of individual well-being but a driver for sustainable growth and shared prosperity.
Omar Camilo Hernández Mercado is a law student at the Universidad Libre de Colombia, Senior coordinator of Students for Liberty in Colombia, and a seminarist in “The Austrian School of Economics” at the International Bases Foundation.
READER COMMENTS
Ahmed Fares
Jan 18 2025 at 8:37pm
Collective thrift is a bad thing, not a good thing. This from Keynes (I left out the middle part after the ellipsis to keep the comment short):
Thomas L Hutcheson
Jan 18 2025 at 8:52pm
And why doesn’t the central bank use monetary policy to stimulate investment to use the additional savings from the campaign? It was bad enough for the US Fed to case the Depression, Hitler, and WW2, but here the central bank inaction woud be genocide!
Keynes had a _really_ low opinion of central bankers!
Omar Hernandez
Jan 18 2025 at 11:36pm
Thank you for sharing this illustrative example from Keynes’ A Treatise on Money. While the scenario you describe sheds light on potential economic imbalances, it also reflects Keynes’ broader framework, which often justifies state intervention as a corrective mechanism. From a free-market perspective, however, such a scenario might be better addressed by emphasizing the natural corrective forces of a decentralized market and the importance of individual agency and innovation.
In the “banana economy,” the imbalance described would not necessarily lead to the dire outcomes Keynes suggests. Instead, entrepreneurial ingenuity and the adaptability of market participants could create opportunities to diversify production, innovate storage methods, or trade with neighboring communities. These solutions would emerge organically, driven by the incentives and creativity of individuals acting in their self-interest—an insight central to the work of Mises, Hayek, and other Austrian economists.
Financial education plays a crucial role in fostering this entrepreneurial spirit and equipping individuals to navigate such challenges. By empowering people to understand market dynamics, identify investment opportunities, and innovate within a competitive framework, financial literacy strengthens the market’s capacity to adapt and thrive without requiring external intervention.
Thank you again for your comment—it highlights the value of discussing these issues through the lens of market-driven solutions and the principles of economic freedom.
Daniel Sierra
Jan 18 2025 at 11:41pm
This article presents an interesting perspective on how financial education can drive economic development. I would like to raise a question: What role do you think financial education plays in reducing economic inequalities within a free market system? Additionally, how can we ensure that this education is accessible to the most vulnerable populations without resorting to interventionist measures that might distort market incentives?
Omar Hernandez
Jan 19 2025 at 5:37pm
Thank you, Daniel, for your excellent question! Financial education plays a crucial role in reducing economic inequalities in a free market. By equipping individuals with tools to make informed decisions about saving, investing, and entrepreneurship, financial education levels the playing field, enabling people from diverse backgrounds to access economic opportunities.
Regarding accessibility for vulnerable populations, a market-driven approach can be highly effective. For example, public-private partnerships or private sector initiatives can offer financial education programs in underserved communities without relying on state interventions that constrain economic freedom. Moreover, technological innovations, such as low-cost mobile apps and online educational platforms, have democratized access to financial knowledge, allowing more individuals to benefit from these resources without distorting market incentives.
John R. Samborski
Jan 19 2025 at 1:01pm
How about educating politicians so that they will stop racking up government debt?
Omar Hernandez
Jan 19 2025 at 3:00pm
Thank you, John, for raising such a critical point! Educating politicians about the long-term consequences of excessive government debt is indeed vital. A lack of understanding—or disregard—for sound economic principles often leads to policies that prioritize short-term gains over sustainable growth.
From a free-market perspective, the root of the issue lies in the incentives politicians face. Governments frequently rely on debt to fund popular programs, appealing to voters without considering the economic burden placed on future generations. Financial education, coupled with a greater emphasis on fiscal responsibility, could help policymakers understand the importance of reducing debt and fostering an environment where private initiative and market solutions thrive.
Additionally, empowering citizens with financial education can indirectly address this issue. An economically literate electorate is better equipped to demand accountability and push for policies that promote long-term prosperity instead of unsustainable spending.
Nathalie Segrera
Jan 19 2025 at 3:09pm
This article offers a compelling perspective on the vital role financial education plays in fostering economic growth and reducing dependency on unsustainable state intervention. As someone passionate about free-market solutions, I couldn’t agree more that empowering individuals with the tools to understand and navigate the financial system can lead to a more prosperous and self-reliant society.
One aspect I’d love to see explored further is how financial education initiatives could specifically target younger generations. Given the increasingly complex financial landscape—cryptocurrencies, decentralized finance, and global markets—how can we ensure that future generations are well-equipped to make informed economic decisions?
Looking forward to hearing your thoughts!
Omar Hernandez
Jan 19 2025 at 5:39pm
Thank you for your thoughtful comment, Nathalie! I completely agree that targeting younger generations is crucial for ensuring long-term economic stability and individual empowerment. Financial education programs designed for youth can have a transformative impact, equipping them early on with the tools to understand complex financial concepts like cryptocurrencies, decentralized finance, and global markets.
One effective strategy is to integrate financial literacy into school curriculums, focusing on practical skills such as budgeting, saving, investing, and understanding the risks and opportunities of emerging financial technologies. Additionally, leveraging digital tools and gamified learning experiences can make these lessons more engaging and accessible to younger audiences.
By fostering a culture of financial responsibility and self-reliance from an early age, we can help ensure that future generations are better prepared to navigate an ever-evolving economic landscape. Thank you for raising this important point!
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