It has long been understood that financial literacy and financial inclusion can increase household’s financial resilience. That is especially true in times of economic crises, such as that of the current Covid-19 pandemic. People with financial skills can better plan, save for retirement, and accumulate more wealth. Adept at modern financial technologies, like cards, apps and online payment facilities, they are also less likely to experience interruptions in basic services and in money flows, including income.
Given the vast importance of these skills, and their added value during a time of extreme stress, the IDB has made a concerted effort to measure financial literacy in parts of the region where information on it is scarce. This included a survey on financial literacy carried out in Barbados in May/June 2020 and more recently one in Suriname, which we describe, along with background in the following paragraphs.
The COVID-19 pandemic has exacerbated Suriname’s ongoing economic crisis. The pandemic arrived at a time when Suriname was already in a deep macroeconomic crisis characterized by twin deficits (fiscal and current account), high double-digit inflation, high debt levels, depleted international reserves, and banking sector vulnerabilities. The social distancing and travel restrictions imposed by the country to curb the spread of COVID-19 aggravated the precarious economic situation through job losses, business closures, loss of household income and other highly undesirable impacts, such as reported increases in domestic violence. As a result, the quality of life of Surinamese households is being negatively affected.
Financial literacy data gap in Suriname. To address the data gap on financial literacy in Suriname, the IDB included a financial literacy module as part of a nationally representative telephone survey in the country. The sample was drawn from the 2016/17 Suriname Survey of Living Conditions (SSLC), allowing us to explore the evolution of household’s characteristics across time. The survey was conducted from April 16 to July 5, 2020 and featured three financial literacy questions measuring the understanding of respondents on three fundamental financial concepts: 1) interest rates, 2) inflation, and 3) risk diversification. The financial literacy score is defined as the sum of correct answers (out of the 3 questions). Then, individual-level scores are averaged to obtain the financial literacy index which ranges between 0 and 3. The use of standardized questions that have been applied internationally enables comparisons of financial literacy performance across multiple countries.
Financial literacy in Suriname is relatively high at the national level, but there are differences amongst demographic groups. The results of the survey show that Suriname has relatively high levels of financial literacy by international standards. The financial literacy index for Suriname is 1.92 compared to 1.65 for Barbados and 1.73 for the United States (USA). Suriname had a higher percentage of people providing the correct answer on all three questions than those countries (Figure 1).
Figure 1. Percentage Who Answered Correctly by Question and Country
Even though Suriname’s financial literacy scores are high, there are significant differences among demographic groups. Poor and low-income households score below more advantaged counterparts (Figures 2 and 3). Those that work in the agricultural sector or are self-employed also score relatively low on the financial literacy index (Figure 4). Financial literacy levels are positively correlated with educational level (Figure 5), and individuals below retirement age have a higher financial literacy index score (1.98) than individuals 60 years old or older (1.79), particularly those 30 to 40 years old (1.99).
Figure 4. Financial Literacy Index Score by Work Sector
Figure 5. Financial Literacy Index Score by Education
There is a positive association between financial literacy and the usage of alternative payment methods. The use of alternative payment methods (cards, transfers, checks, apps, and online payment facilities) became increasingly important during the pandemic. Households and businesses with limited access to digital financial services face a higher risk of interruptions to basic services and essential money flows (wages, business sales, remittances, loan payments, government support, etc.). As shown in Table 1, households that have consistently used alternative payment methods are more likely to have a higher financial literacy index score. In addition, since the beginning of the curfew, 7% of households have begun to use alternative forms of payment. The active alternative payment user base, however, has not increased: 6% of households indicated they did not use these services between March and June, even though they had previously done so. Possible reasons include: (i) an announcement that commercial banks stopped using checks in August 2020; (ii) withdrawal and deposit limits imposed by commercial banks since March 2020; (iii) anecdotal evidence suggesting that due to the COVID-19 restrictions there was an uptick in economic activity at small businesses with limited access to alternative payments options; and (iv) lower levels of trust in the financial system that could have arisen due to governance-related issues in 2020.
The share of the population that continues to use cash as its sole payment method is still considerably high, at 49%. The slow increase in uptake may be related to a lack of access to financial services, especially for vulnerable groups such as small and micro enterprises, those in the informal sector, and poor and rural communities, as well as infrastructure and connectivity constraints. As shown in Table 2, the share of the population that continued to use non-cash payment methods in the Great Paramaribo area was 44%, compared to 23% in the non-Great Paramaribo area.
Table 1. Financial Literacy Index Score and Use of Alternative Payment Methods
Table 2. Share of the Population by Use of Alternative Payment Methods and Region
Targeting financial literacy initiatives to key demographic groups, addressing connectivity constraints and improving access to digital financial services can help improve financial resilience, especially for poor households. The IDB survey contributes significantly to the understanding of financial literacy in Suriname. The data allows us to better target efforts to deliver financial education as we can identify sections of the population that are still lagging. We observed a relatively slow increase in the uptake of digital payment methods during the pandemic. This may be related to a lack of access to digital financial services, gaps in banking and financial inclusion, and inadequate infrastructure as it relates to internet penetration and a reliable electricity supply in some geographic areas of the country. Furthermore, although Suriname is often described as a “cash economy” with a relatively large informal sector, authorities are engaged in ongoing efforts to improve financial education and financial technologies. Encouragingly, we observed that higher financial education is associated with greater use of alternative payment methods. The country should continue to accelerate efforts to improve financial education, targeted to vulnerable groups, and promote digital financial inclusion. This will be critical to building financial resilience and supporting an inclusive socioeconomic recovery for Surinamese households and businesses.