Financial Literacy & Community Resilience

  • What is financial literacy?

  • Why is it important for community resilience?

  • 3 financial tools for financial resilience.

Financial literacy is the “cognitive understanding of financial components and skills, such as budgeting, investing, borrowing, taxation, and personal financial management”1. In Canada financial literacy among many Indigenous peoples is greatly impacted by financial wellness due to social and institutional structures, and limited access to banks in Indigenous communities. Reduced access to banks is coupled with limited online banking knowledge/savviness or simply preferring in-person banking; which further decreases financial literacy among Indigenous people2. The social and political systems that create reduced access to financial literacy education are significantly impacting resiliency in Indigenous communities. Indigenous communities’ ability to adapt and bounce back is tremendous, however, the persistence and strength of the disturbance are what truly inform the pace of resiliency. Financial literacy and wellness are key pillars impacting Indigenous communities’ resilience due to their necessity in everyday life and monetarily supporting a team and relevant infrastructure needed to be resilient.  

 

The impacts of climate change are one multi-variable example where financial literacy and wellness are critical. As the impacts of climate change accelerate via increased floods, fires, droughts, and storms, so do the cost of damages and community aid - directly affecting local finances. Additionally, investments in preventative infrastructure are an imperative adaptation tool to protect communities and increase resiliency. However, to do so requires financial literacy and wellness to pursue these solutions. Whether the financial needs come from hiring a team, building the infrastructure (human or natural), creating a budget, applying for grants, investing, or even more likely, all of the above.  

 

The first step is to make sure you understand the basics of financial management through the basic principles of budgeting, investing, borrowing, taxation, and personal financial management. To gain a better understanding of these we recommend:  

But for those of you who are familiar with the above (those who are not, come back to this!) here are 3 high-level financial tools to support community resilience: 

  1. Reserve Fund  

A reserve fund is essentially a large savings of money that act as a safety line for any disturbances or dips in your short-term capital needs3. Reserve fund policies will help guide how much is contributed to the annual budget through annual forecasting. Specifically, when emergencies arise the reserve fund will be there to support your community through any major changes.  

2. Investment Policy Statement 

Investment policy statements are rules and guidelines when deciding on the distribution of resources to the community or organization’s assets4. The key statements include scope, purpose, governance, investment, return and risk objectives, and risk management5. Having this document is essential for everyday decision-making, but incredibly useful in times of distress or disaster when emotions are heightened and decision-making needs to be clear and efficient.  

3. Low-risk and Diverse Investments 

When developing an investment portfolio, the key to long-term financial resilience will be to invest in assets that are low-risk and diverse in nature. For example, a diverse portfolio will include diversity in location, business type, sectors, and companies. Doing so, ensures the stability of your returns, creating a reliable source of revenue, even in uncertain times. This stability further supports resilience when the financial investments are stable and able to support the community’s needs so financial investments are not an added concern in times of distress.  

For tips on financial governance to incorporate into your resiliency planning check out our blog “6 Steps to a Healthy Governance System”.

Zain NayaniComment