By Stephen Mpembele —

IN recent times, it has become necessary to step up financial literacy campaigns among workers in Zambia for crucial reasons that include helping them keep away from heavy indebtedness.
The mushrooming of financial lending institutions has left many workers trapped in deep debt, with a rising number of families struggling to make it to the following month.
What makes the situation dire is that a good number of workers borrow money for the wrong reasons, usually for consumption in the midst of luxury trappings.
The emergence of individual lenders, infamously known as ‘shylocks’, whose lending interest rates are abnormally high – mostly at 50 per cent – has further fuelled the cycle of indebtedness among employees.
Let us consider Annamaria Lusardi who, in Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Savings Programmes, looked at the relationship between indebtedness and financial literacy in the face of rapid growth in household debts and financial crises.
Debt literacy could be defined as the ability to make simple decisions relating to debt contracts, and the application of basic knowledge on interest compounding to every day financial choices. It is important to note that debt literacy is considered as a component of financial literacy.
This researcher has been able to establish that in Zambia, there are salaried public sector employees who have ended up with negative salaries on pay slips, either due to irresponsible borrowing or a lack of understanding of the actual cost and terms of borrowing by the borrower, or a combination of the two.
According to the Fin Scope Survey of 2009, 16 per cent of adults reported using more than half of their incomes to service debt, while 18 per cent said they had missed a loan repayment in the previous 12 months.
It is, therefore, important to ramp up financial literacy among workers some of whom do not treat this matter as seriously as it affects their present and future earnings.
We could be assisted by Michael Noctor, Sheila Stoney and Robert Stradling, who consider financial literacy as the ability to make informed judgments and positive decisions regarding the use and management of money.
This is according to their shared thoughts in Financial Literacy: A Discussion of Concepts and Competences of Financial Literacy and Opportunities for its Introduction into Young People’s Learning, published in 1992.
Realise this, too. The changing world and new demands that this places on people as makers of meaning in workplaces and other public spaces in the changing dimensions of community lives is the focus of multi-literacies.
Emphasis is on the real world contexts in which people practise literacy, and on the role of power relationships in shaping literacy and literacy learning.
To engage in a literacy practice, one has to have a lot of context-dependent knowledge. Looking at literacy as something one does rather than as a skill or ability one has, helps in understanding real-world ways in which people engage with texts.
Perry Kristen holds that functional literacy involves having an understanding of the ways in which texts are used in the world to achieve social goals and purposes, and is increasingly defined by economic consideration especially in the context of employment and economic development.
One may be functionally literate in some contexts by being able to effectively read, write and meaningfully engage with texts in those contexts, but may be functionally illiterate in other contexts, writes Perry in What is Literacy? – A Critical View of Socio-Cultural Perspectives, published in 2012.
Another point of note, according to other scholars, is that “financial literacy is a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being”.
PlaNet Finance, a review of the payroll lending market published in May, 2015, provides useful evidence on how the growing indebtedness can no longer be ignored.
The purpose of the report was to document the results of an assessment of the payroll lending sector in Zambia.
The study was commissioned by Financial Sector Deepening Africa (FSDA) on behalf of the Bank of Zambia (BoZ), and was carried out between July and November 2014.
The study formed part of a broader theme of work initiated by FSDA on credit markets within the region, and emanated from a rapid appraisal of the payroll lending market undertaken in Zambia in July 2013 following the introduction of interest rate caps.
FSDA’s reason for commissioning the study was to understand and quantify the extent of systemic and operational risks that may have arisen as payroll lending has grown in prominence.
Based on data collected from the largest payroll lenders, the assessment team estimated that payroll loans now account for one-third of all Zambian banking system loan value, up from 25 per cent at the end of 2008.
Personal loans, driven by payroll loans, have been the largest contributor to commercial bank loan portfolio growth every year since 2011, accounting for just under one-third of the total growth of the Zambian credit markets between June 2010 and June 2014.
Yet even though payroll lending is a key driver of Zambian credit market growth, information is scanty, and oversight and regulation is limited.
To date, the most important initiative in regulating payroll lending has been a voluntary decision by leading lenders and employers to limit total payroll loan and non-loan deductions to 60 per cent of gross pay.
This means employees should take home at least 40 per cent of their gross pay in line with the civil servant payroll deduction threshold.
However, for many households this threshold is too high, and indebtedness levels are increasing.
Against such a backdrop, financial literacy among workers in Zambia is necessary.
(The author is a holder of a B.Acc (CBU), CBA (Bangor), M.Acc, and MBA-Finance (BGSU). He is also a lecturer in the School of Business at the Copperbelt University and a candidate for Doctor of Philosophy in Finance at the University of Kwazulu-Natal in South Africa).