Borrowing to cover day-to-day expenses decreases people’s ability to save in Ecuador; interest ‘eats’ the income that could be used for savings.
People walk on a commercial street in Cuenca, in December 2021.
The majority of Ecuadorians cannot save and do not have proper management of their expenses and their debts, according to the study Education and financial well-being, a pending task in Ecuador and the region .
This is evidenced by the fact that 62% of the Ecuadorian population does not have a savings behavior , says the report published by the Network of Development Financial Institutions (RFD).
The report was prepared with information from the Development Bank of Latin America (CAF), which surveyed 1,200 people from different South American countries, including Ecuador.
Valeria Llerena, director of the RFD, explains that the lack of savings is a problem because without savings people cannot:
- Facing external shocks, such as illness.
- Meet financial goals, such as buying a home or expanding a business.
- Access other financial products, such as insurance.
In this context, 53% of the Ecuadorian population covers their usual expenses with loans , which reduces their savings capacity, since they must pay interest in addition to the capital spent.
Low financial education
The lack of job opportunities further complicates the picture. In Ecuador, barely three out of 10 people in the Economically Active Population have adequate employment and earn at least the basic salary of USD 425 per month.
Another factor that influences the reduced savings capacity of Ecuadorians is the level of financial education , which has deteriorated in recent years. “This shows that the financial capabilities of people have been reduced ,” says the report.
The RFD defines financial education as a “combination of financial knowledge, skills, attitudes and behaviors necessary to make sound financial decisions”.
This contributes to the development of the financial system and contributes to reducing poverty , because people decide on their savings and investment, manage debt better, plan their retirement and accumulate greater wealth.
financial well-being
The lack of savings affects the level of financial well -being of the country, which barely reaches 57 points out of 100 and positions Ecuador with one of the lowest levels in South America, just above Paraguay and Argentina.
Financial well-being is understood as the state in which a person can:
- Control your daily finances.
- Absorb financial shocks.
- Meet your financial goals, such as buying a car or a house.
- Have financial freedom, which allows you to pay for vacations or dinners in restaurants.
To raise the level of financial well-being in a country, financial education must be promoted, but also the economic and social environment must be improved, so that people can obtain more income, explains Llerena.
He adds that financial institutions must also develop products that meet the needs of the population, especially the most vulnerable , who are women, the elderly, people who live in rural areas and who have not completed their studies.
