Author: Francisco Orozco, North region leader of the FAIR Center and professor of Business School of Tecnológico de Monterrey.
A particularly sensitive issue in situations of economic instability, where a sudden illness or loss of employment can trigger a financial crisis.
Dear friend and reader, in an increasingly complex world, where financial education plays an important role in the development of society in the face of imminent challenges such as health and retirement systems in the world, talking about personal finances has begun to have an extremely important agenda in the daily conversation by the government, financial institutions and people. And before talking about financial success, a concept that is very attractive (also a bit subjective in my opinion) and that is trending on social networks, we must understand what financial vulnerability is as a starting point within these topics.
Financial vulnerability has become a common term, especially in the current economic context. However, the importance of understanding what it really means and how we can measure and mitigate it is often underestimated.
In simple terms, financial vulnerability refers to the inability to face economic emergencies or take financial risks, which could lead to spiraling debt or severe financial problems. It is a particularly sensitive issue in situations of economic instability, where a sudden illness or loss of employment can trigger a financial crisis.
As previously mentioned, reducing financial vulnerability is a task for different actors. If we talk about the government, it must regulate financial institutions to ensure that they act in the best interest of consumers.
This includes the implementation of rules on transparency in pricing, quality of service and the availability of safe financial products. Likewise, we should talk about including financial education in school programs and promoting financial literacy programs that help people make more informed decisions about their money.
As for financial institutions, their task is to offer loans and credits with reasonable interest rates and terms. At the same time, financial institutions allow people to invest in opportunities that would otherwise be out of reach.
This includes things like education, purchasing real estate, or even starting a business. Financial institutions play a critical role in reducing financial vulnerability by offering products and services that allow people to manage risks, invest in opportunities and insure against eventualities.
In that sense, we as people have the challenge of acquiring knowledge through financial education, but this knowledge does not work if there is no change in behavior. As you can see, this looks like a bunch of yarn from which we don't know which thread to start pulling.
So where do we begin to untangle this “bunch of yarn” of financial vulnerability? The key could be a change of perspective. Instead of seeing financial education and management only as a means to achieve economic success, we could see them as essential tools to strengthen our resilience in the face of life's uncertainties.
This is where the conversation about financial vulnerability takes on a new dimension: it is not just about preventing risks, but also about building a solid foundation that allows us to face challenges and take advantage of opportunities. By better understanding our own financial profiles, from spending habits to savings and investment strategies, we can do more than simply “survive” in times of crisis; we can prosper.
Financial vulnerability, then, should not be seen as a stigma or a personal failing, but as a common reality that we face to varying degrees throughout our lives. By talking openly about it, we demystify the topic and foster an environment where seeking help and advice becomes more accessible and less intimidating.
The importance of talking about financial vulnerability lies in its ability to empower us. By recognizing and addressing our financial vulnerabilities, we are not only protecting our present, but also ensuring a more stable and prosperous future.
This is a journey that requires patience, continued education, and most importantly, the willingness to face our financial realities with honesty and courage. Ultimately, talking about financial vulnerability is talking about how to build a stronger, more resilient society, one in which we all have the opportunity to flourish.