Illiteracy can be very painful and expensive. I once had a young man living with me who had just started using toothpaste. One morning I found him with a toothbrush in hand ready to brush.

Out of curiosity, I asked him to show me the toothpaste he had used and that is when both of us learnt that he was about to brush using a hair removing cream.

Being illiterate, the young man had judged from the size and colour that the content of the tube was toothpaste.

If he was able to read, he would have seen the bold label on the tube. Financial literacy is having the skills and knowledge to confidently take effective action to achieve goals

People who have less financial literacy are prone to a variety of money pains. I highlight four of the most common ailments caused by financial illiteracy.

Having problems with debt
A common manifestation of this problem is when a large proportion of a person’s income goes to debt payment. When a person uses more than 40 per cent of their income to service debt they are unable to survive on the balance. The shortage of money, often leads to more borrowing which creates a vicious cycle of debt.

Not saving
Financially illiterate people pay more attention to meeting immediate expenditure than saving for the future. Because of not saving big expenses such as school fees and house rent are paid from current income which creates money stress.

Engaging in high cost credit
I once had a client who opted to borrow money from a money lender to finance a business startup. Six months later he had paid Shs6m to the money lender, but the principal amount borrowed was still intact.

Unlikely to plan
Financially illiterate people are unlikely to plan for the future. The lack of planning can be for basic things like ensuring a garden is ready before the onset of rains or saving for the annual Christmas trip to the village.

James Abola is a business and finance consultant.