Financial (il)Literacy and Stability of the Financial System

Novo Plakalovic
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Novo Plakalovic: University of East Sarajevo, Bosnia and Herzegovina

from International School for Social and Business Studies, Celje, Slovenia

Abstract: The aim of the author of this paper is to show the relationship between the level of financial literacy of individuals and company's managers and the stability of financial markets, asset markets and the stability of the financial system as a whole. In post-conflict Bosnia and Herzegovina (BiH) economy was 'struck' by foreign banks and financial capital that has swept the local public 'hungry' for loans but also under-educated in the financial sense to borrow and use borrowed funds more effectively and accept tolerable burden of debt. Financial illiteracy and the willingness to accept the conditions imposed by banks have led to difficulties in servicing obligations and deteriorating loan portfolio of banks. In such circumstances, the onset of the financial crisis has brought something positive. The trend of rapid borrowing of citizens and companies in BiH was abruptly cut, but on the other hand problems with servicing the loan already taken simultaneously arose. The problems are still not dramatic but it should be noted that problems in the banking sector come to the surface only after one and a half to two years after the crisis. The author believes that a more serious approach to the financial literacy of citizens and managers and owners of small businesses is crucial, not only for the economy as a whole but also for the health of the banking system or financial system of the country.

Keywords: financial literacy; financial culture; bank clients financial behaviour; nonperforming loans; financial system stability (search for similar items in EconPapers)
Date: 2011
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