Breaking the Cycle: Financial Literacy for Sri Lanka’s Future

Short annotation:
This study explores the influence of strengths-based leadership, as practiced by first-line managers, on the employee experience within organizational settings. It examines the effect of this leadership style on employee engagement, satisfaction, psychological well-being, and performance, addressing a gap in the literature regarding the use of positive psychology principles in leadership.

Keywords:
Employee engagement, Employee experience, Leadership effectiveness, Performance, Positive psychology, Productivity, Strengths-based leadership

Research question:
How can financial literacy help Sri Lanka transition from a subsidy-dependent economy to one of self-sufficiency and long-term prosperity?

Author: Pasanda Yapa Abeywardana

Text of the paper / article:
Sri Lanka, once a symbol of progress and self-sufficiency, is now grappling with a growing economic crisis that has left it heavily dependent on government handouts and subsidies. The country’s economic fabric, once woven with the strength of local industries and a robust education system, now faces the daunting challenge of breaking free from decades of financial mismanagement and dependency. This essay examines how Sri Lanka can transition from a culture of reliance on subsidies to one of self-sufficiency, financial independence, and long-term prosperity through the enhancement of financial literacy among its citizens. Understanding the impact of financial illiteracy and the importance of financial education is essential for creating a future where Sri Lankans can take control of their economic well-being.

Sri Lanka’s economy has long been marked by a paradox: despite being a middle-income country with a relatively high literacy rate, it remains trapped in a cycle of poverty, debt, and dependency. Over the past few decades, Sri Lanka has seen a gradual decline in its industrial output, a stagnation in agricultural productivity, and an over-reliance on imports. This has led to a trade imbalance, rising foreign debt, and an over-burdened public sector.

Sri Lanka’s economic policies have often been focused on short-term relief measures rather than sustainable long-term growth. The welfare state has expanded, offering subsidies on fuel, electricity, food, and other basic goods, ostensibly to help the poor. However, these subsidies have come at a great cost to the government’s fiscal health, leading to a sharp increase in national debt. The country now faces an alarming fiscal deficit, with subsidies consuming a significant portion of the national budget. In this context, financial education is essential to understanding the true costs of these subsidies and recognizing that there is no “free lunch” when it comes to government assistance.

The origins of Sri Lanka’s subsidy culture can be traced back to the early years after independence, when the government sought to ease the financial burden on its citizens, particularly the poor. Subsidies on essentials such as fuel, food, and electricity were introduced as a social safety net to provide basic needs at lower costs. However, over time, these programs grew beyond their original intent.

Subsidies became a tool for securing political support, with successive governments expanding welfare programs as a means of gaining votes. This led to a dependency culture, where large portions of the population came to rely on government handouts. Instead of fostering an environment of personal responsibility and self-reliance, the subsidy system entrenched the mindset of entitlement, which has persisted for decades. This culture of dependence has created an unsustainable model for the country’s economic growth, contributing to fiscal deficits, inflation, and a growing public debt.

While subsidies may seem beneficial in the short term, they come with a hidden cost that is often overlooked. The funds for subsidies are not pulled from thin air; they are sourced from taxes paid by the public or borrowed from international markets, often at high-interest rates. This creates an intergenerational transfer of wealth, where future generations will have to bear the burden of the current subsidies. The lack of transparency in the subsidy system obscures the true cost of living for citizens, many of whom remain unaware of the economic ramifications of these policies.

Additionally, subsidies discourage responsible economic behavior. For example, below-market electricity pricing disincentivizes energy conservation and investment in renewable energy sources. Similarly, subsidized fuel prices lead to overconsumption, increasing the country’s reliance on imported oil and exacerbating the trade deficit. These practices create inefficiencies within the economy, preventing the emergence of more sustainable solutions to energy and resource management.

The reliance on subsidies has had a long-term detrimental effect on Sri Lanka’s economic growth. These subsidies have consumed a disproportionate share of government resources, leaving less room for investments in critical areas such as infrastructure, education, healthcare, and innovation. As a result, the country’s growth has slowed, and the economy remains vulnerable to external shocks, such as fluctuating commodity prices or changes in global demand.

Moreover, the subsidy system has prevented market-driven solutions from emerging in key sectors. For instance, in the energy sector, the state-controlled pricing system has kept prices artificially low, stifling competition and innovation. The government’s control over the energy market has led to inefficiencies and a lack of investment in renewable energy sources. Similarly, the agricultural sector, despite receiving subsidies, has failed to modernize and remains reliant on outdated farming practices.

To address the challenges posed by subsidies, Sri Lanka must prioritize financial literacy at the national level. Financial education is not just about teaching individuals how to manage their personal finances; it is about fostering an understanding of the broader economic principles that affect the nation as a whole. Citizens need to be educated on the costs of government subsidies and how they contribute to the nation’s debt and fiscal instability.

Financial literacy also includes teaching citizens how to manage their finances in a sustainable manner, by saving, investing, and planning for the future. When people understand how to budget effectively, how to manage debt, and how to invest wisely, they are less likely to rely on government assistance. This, in turn, will reduce the burden on the state and promote a culture of self-sufficiency.

One of the most effective ways to promote financial literacy is through the education system. In Sri Lanka, the education curriculum has traditionally focused on academic subjects like mathematics, language, and science, with little emphasis on practical life skills such as personal finance. Introducing financial literacy into the school system at an early age will help children understand basic financial concepts, such as budgeting, saving, and investing, which will serve them well throughout their lives.

Schools can implement practical exercises, such as mock budgeting and savings challenges, to allow students to experience the consequences of financial decisions. These hands-on programs can help students grasp the importance of planning for the future and making informed financial choices. Additionally, incorporating financial literacy into higher education programs, particularly in fields such as business and economics, will equip future leaders with the tools to make sound economic decisions.

While integrating financial literacy into schools is essential, it is also important to reach the adult population. Many Sri Lankans, especially those in rural areas, lack basic knowledge about financial management. Public awareness campaigns, using media platforms such as television, radio, and the internet, can help raise awareness about the importance of financial literacy and the long-term impact of subsidies on the economy.

Workshops and seminars on personal finance and economic responsibility can be organized in communities, targeting individuals who may not have had access to formal education. These programs should focus on practical financial skills, such as debt management, saving for retirement, and investing in local industries.

Any attempt to reduce or reform subsidies will face resistance, particularly from those who benefit directly from these programs. For example, low-income households that rely on subsidies for basic needs may view these changes as punitive. However, it is essential to frame these reforms as an opportunity for growth rather than a loss of support. The government must reassure citizens that the long-term benefits of financial independence will outweigh the short-term discomfort.

In addition, the government can implement transition programs that support vulnerable populations during the shift from dependency to self-sufficiency. These programs should focus on providing job training, financial education, and other resources to help individuals become financially independent.

The future of Sri Lanka’s economy depends on breaking free from the cycle of subsidies and fostering a culture of financial literacy. By equipping citizens with the tools to understand their financial choices and manage their personal finances, Sri Lanka can reduce its reliance on government assistance and promote long-term economic stability. Through educational reforms and public awareness campaigns, Sri Lanka can build a more self-sufficient society, paving the way for a prosperous future.

The transition from a subsidy-dependent economy to one of self-reliance will not happen overnight. However, by prioritizing financial education and fostering a culture of economic responsibility, Sri Lanka can create a sustainable model for growth that will benefit future generations. Financial literacy is not just a tool for personal empowerment; it is the key to unlocking the country’s true economic potential.

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