Poor financial literacy of the market investors has been cited in most of the African, South American, and Asian countries as one of main contributors to the continuous melt down of the national stock exchange markets. This means that governments of these countries are not adapted to the financial literacy level in the stock market. In Nigeria, for example, the equities and the stock market have collapsed in 2008. This was followed by most of the investors withdrawing their funds from the country making unemployment level rise at an alarming rate. Secondly, the household consumption level was found to increase as the savings declined meaning that people lacked proper financial education to know how to save and boost their economy’s performance. The country had to adopt financial literacy system in most of its institutions to advocate for buying shares and debentures and cutting down expenditures.
Further, there can be a lot of stock market indiscipline among investors as they do not know well the terms and conditions governing stock markets assets. This leads to pilferage and continuous disagreements that can hamper the success of capital market frameworks in the country. Nigerian stock exchange faced the problem in 2008 before deciding to impose financial literacy policies in its education system. Secondly, there emanates high corruption level and misappropriation of the resources in the stock market sector.
Moreover, the government has little resources to finance its budget as most of the internal borrowings come from the sale of government bonds such as treasury bills, which are purchased by stock market investors (Leora 2012). This can lead to continuous deficit in the country’s budget hence poor economy performance. This means that the only sources of income are external sources, which are full of stringent policies. Poor financial literacy also makes consumers and investors fail to utilize available stock market resources available to make money. It causes boom of capital market, where people decide to actively engage in retail activities instead of saving for future.
Finally, low financial literacy level has been found to cause heavy financial losses to many eager stock market risk takers, which has led some of them to become bankrupt or even stop trading activities. This occurs especially in cases of futures and forwards contracts of wheat. The investor ends up buying wrong type of bonds and securities due to lack of good and accurate financial information (Gambling Awareness Nova Scotia 2011). In order to mitigate all these negative consequences mentioned above it has been found that proper financial information has to be provided to stock market investors through financial literacy programs. The program can include seminars, workshops, or even normal education program as in the case of Australia.