FINANCIAL LITERACY AND RESULTANT STABILITY OF THE FINANCIAL SYSTEM

Abstract

The aim of the author of this paper is to show the relationship between the level of financial responsibility of individuals and of company managers and the stability of financial markets, asset markets and the stability of the financial system as a whole. In Bosnia and Herzegovina (B&H) after the 1992-1995 conflict, there was a large influx of funding into the local economy both from the fields of FDI (Foreign Direct Investment) and bilateral and unilateral aid. Many people in BH were keen to access loans in a seemingly cash-rich economy, but were ill-prepared in the fields of financial borrowing and handling debt properly. Subsequently they experienced difficulties in servicing obligations and the loan portfolio of banks has deteriorated. Thus the onset of the financial crisis has brought something positive. Borrowing in B&H dropped, but problems servicing existing loans rose. The situation has not yet become problematic but banking sector shortfalls tend to manifest themselves between 12-18 months after the event. The author believes that a more serious approach to financial responsibility at micro-levels is necessary for the national economic good.