BANGLADESH has since the early 2020s enjoyed demographic dividend as 65.08 per cent of its population falls in the working age population group, according to a report published by Bangladesh Bureau of Statistics in 2023. Demographic dividend depicts the economic growth potential that arises when a country’s working age population, people aged 15–65 years, exceeds its non-working age, dependent, population, people aged 0–14 years and above 65 years, accentuating the former group’s contribution to economic growth.
In contrast, the dependent group tends to rely heavily on public goods that the working age population is liable to fund. However, to convert this opportunity into tangible economic growth and development, it is important to improve people’s financial literacy to spend their money wisely. Financial literacy refers to the education and skills attained by the citizens regarding the finances, money management, budgeting, savings and investments that would eventually make money sustainable.
When people know how to budget their money, save and invest, they can avoid debt and plan for the future. This creates jobs, reduces poverty and keeps more people productive in the long run. The financial literacy rates in Bangladesh are 28 per cent (national) and 35 per cent (urban low income), according to research by 2018 Financial Inclusion Insights Programme. While demographic dividend offers a unique window for growth, it is financial literacy that determines whether that opportunity will be seized or squandered. Without adequate financial literacy, the potential economic boost from a sizeable labour force can be underwhelmed by poor personal financial decisions, low savings, risky investments, debt traps, under-utilisation of formal financial services and unanticipated scams.
Bangladesh is a developing economy with a youthful population that is consistently growing at a decreasing rate. However, according to the 19th International Conference of Labour Statisticians, organised by the International Labour Organisation, Bangladesh simultaneously suffers from under-employment as well as unemployment. The unemployment rate stands at 4.63, but economists dispute whether this is a true representation. It may be argued that Bangladesh is unable to transform its ever-increasing population to human resources. A large population alone does not guarantee economic strength. It becomes a true human resource only when individuals are educated, skilled, healthy and financially literate, enabling them to contribute productively to national development.
Being financially literate is crucial in this era to leverage the demographic dividend structure. Without financial literacy, increased income does not translate to long term well-being or investment in human capital. A financially literate youth is more likely to understand the essence of saving and investing rather than consuming blindly. They will engage entrepreneurial activities and start-ups, use formal banking channels boosting national financial inclusion and avoid debt traps and predatory lending.
A financially conscious citizen knows the differences between currency and money; and, that not all money is referred to as currency. Currency, sometimes also referred to as ‘high-powered money,’ in simple terms is defined as a specific form of physical, tangible cash issued by the government or central bank. These includes paper notes and coins that circulate in the economy. Currency is what people carry in their wallets and use to carry out daily transactions. Money, on the other hand, is a broader concept that refers to anything generally accepted as a medium of transaction. Money takes various forms, whether tangible or intangible, including currency, bank deposits, digital banking and electronic payments.
Financial literacy teaches the crucial concept of ‘time value of money,’ Tk 100 today is not the same as Tk 100 tomorrow. Such a simple yet important concept refers to the principle that a sum of money today holds greater value than the same amount in the future. For instance, in around 2010, Tk 500 was sufficient to meet a person’s basic needs whereas today the same amount buys only a fraction of those goods and services. This is because money has earning potential; when invested or saved, it can regenerate returns over time. In addition, inflation reduces the purchasing power of money in future.
Inflation, which is essentially a tax on our consumption, directly erodes the real value of money, making savings and fixed incomes less effective over time until they grow at the same pace as the inflation rates. The real value of money refers to its purchasing power, meaning how many goods and services it can buy after accounting for inflation. Unlike the nominal value, the number printed on the currency, the real value decreases when prices rise because the same amount of money buys less in future. The inflation rate in Bangladesh was 8.55 per cent in July 2025. This means that if an item cost Tk 100 today, it will be valued at Tk 108.55 the next year.
Keeping the persistent increase in price levels in mind, salaries must also be adjusted accordingly to maintain the real earnings; the process is known as ‘salary/wage indexation.’ Salary indexation intertwines the wage directly with inflation or productivity gains to preserve the real incomes. Real income is the purchasing power of a person’s earnings after adjusting for inflation, reflecting how many goods and services their income can actually purchase. Having their salaries indexed help the workers to ensure a stable standard of living even during periods of inflation.
In the formal sector, which accounts for 15 per cent of working class as stated by the labour and employment ministry in 2025, periodic salary reviews and indexed adjustments are common although not universally applied. Many multinational companies may interconnect annual raises to inflation rate plus performance bonuses, ensuring that workers’ purchasing power is preserved. On social media platform Reddit, professionals often cites salary adjustments of about 7 per cent if the inflation rate is about 5 per cent, followed by performance-based increments. Indexation increases anchor wages to inflation, helping employees protect their real income.
However, the informal sector, which accounts for the remaining 85 per cent of the labour force according to the same source, includes the most unregulated labour and home-based jobs, lacks structured wage adjustments and this class of people are the most vulnerable to inflation. About 95.7 per cent of informal workers are women while some 92.7 per cent are the youth in the age range of 15–29, according to the ILO Labour Force Survey of 2024.
The apparel industry is the perfect example for wage indexation as it sits somewhere in between. Although this sector operates under the government supervision and periodic wage board revisions, the adjustment frequency and adequacy still fall short. The minimum wage rate for the apparel sector was set at Tk 12,500, applicable from December 2023, which was Tk 8,000 in 2018, with a 56 per cent increase, accordng to the labour and employment ministry in 2023.
During these six years, annual inflation amount to approximately 10 per cent, which had no immediate compensation, and the revised salary of Tk 12,500 in 2023 was likely lower in real terms than its 2018 counterpart of Tk 8,000. Such a scenario often resulted in unrest and protests in the apparel industry. However, to partly offset the inflation impact between the revision, the apparel sector adds a fixed increment to the basic wage each year. Previously, it was 5 per cent annually, but in December 2023, it rose to a 9 per cent annual increment. However, this is not the full remedy if the inflation rate remains 9 per cent or higher.
In addition, ‘bracket creep’ occurs when inflation pushes a worker’s income into a higher tax bracket even though their real purchasing power has not increased. This occurs because tax brackets are defined in nominal terms and are not always adjusted to reflect changes in the cost of living. As a result, taxpayers end up paying the tax at a higher rate without experiencing an actual improvement in their standard of living.
The income of Tk 450,000 a year places places individuals at the 5 per cent tax slab. If inflation rises by 10 per cent, their employer might increase their nominal salary to Tk 495,000 to maintain purchasing power. However, even though this increment merely compensates for inflation, it pushes the individual further into the 5Ìý per cent bracket and closer to the 10 per cent slab, increasing their total tax burden. Essentially, their real income does not improve, yet their tax liability increases.
This phenomenon is significant because inflation erodes the real value of income and bracket creep compounds the problem by imposing higher tax obligations. Unless tax brackets are indexed to inflation, workers face an unfair burden over time. In developed economies, tax systems often include automatic indexation to prevent bracket creep, but in Bangladesh, such adjustments are infrequent. Similarly, in Bangladesh, the tax-free threshold is Tk 350,000. If workers earn exactly this amount, they pay no tax. However, with even modest inflation, employers may raise nominal salaries to preserve the purchasing power. A salary increased to Tk 385,000 to solely counteract inflation now places part of the income into the 5 per cent tax bracket, creating a tax liability where there was none before. This worsens the real benefit of the tax-free threshold. Financial literacy helps individuals to recognise this effect and plan strategies, such as seeking inflation-indexed wages or tax-efficient savings, to maintain the value of their tax-free allowance.
According to the Population and Housing Census 2022 by the Bureau of Statistics, more than two-thirds, or 68.34 per cent, of the population live in rural areas while less than a third, or 31.66, per cent reside in urban areas. Many urban dwellers are deprived of enjoying the basic right to proper education. To uphold the demographic dividend, the changes should start taking place from rural areas.
The first step towards guiding people towards financial literacy would be arranging awareness campaigns in association with non-governmental organizations and microfinance institutions such as BRAC, Grameen Bank tht not only work in rural areas but can provide financial assistance for these people. People in rural area must be educated about the significance of financial management and its technicalities such as saving, budgeting, investing, debt avoidance and insurance policies. There are few individuals from the ‘baby boomer generation’ who are yet to be scammed or looted due to their lack of basic knowledge. In such campaigns, random people, especially ‘baby boomers,’ could share their real-life scam stories and enlighten others about the risks hovering over lucrative offers. The message of healthy finance management should be clearly communicated to a target group of people to increase its effectiveness. Therefore, these non-governmental organisations or microfinance institutions could hold sessions where they can also provide tailored contents to real needs and on listening to people’s situation, they could advise whether taking loans should be feasible for them or not.
In addition, ‘financial education’ should become an integral part of the school curriculum, where children will be taught about the basic finance management and different taxations since early teenage days. The existing accounting or commerce subjects are insufficient as they are yet to cover more basic yet vast topics beyond equations and statements of performances. Schools must teach about saving goals, loans and how to multiply money with and without interest. Simple methods of compounding, discounting and regular interest payments should be introduced in educational institutions.
Nowadays, cybersecurity and digital frauds are also at their peaks and most victims are those with less education. One of the most effective methodologies could be to involve employers, who could provide guidance to their employees regarding their monthly salaries. The start could be from the apparel sector, which employs about four million workers in rural and urban areas as per a 2017 report by the International Labour Organisation. Of the four million or so workers, some 55.6 per cent are women, according to the Bangladesh Garment Manufacturers and Exporters’ Associaton. They could enhance workers’ knowledge about the importance of savings, investing, budgeting and other funding opportunities available. There are many people who prefer to take their salaries as ‘cash-in-hand’ to avoid paying taxes. However, these individual ration, albeit illegal, activities have far-reaching negative impact, manifest in one of the world’s lowest tax-gross domestic product ratios.
There are many people and students who are willing to make investments and sustain their money but due to many critical challenges and lack of opportunities, they are unable to do so. Lack of financial education is, indeed, one of the barriers to fruitful investments. However, an added distrust of the conventional financial system stems from Islamic sentiments because of the involvement of interest payments. As of October 2024, Islamic banks in held approximately 23.1 per cent of total bank deposits, reflecting the growing demand for Shariah-compliant financial services. Shariah-compliant finance adheres to strict Islamic principles by prohibiting interest (riba), avoiding excessive uncertainty (gharar) and excluding unethical or haram investments. In contrast, such shariah-compliant transactions should promote profit-sharing, asset-backed financing and risk sharing via mudarabah, musharakah, murabaha, and ijara. Shariah-compliant products such as Islamic banking and sukuk offer alternatives that align with religious principles.
Islamic banks maintain shariah supervisory boards and conduct audits, but studies show that these audits often cover only 10–20 per cent of their investments and transactions, leaving much of the operation unchecked. Moreover, empirical surveys have found significant gaps in compliance: areas like murabaha contracts, investments and deposit frameworks frequently diverge from shariah standards because of fragmented regulations and the absence of a centralised supervisory authority, according to a 2024 paper published in the Journal of Islamic Monetary Economics and Finance. One of the most concerning cases involves Islami Bank Bangladesh Ltd, which reported a staggering increase in default loans from Tk 6,919 crore in 2023 to Tk 32,817 crore by 2024, accounting for 21 per cent of its total lending. This surge in non-performing loans raises questions about the bank’s risk assessment and management practices. Furthermore, the collapse of the Awami League government in August 2024 unveiled more profound issues within the banking sector, including the exposure of mismanagement, corruption and defaulted loans. Five Islamic banks — First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and Exim Bank — were among the hardest hit, now slated for a historic merger by the central bank.
For Bangladesh, financial literacy is not merely a personal skill for individual citizens but also a national strength. In its absence, the demographic dividend risks turning into a demographic burden as unskilled, financially insecure youth grow older without sustainable economic contribution. Financial literacy allows a nation to enjoy multiple macroeconomic benefits. These include greater savings and loanable funds as well as formal investments, broader tax base, stronger small and medium enterprises startup and job creation, lower youth unemployment, reduced long-run rural-urban inequality, and an extended demographic dividend, among others. It is imperative that Bangladesh should develop a national strategy as part of its reform initiatives in sectors such as education, finance and capital markets, labour and employment, society and welfare, youth and women’s empowerment.
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Sana Nawab ([email protected]) is an economics graduate from BRAC University and Muhammad Shafiullah ([email protected]) is an associate professor of economics at BRAC University.