Can financial literacy play a role in addressing climate change?

Financial literacy teaches to prioritise expenses. By consuming less, and spending more carefully, we waste less and reduce our carbon footprint. Switching off electricity, reducing heat/air conditioning by a degree or two, buying fewer clothes, all this impacts our wallet and the Earth positively.

But this is not that simple. Financial literacy can help address climate change only if prices include the cost on the environment. If these costs are not included in the prices, or if some polluting items benefit from tax breaks or subsidies, financial literacy makes us take bad decisions for the Earth. For example, if fossil fuels are cheaper than renewables, it is financially wiser to buy fossil fuels, even if this hurts the Planet. Another example is fast fashion: clothes low prices urge us to buy new clothes very often. The prices do not include the real environmental costs of water and energy consumption, the use of chemicals contaminating groundwater, the prevalence of nonbiodegradable synthetic fibres, nor the carbon footprint due the transportation between manufacturing and selling points.

Similarly, our savings and investment can either help reduce our carbon footprint or increase it. Investing in fossil fuels companies has been very profitable last year, financially speaking, but this harms the Planet. And fossil fuels companies invest only a little in renewable energy. So, whenever we take a financial decision, let’s think wisely: consider our budget, and our impact on the Earth and others.

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