Financial Capability

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Financial Capability: It's All about Behavior

Families - especially those with limited incomes - face challenges in managing their cash flows, building assets and securing economic resilience. Traditional financial education with one-way information flow often fails to help. Behaviorally informed approaches, linked to moments of financial decision-making show promise for supporting healthy financial behavior.

Our Assessment

Why It Matters

If people are to use their growing access to financial services actively and productively, they will need to be financially capable - that is, they will need the skills, attitudes, and behaviors to manage their personal finances and use financial services well. The journey to financial inclusion, especially for new, inexperienced, and less-educated customers, must include opportunities to develop capability. It is through developing and applying their financial capability that customers will be able to use financial services to build assets, manage risk, and become economically resilient.

Resilience_Figure_Financial_Capability

Does Access To Formal Service Increase Financial Resilience? When the Global Findex survey asked people whether they would be able to come up with funds in emergencies (the amounts varied based on GNI per capita), the results were surprising. They were nearly identical across high, middle, and low income countries. At all levels, roughly one-third of people answered negatively and two-thirds positively. But the ways in which people proposed to obtain emergency funds differed sharply, with people in high income countries more likely to turn to formal sources and people in low income countries more likely to turn to family and friends.

Both providers and policymakers have a strong stake in financially capable consumers. For governments, financial capability is a means to protect consumers and promote a stable and strong financial system. For providers, financial capability is about enabling active and responsible use. Uptake of financial products depends in part on the ability of consumers to understand how to use the products and take advantage of their benefits. Developing better ways to enhance financial capability is therefore important for driving active usage, retention, reduced risk, and cross-selling additional products. The stakes for effective product use are even higher for low-income people, as poor decisions can have severe consequences. With stronger capability, people can use financial services to make the most of their scarce resources day-to-day and over the course of their lives.

The journey to financial inclusion, especially for new, inexperienced, and less-educated customers, must include opportunities to develop capability.

Progress to Date: Greater Attention but an Enormous Gap
Progress Index Score: 2

In 2011, when we asked stakeholders in the financial inclusion space for their views in Opportunities and Obstacles to Financial Inclusion, financial capability topped both the obstacle and the opportunity lists. However, despite the recognized importance of financial capability, the actual level of effort and level of success in this area are modest at best. The enormity of this financial capability gap – between the scale and urgency of need on one side, and the scale and success of the response to date on the other – leads us to assign our lowest score of any of the five Roadmap areas, a 2 out of 10.

This is not to say that the financial capability area is inactive. Far from it. Perhaps the best news is that recognition of the significance of capability building is prompting governments to make financial capability strengthening programs a key part of their financial inclusion and consumer protection strategies. The G20 issued High-Level Principles on National Strategies for Financial Education as guidance for governments and public authorities. To date, 39 members of the Alliance for Financial Inclusion, an organization of developing world regulators, have made financial literacy-themed commitments through the Maya Declaration process, with 13 commitments already completed. And according to a scan by the Organization for Economic Co-operation and Development (OECD), as of 2013, 45 countries have designed national strategies for financial education.

And yet, there is little consensus on the need for a diversity of stakeholders to deliver financial capability interventions and bear their costs. We often hear that financial capability is a public sector responsibility, and we agree that governments have an important role. Anytime a government operates schools, provides cash transfers, or employs large numbers of people, it has an opportunity to influence the financial lives and choices of those people. Means to act on these opportunities need to be developed. Those around K-12 education are already recognized, but they are far from the only opportunities.

Financial service providers will need to support financial capability in ways that dovetail with their business operations and engagement with customers. Here, efforts among financial service providers, is where the capability gap is greatest. Provider involvement is essential because providers interact with customers at the “teachable moments” when they are in the act of making financial decisions (and therefore when interventions are most likely to result in behavior change), and because integrating financial capability building into product delivery may be the best path to scale and sustain such efforts. Unfortunately, this role is not well-acknowledged by providers, nor do providers have the know-how to move forward.

Similarly, non-financial organizations that work with large numbers of BoP individuals on financial education efforts and other social services would do well to integrate behaviorally informed principles into their program design, delivery and content.

Progress is hampered by the complexity of the task of increasing capability and the resulting difficulty in developing methods that demonstrate conclusive success. Since the field of financial capability is still in its early days, much research and experimentation remain to be done to understand which kinds of interventions are effective. Meanwhile, the field is caught up in internal arguments about definitions and methods. And in the absence of consensus about methods, resources are poured into activities of doubtful benefit, while many very promising efforts remain small.

Because of the importance of financial capability and the enormous scale of the challenge, compared with the lack of confidence in the efficacy of current approaches and the lack of scale and sustainability in their application, we rated progress toward advancing financial capability as only a 2.

When we asked stakeholders in the financial inclusion space for their views in Opportunities and Obstacles to Financial Inclusion, financial capability topped both the obstacle and the opportunity lists.

The Too-Slow Shift from Financial Education to Financial Capability

The FI2020 Roadmap on Financial Capability, released in late 2013, recommended a shift in the basic conception of this field from financial education to financial capability, which means a shift toward strategies focused on behavior change, as opposed to traditional financial education which focuses on knowledge transfer. This recommendation puts the Center for Financial Inclusion (CFI) squarely into the camp of those who have argued convincingly that knowledge frequently fails to translate into action, and therefore effective interventions to support positive financial behaviors need to go farther. Efforts need to pivot to help people directly translate financial knowledge into positive financial behavior. The call is for those concerned with financial capability to design and test their methods according to how they affect consumer behavior.

We have a very long way to go.

For starters, the distinction between financial literacy, financial education, and financial capability is not broadly understood. Even with increasing agreement about the focus on behavior change, most models still revert to traditional education methods. We continue to see most of the financial capability resources go into traditional, classroom-based financial education covering a broad and general curriculum. A growing number of studies have pointed out that teaching financial decision-making in a mass and rote manner is costly and has limited, or at best short-lived, effect on consumer behavior. Yet, even with increasing recognition of its limitations, this model remains the default option for governments, providers, and the social sector, in part because it is straightforward to deliver and is the only approach that is widely known. We need to accelerate the adoption of alternative approaches and therefore resources, including donor money, need to shift accordingly.

On the other hand, most of the alternative models that do appear to have an impact on behavior are either prohibitively expensive or limited in scope. Targeted financial counseling and planning interventions that respond to an individual’s specific financial decisions can be labor intensive and costly, limiting opportunities for scale. Similarly, even with the emerging literature and proliferation of pilots employing behavioral research, we find that providers have yet to incorporate these insights into their product development. As FI2020 learned at a workshop we conducted in Colombia, this may be due in part to challenges encountered inside institutions, particularly when introducing unfamiliar ways of working, whether that involves organizational leadership, buy-in from different departments, pressure for faster return on investment, or unsupportive frontline staff.

There are diverging views on the objectives of financial capability. Consequently, capability interventions are conceived of and delivered to address a number of differing objectives, from general awareness raising, to long-term money management such as budgeting and debt management, to specific ways to use a product effectively. We often see a mismatch between the objectives of programs and their designs. For example, understanding general financial concepts such as compound interest will have little bearing on behaviors, such as saving for emergencies or for retirement. The financial inclusion community will need to develop clarity about the results they hope to achieve and align that with the design and delivery of interventions.

Tackling the immense financial capability gap will require action by many actors using a multitude of methods. While we are most excited about behaviorally-informed methods and want to see them proliferate, we recognize that traditional methods, especially those funded by governments, will continue to have a role. For the traditional methods, it makes sense to search for ways to incorporate behavioral insights and to innovate in cost-effective delivery by leveraging technology and communication media. We explore these innovations in-depth in an upcoming paper in partnership with JPMorgan Chase Foundation.

Lastly, capability building efforts should empower consumers to achieve their own versions of financial capability. Research on the lives of low-income households has highlighted how financial behaviors need to be understood in the context of fluctuating cash-flows. Consumers struggle to both plan for the future and manage day-to-day living, faced with income and expense shocks that can rock their economic foundations. Given this precarious reality and limited financial slack, they are already armed with existing money management skills that make their finances work for them. As they gain exposure to financial products for the first time, particularly digital financial services, they will need to layer new skills on top of these existing capabilities. If consumers are to develop trust and confidence in new types of providers, delivery channels, and financial services, financial inclusion will need to take into account existing competencies and understand more precisely where the gaps are.

INNOVATIONS IN FINANCIAL
CAPABILITY

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In partnership with JPMorgan Chase Foundation, CFI is conducting a project to identify and analyze the most promising financial capability innovations and approaches to date and consider how they may be scaled. The study will highlight the opportunities and challenges for stakeholders to integrate financial capability, with case studies in Mexico and India. The study will discuss how organizations can evolve from more traditional approaches to behaviorally informed models.

THE CONCEPT
OF FINANCIAL HEALTH IN THE U.S.

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Source: CFSI

Earlier this year, the Center for Financial Services Innovation (CFSI) released Understanding and Improving Consumer Financial Health in America, examining the financial health of Americans, by looking at consumer behaviors, attitudes, preferences, and product usage.

 

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The Quest to Integrate Behavioral Insights

Research asserts that effective financial capability strategies deliver knowledge at teachable moments, such as during the purchase and use of financial products or key life moments, when knowledge can best lead to action. For a very simple example, Banco Unión in the Dominican Republic leverages remittance payout transactions as an opportune moment to deliver messages informing low-income recipients of other product offerings, including a no frills savings account. Lifecycle events also present teachable moments. People need specific financial knowledge and practices when they transition from youth to independent adulthood or prepare for old age.

Designs that incorporate behavioral insights about cognitive biases are also promising techniques to encourage good financial decision-making. Product features such as automatic and targeted SMS reminders, or incentives and commitment devices make savings easier and more goal-oriented. Juntos has developed and tested a targeted financial management tool that uses SMS to create customer-tailored reminders and related messages. While many financial capability innovators are working in the U.S. domestic market, Juntos is one of the few that focuses on emerging markets.

Simplified financial training using behavioral research, such as “heuristics” or rules-of-thumb, can also be used to improve people’s financial management skills, especially for particular segments, such as microentrepreneurs. In a study piloted at Banco ADOPEM, a microfinance organization in the Dominican Republic, researchers showed that deploying “short cuts” in training for microentrepreneurs produced improvements in their financial practices.

Incorporating games in program design can make financial education more fun and engaging, which has been shown to increase message retention. The financial technology start-up RevolutionCredit provides “gamified” education at a teachable moment (when a person applies for a loan) to influence behavior.

Providers can incorporate financial capability within existing delivery channels and touchpoints, such as by using their loan officers, agents, and other frontline staff to teach clients about using products and reinforce messages through repeated interactions. In India, Microfinance Opportunities (MFO) worked with FINO, a financial services technology firm, to enable its network of business correspondents (banking agents) to help increase low-income consumers’ use of smart cards linked to savings accounts. Analysis revealed that where consumer financial education was offered, there were more clients transacting.

We see great potential in targeted financial counseling interventions that customize education to individual needs around specific financial decisions, if they can be delivered sustainably. Targeted counseling can be labor intensive and costly, limiting opportunities for scale. One way to boost scale and sustainability is to integrate counseling into the delivery of services. In the U.S., after successful “Financial Empowerment Center” pilots in New York City, major cities are embedding targeted financial counseling into services, including housing services, homelessness prevention, and workforce development. IFMR Rural Finance operates the KGFS model in India, which offers a tailored suite of financial services coupled with financial education, provided through individual counseling at the point of sale. Another route toward scale and sustainability may be to leverage technologies like online or app-based platforms that can bring efficiency in time and cost.

Technology-enabled communication channels have the potential to reach more people at a lower cost.

  • Swadhaar FinAccess is using tablet computers to deliver more cost-effective financial education for urban low-income segments in Mumbai. Swadhaar’s financial modules are interactive, moving from a group teaching approach to peer-teaching and eventually to a self-learning approach.
  • Development Alternatives Incorporated (DAI) and Souktel launched an initiative this year to put free financial education lessons into the phones of Tigo’s 7 million mobile subscribers in Colombia. The service, Su Dinero (Your Money), features online financial education content from MFO through a web-based application, housed on Facebook’s Internet.org phone application, that can be accessed by Tigo’s mobile subscribers without charge. The jury is out on whether the app will result in demonstrable behavior change.

While advances in technology hold great promise for offering financial education at scale, it remains to be seen how effective low-touch approaches will be in ultimately changing knowledge and behavior.

Family experience and peers play an enormous role in shaping common practices and attitudes about money. For instance, a study funded by the Russia Trust Fund for Financial Literacy and Education found that farmers who received financial education materials at the same time as 60 percent or more of their neighbors were more likely to purchase drought insurance.

There are significant opportunities in working with traditional financial education providers to incorporate behavioral mechanisms like heuristics to make content “stickier”. We are still finding out what really works and how various behavioral elements can be put together to increase their effect. And, we know that behavioral nudges need to be refreshed over time: once people become accustomed to reminders, they may stop paying attention.

SEGMENTED MESSAGING CONNECTED
TO IMPORTANT LIFE EVENTS

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Non-profit, Saber es Poder (SEP) provides financial education in Mexican consulates, community clinics, and other community service locations in Los Angeles. To help new immigrants establish themselves, SEP provides financial education through closed-circuit television and pamphlets while people are waiting to be served. These resources explain financial products and encourage visitors to seek them out to establish a solid financial footing for their new lives. SEP also provides coupons in the pamphlets for discounts at partner financial institutions; these coupons allow the organization to track the number of visitors who act on their advice. When SEP partnered with Wells Fargo, it found that this timely delivery of information, combined with an action prompt (the coupons) resulted in a number of new bank accounts.

All Stakeholders Must Do Their Part

Debates continue about who should be responsible for financial capability interventions: financial service providers, governments, educators, social service organizations, philanthropy, or a combination of stakeholders. We think it is abundantly clear that the answer is all of the above. The massive capability gap among consumer segments should be attacked with a broad range of approaches. Governments are increasingly on board, and they bring an ability to launch interventions with massive reach. Many NGOs and social sector players bring their ability to work with the BoP. But financial service providers, who are already at the frontlines with clients, are lagging, and this constitutes an enormous missed opportunity.

Providers Could Do So Much More

Financial service providers are well-positioned to enhance the capability of consumers. They interact with their customers on a large scale, and those interactions generate the revenue that sustains them. Moreover, these interactions take place at the very teachable moments where interventions can have the greatest impact on behavior. Many client-oriented experts stress that attention to financial capability is an integral part of making products consumer-centric. A major lever for scale is to get financial institutions to “own” their role in building capability, assisting clients as they gain access to and practice using formal financial products.

Spurred by new information and communication technologies and informed by behavioral economics, we observe a few providers drawing on these opportunities to inform product design and delivery. But around the world, movement among financial providers has been sluggish. We continue to see capability building largely treated apart from operations, configured as stand-alone activities, and often carried out for corporate social responsibility.

Financial service providers have the opportunity to embed financial education messages or features at large scale into their products and platforms – which also helps build client relationships - and they should not miss that opportunity. Providers can take cues from behavioral research in the design. They can use commitment savings to encourage increasing usage of savings accounts. Clients of Greenbank in the Philippines, who were randomly offered goal-based commitment savings accounts with voluntary restrictions on access to deposits, increased their savings balances. Automatic payments and default options are also a promising strategy to encourage savings by making repetitive financial decisions easier for consumers. Roshan, a telecommunications provider in Afghanistan, is working with Innovations for Poverty Action (IPA), a behavioral research organization. As a default option, Roshan deposits a percentage of employees’ monthly salaries directly into their savings accounts.

Technology enables such features as customer alerts and reminders to be integrated into product design with relatively small cost. Results from studies that have tested targeted messages suggest that these features create payoffs for providers as well as customers. Clients in the Philippines, Peru, and Bolivia increased their savings by 6 percent when they received monthly savings goals reminders. In Peru, savings increased by 13 percent when clients were reminded of an interest rate incentive and their specific savings goals.

Financial service providers can also offer clients relevant information at the key moments when they have the opportunity to act on them. Providers can embed education in touchpoints with their clients. For example, bank staff can use materials to explain mobile banking services using illustrations or storytelling in ways that relate to client needs. NGOs and financial capability experts can assist in developing such processes.

So far, aside from a few exceptions, behaviorally informed methods have been applied mainly to boutique projects. Because pilots are largely still underway, insights on what works are yet to come. Moreover, purveyors of behavioral and design insights will need to understand the inner workings of financial institutions if they are to succeed in transforming their valuable consumer insights into large-scale implementation. Efforts will need to shift to better understand how to incorporate these features fully within institutions to make them sustainable.

For many providers, offering relevant product guidance to clients is an essential marketing strategy. This is especially the case for microinsurance products, where clients are asked to trust and pay for a service with no immediate and concrete benefit. Al Amana Microfinance, a WWB partner in Morocco, offers borrowers microinsurance covering events such as hospitalization, critical illness, road accidents, and death. When initial take-up was lackluster, Al Amana Microfinance conducted market research and used it to develop an education strategy to increase clients’ awareness and understanding, using simple language and visual illustrations.

With the increasing penetration of inexpensive smartphones in emerging markets, providers will have the opportunity to develop stronger value propositions for enhancing consumer engagement and capability. We are excited by the promise of apps and interactive platforms that can facilitate two-way interactions that allow consumers more control, convenience, and management of their money. While low-touch digital platforms may not serve as the best delivery mechanism for all capability-building interventions, the digital financial services space is an important frontier for experimentation in the financial capability arena.

Financial service providers have a stake in the financial capability of their clients, though that stake may be narrowly defined around use of particular products. This can result in a blurry line between financial education messages and product promotion, introducing a potential conflict of interest. And even when head offices intend to provide unbiased education, front-line staff may not dedicate the requisite time to explain concepts or they may oversell products, particularly if they receive monetary sales incentives. That is one reason Bima, a microinsurance specialist, which partners with Tigo to offer “freemium” microinsurance, pays agents a fixed amount, rather than a commission. Every new mobile agent also goes through intensive training and a one-week apprenticeship. Bima wants agents to take their customer education role seriously and to avoid mis-selling the product. In some more developed economies the inherent conflict between selling and education has led regulators to consider requiring some form of separation.

Kudos and Caveats for Governments

The good news is that governments are increasingly addressing capability building in their national strategies. Most of these efforts focus on incorporating traditional financial education into primary and secondary school curricula and on adult classroom education. In a country such as India, this may be done on an impressive scale, such as the mass financial literacy “camps” organized by the Reserve Bank of India.

There is some evidence that school-based financial education can be effective. A study in Brazil that found that high-school students exposed to an integrated financial education curriculum had increased financial knowledge, along with an increase in savings for purchases, better likelihood of financial planning, and greater participation in household financial decisions. It is important to make content engaging, relevant, and fun for beneficiaries, through comics, videogames, apps, and other types of “edutainment.” In Peru, the Superintendency of Banking has developed financial education content using comic characters and storybooks to support the teaching of basic financial management skills in schools. There is also evidence that solid math skills are important for financial capability, whether or not financial education has explicitly been provided. One particularly tough challenge is reaching youth who are not in school.

To strengthen their effectiveness, financial education programs in schools can be linked to actually opening youth savings accounts, as San Francisco, among other cities, is doing. IPA is also testing the effectiveness of combining youth financial education and savings accounts in Uganda and Ghana. Even though the programs have shown positive short-term promise, it is unclear whether they will continue to benefit individuals once they reach adulthood.

Consumer education campaigns can be based on mass media and social marketing to create broad awareness of financial products. The Central Bank of the Philippines launched such a campaign, Protect Your Money (PYM) in 2013 to promote savings, and warn consumers against financial scams. While the impact of the campaign has not been evaluated, we suggest that targeted programs, launched with stakeholders and focused on distinct segments, can generate awareness, an important first step in changing behaviors.

Governments can also integrate financial capability principles into the delivery of government-to-person (G2P) benefit payments. For example, the non-profit Fundación Capital is working with the Colombian government to introduce LISTA, an interactive tablet-based financial training tool, to recipients of a conditional cash transfer program for women. The approach applies audio, video, and game elements to address literacy barriers and make the experience more engaging. Results from the program are forthcoming. We would like to see more of these financial capability-enhancing interventions.

A few governments have directed providers to take more responsibility for financial capability. In Ecuador, policymakers have mandated that the financial sector educate all Ecuadorian citizens. In the absence of more effective strategies, this mandate has created a proliferation of traditional classroom-based financial education workshops and mass media platforms, from billboards to websites. Ecuador’s efforts may be heavy-handed, but there are other ways governments can direct providers to share this responsibility. Public-private initiatives can help to ensure that roles are allocated efficiently to avoid duplication and redundancy. An interesting example to consider is the Association of Banks’ (ASBANC) recent initiative with the Ministry of Development and Social Inclusion in Peru to develop a series of pilot programs for women in rural Peru to educate them about their next-generation mobile financial service which will roll-out later this year.

Unleash the Creativity of the Social Sector

Social sector organizations, including financial educators, community organizations, health care providers, and other NGOs are an essential part of the mix in financial capability development, especially when they interact with clients at critical life moments. Traditional financial education providers will need to step up efforts to create or modify capability building models targeted to specific behaviors, and delivered at opportune moments. We encourage experiments to move away from grant-based funding of financial education programs to forge greater linkages with financial institutions and other kinds of social programs in order to connect with people at the right time in more sustainable and cost-effective ways. There are opportunities to connect education to actionable opportunities. If training incorporates opening a bank account, making deposits, or carrying out mobile money transactions, it will make a greater difference.­

Promising approaches are appearing, albeit at a slow pace, that use new delivery formats to deliver capability building measures. Non-profits and educators are partnering with media specialists and financial institutions in South Africa, Kenya, Nigeria, Mexico, and other countries to convey financial education messages through soap operas, films, and radio. Makutano Junction, a widely viewed soap opera in Kenya, integrated financial education messages developed by MFO into its storyline, with the aim of influencing the financial decisions of its users. Leveraging the popularity of the show to target a specific segment, WWB also partnered with the show’s producers to create an awareness campaign for women to understand the benefits of using formal financial services. The national Nawiri Dada (Sisters Achieve) campaign was promoted by three partner banks (Equity Bank, Kenya Women Finance Trust DTM, and Family Bank), to encourage account opening by women and impart financial education through marketing materials and promotional events. An evaluation of the campaign found that 138,000 women viewers opened accounts during the four-month campaign. More work remains to be done to understand the impact and scope of mass media interventions.

Players in the social sector can also do more to incorporate the client perspective in their content and programming to help them problem solve and manage money based on their different liquidity needs and financial capability priorities. They can incorporate behavioral insights, such as heuristics, in their approaches to educating clients. Some NGOs, including Freedom from Hunger (FFH), have simplified their education modules to resemble rules-of-thumb curriculum, such as learning the four steps of savings or accounting principles. In this instance, heuristics are employed in classroom settings, but there are opportunities for non-profits to introduce and reinforce simplified messages in less expensive ways, such as through SMS and voice-based platforms.

The field would do well to segment target markets to ensure that interventions reflect specific needs and priorities and take into account a person’s stage in life.

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Technology enables such features as customer alerts and reminders to be integrated into product design with relatively small cost.

The good news is that governments are increasingly addressing capability building in their national strategies. Most of these efforts focus on incorporating traditional financial education into primary and secondary school curricula and on adult classroom education.

TU DECIDES

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Tu Decides is a game developed by the Chilean government to foster financial capability among children. Participants play as one of a variety of households with specific financial situations and needs.

AWARENESS CAMPAIGN FOR WOMEN

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The national Nawiri Dada (Sisters Achieve) campaign was promoted by three partner banks (Equity Bank, Kenya Women Finance Trust DTM, and Family Bank), to encourage account opening by women and impart financial education through marketing materials and promotional events.

Piecing the Capability Puzzle

Measuring modifications in financial behavior from interventions is particularly challenging given that changes may not be immediate and the strong influence of social and cultural factors. Family, peer influence, religion, and popular culture play an enormous role in shaping common practices and attitudes about money. As noted, a growing number of studies point to the limited efficacy of financial education on behavior change. However, there is also a dearth of evidence on whether the new generation of capability building interventions change behaviors over longer timeframes or can be operated cost-effectively. Given the multifaceted nature of capability, a major task for the financial inclusion community will be to figure out how to measure the success and sustainability of different financial capability strategies.

In the face of the massive capability gap, all stakeholders need to integrate smart approaches aimed at behavior change into the delivery of financial capability interventions and, when possible, into the delivery of financial services, if meaningful improvements in the capability of BoP consumers are to occur. Initiatives would carry more weight if done in partnership across public and private spheres with responsibilities and roles allocated efficiently to avoid duplication. By outlining these challenges and opportunities, we hope to spur the necessary conversations on what various actors in the field can and must do to improve financial capability among low-income households around the world.

All stakeholders need to integrate smart approaches aimed at behavior change.

A Call to Action

We gave financial capability our lowest score because it is a major challenge that, despite the many examples cited here, is receiving too little attention. Prospective customers around the world are not well-prepared to engage with formal financial services. Moreover, in the absence of widespread knowledge about how to help people boost their financial capability, many resources are poured into capability building using relatively ineffective techniques. The capability gap is enormous and stubbornly resistant to change. What can be done?

Our review of the state of the field leads us to three main recommendations for change.

First off, the overwhelming majority of financial education efforts around the world need to incorporate principles, such as those derived from behavioral economics into their delivery to become more focused on changing behavior. We are realistic enough to realize that traditional classroom financial education will continue, but idealistic enough to hope that if the many traditional financial education providers were to integrate behavioral principles into their programs – principles like using heuristics or connecting training with practice using products or turning learning into a game – the impact of these efforts would be greater, with a higher return on investment.

Second, we ask providers to take on much greater responsibility for customer financial capability. Providers have a positive stake in capable customers, and through their regular customer touch points they have the opportunity to influence capability at the very teachable moments when financial decisions are made – and at very little additional cost, especially if technology assists. This means identifying how financial capability interventions can integrate with business operations and enhance engagement with customers. It may require a real, much-needed shift in mindset and corporate culture.

Third, we call on non-financial organizations that work with large numbers of BoP individuals and families to use the teachable moment principle to provide financial capability interventions to their clients, whether those are recipients of government benefits, long term employees, hospital patients or immigrants. There is great potential to assist people to manage the financial side of their major life milestones, and these organizations are well-placed to do so.

These three recommendations leave much unsaid and unknown in a field that is beset by deep disagreements about the proper way forward. And so our final call is for continued effort to understand and document what does and doesn’t result in a financially capable population.

And so our final call is for continued effort to understand and document what does and doesn't result in a financially capable population.

A Survey of Maya Commitments on Financial Education

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Maps

Asia

Financial Regulatory Commission of Mongolia X
  • Provide information about low cost financial services, improve the financial education of the community through the FRC website and media, and organize a financial inclusion campaign
Bank Indonesia X
  • Implement a national financial literacy survey
  • Expand financial education curriculum and campaigns in collaboration with educational institutions and other stakeholders
Bangladesh Bank, Microcredit Regulatory Authority, Ministry of Finance (Joint Commitment) X
  • The number of bank accounts under school banking will be increased to 450,000 from the current level of 225,000 by 2014
  • MRA to conduct capacity building and training for 925 MFIs
  • Strengthening of transparency and accountability measures through capacity building and greater focus on financial literacy
Nepal Rastra Bank X
  • Develop national financial literacy strategy by mid-2014
  • Disseminate public awareness programs related to financial literacy via audio-visual and print media
  • Conduct financial literacy program, "NRB with Students" which targets the youth population
Royal Monetary Authority of Bhutan X
  • Develop a financial literacy master plan which would include financial education in the school, university and pre-service curricula by 2015-2016 in coordination with the Education Ministry
State Bank of Pakistan X
  • Launch the Nationwide Financial Literacy Program (NFLP)
Bank of Papua New Guinea X
  • Lead efforts in financial education and financial literacy
  • Actively support innovative use of technology for scaling-up access to financial services and financial literacy
  • Integrate financial inclusion in local and national government initiatives through the endorsement of the National Financial Inclusion and Financial Literacy Strategy by quarter 4 of 2013
  • Optimize results through knowledge sharing and effective coordination of stakeholders, including development partners, by the newly established Centre of Excellence for Financial Inclusion (CEFI) chaired by the Bank of Papua New Guinea
Peoples Bank of China X
  • Conduct financial competency survey every year (since 2013), pilot in 7 sample provinces to collect baseline data.
Bank Negara Malaysia X
  • Provide financial advisory services to underserved population and build capacity of microenterprises.
Banco Central de Timor-Leste X
  • Building capacity and developing talent, through relevant education and training to accelerate the development of people at all levels of the financial system, from regulators and supervisors, though the commercial and microfinance entities, to the public at large
  • Publish a financial literacy strategic plan by the end of 2014
  • Launch a pilot national financial literacy campaign by end of 2014
  • Financial literacy campaign to cover all districts by the end of 2015

Europe and Central Asia

Central Bank of Armenia X
  • Continue pursuing school and lifelong financial education for the population. Particularly, we expect to adopt Financial Education National Strategy in 2012-2013, and thereafter follow the implementation of the strategy
Central Bank of the Russian Federation X
  • Enhancing financial literacy for population and micro, small and medium-sized entrepreneurs
National Bank of TajikistanX
  • Promote development of a comprehensive consumer protection and education framework (Financial Literacy) in collaboration with our development partners during 2014 - 2017
National Bank of the Kyrgyz Republic X
  • To develop the National Program for Financial Literacy Improvement up to 2017
National Bank of the Republic of Belarus X
  • Improve financial literacy of all household categories through the Joint Action Plan of Government Agencies and Financial Market Participants for 2013-2018, as approved by the Resolution of the Council of Ministers and the National Bank of the Republic of Belarus

Latin America and the Caribbean

Banco Central de Reserva de El Salvador and Superintendencia del Sistema Financiero de El Salvador (Joint Commitment) X
  • Develop a strategy to foster financial education to population traditionally underserved by the banking system
Banco Central del Ecuador X
  • Promote financial education to inform current and potential users of financial services
Banco Central do Brasil X
  • Educate and protect customers and users of financial services
Central Bank of Trinidad and Tobago X
  • Transform the National Financial Literacy Program into a National Training Institute for Financial Inclusion by December 2014
  • Increase to at least 60% of the population with moderate to high financial capability by 2017
  • Implement financial education programmes to benefit 25% of the vulnerable population by 2017
  • Provide technical support to at least one Caribbean country in the establishment of a National Financial Literacy Programme by 2017
Ministerio de Desarrollo Social de Chile X
  • Educate beneficiaries of electronic payments
Superintendencia de Banca, Seguros y AFP del Perú X
  • Develop financial education programs focused on children, adolescents, and youth in order to improve their financial literacy and capability at an early stage of formal education
Superintendencia de Bancos de Guatemala X
  • Launch Financial Inclusion Campaign using mass communication channels by 2012

Middle East and North Africa

Bank Al-Maghrib Morocco X
  • Consolidate initiatives for promoting financial literacy and establish a National Financial Education Foundation to be charged with implementing the national financial education strategy
Palestine Monetary Authority X
  • Increase the level of financial literacy and awareness

Pacific Islands

Bangko Sentral ng Pilipinas X
  • Implement targeted financial learning programs .
Central Bank of Solomon Islands X
  • Conduct a financial competency survey by 2012
  • Integrate financial education into the existing national school curriculum from Class 1 to Form 3 by year 2013
Central Bank of Samoa X
  • In partnership with the Ministry of Education, integrate, strengthen, and implement financial education within the Samoan national school curriculum for primary and secondary schools by 2017
Reserve Bank of Vanuatu X
  • Incorporate financial education in the core school curriculum by 2013
Reserve Bank of Fiji X
  • Integrate financial education into the Fiji school curriculum from class 1 to 13 by 2012
  • Conduct financial competency survey by 2012
Reserve Bank of Fiji X
  • Integrate financial education into the existing national school curriculum from Class 1 to Form 3 by year 2013

Sub-Saharan Africa

Banco de Mozambique X
  • Develop and implement a structured financial literacy program by 2014
Develop and implement a structured financial literacy program by 2014: X
  • Develop concrete steps for financial literacy by the end of 2012 to create the needed awareness and interest in financial services
Bank of Ghana X
  • Develop concrete steps for financial literacy by the end of 2012 to create the needed awareness and interest in financial services
Bank of Namibia X
  • Adopt framework for financial literacy and begin implementation in 2012
Bank of Uganda X
  • Increase the level of financial literacy through the continued implementation of the Strategy for Financial Literacy
Bank of Zambia X
  • Develop a national financial literacy strategy under the Financial Sector Development Plan
  • Implement a national financial education strategy that encompasses various stakeholders, including the Ministry of Education through integration in the school curriculum by 2012
Banque Centrale du Congo X
  • Conduct two surveys on consumer protection and financial literacy by the end of June 2013
Banque de la Republique du Burundi X
  • Launch the national financial literacy program
National Bank of Ethiopia X
  • Engage in extensive financial literacy programs across the country to expand financial inclusion
National Bank of Rwanda X
  • Adopt a National Financial Literacy Strategy and a financial awareness campaign
Reserve Bank of Malawi X
  • Develop a national financial literacy and consumer education strategy by June 2012

Soap Opera for Social Change

"edutainment"

Education-entertainment (referred to as "edutainment") is an emerging information delivery tool to influence sound financial behavior management. Researchers at the World Bank integrated messages on personal finance into episodes of South Africa's famous "Scandal!" soap opera. The results found positive impacts on the financial literacy and behavior of its viewers.

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Contributors

Contributor
 

Lead Author

shaheen hasan

Center for Financial Inclusion at Accion

This report draws on insights gained through interviews with industry experts and comments by reviewers. These contributors are gratefully acknowledged below, but we want to make clear that the positions expressed are our own. The opinions in this report do not necessarily reflect the views of the contributors nor do we intend to imply any endorsement by the institutions they represent.

We express our thanks to:
Elisabeth Rhyne, lead contributor and editor, Center for Financial Inclusion at Accion

Click here for the complete list of contributors to the FI2020 Progress Report.

For a curated list of resources on financial capability, check out the FI2020 Resource Library.

For an up-to-date collection of blogs on Financial Capability, check out the CFI blog.