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.