enabling financial capability along the road to financial inclusion
TRANSCRIPT
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Enabling Financial Capability Along
the Road to Financial Inclusion
Financial Inclusion 2020 Financial Capability Working Group
September 2013
CreditReporting Financial
Capability
ClientProtection
Addressing Customer
Needs
Technology-EnabledBusinessModels
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About the FI2020 Roadmap Working GroupsWhatwillittaketoachieveastateoffullfinancialinclusion?In2011,theCenterforFinancialInclusionaskedthis
questioninaglobalsurvey,andover300practitionersgavetheirperspectivesonthekeyopportunitiesand
obstaclestofinancialinclusion .
Basedontheresponses,theCenteridentifiedfivepriorityfocusareasthatarekeytoachievingfinancialinclusion,
whichhavebeenusedasthebasisforabroadconsultativeprocesstowardaRoadmaptoFullFinancialInclusion.
Overthecourseof2012and2013,thisprocessengageddozensofexpertsandindustryparticipantsindeveloping
anaction-orientedblueprintforreachingnewandunderservedmarkets.Thefivefocusareasare:
AddressingCustomerNeeds ,chairedbytheConsultativeGrouptoAssistthePoor(CGAP),focusesondeepeningourunderstandingofclientneedsandtranslatingthatknowledgeintopracticewhile
expandingtherangeoffinancialservicesavailabletounderservedmarkets.
Technology,chairedbyVisa,analyzesthepotentialofnewtechnology-intensivechannelstoreachnewcustomers,loweroperatingcosts,increasesecurity,anddiversifyfinancialproductsavailabletolow-
incomeclients.
FinancialCapability,chairedbyCiti,focusesonempoweringclientstoknowtheirrightsasconsumers,andhavetheskills,attitudes,aspirations,andconfidencetoexercisethoserights.
ClientProtection,chairedbytheSmartCampaign,outlinesstepstodeepentheimplementationofclientprotectionmeasuresforthebenefitofconsumersandstabilityofmarkets.
CreditReporting,chairedbytheInternationalFinanceCorporation(IFC),promotesextendingcreditreportingsystemsinordertoexpandaccessfornewclientswhilemanagingriskforfinancialinstitutions.
Eachofthefiveworkinggroupshascraftedaroadmapthatasks:Whatisthevisionforthistopic?Whatstandsin
thewayofachievingthevisionandwherearethegreatestopportunities?Whataretheenablingactionsand
correspondingactorswhocanadvancethevision?
The Main IdeaFinancial capabilityis about motivatingand supportingconsumers tomake soundfinancial decisions.Attention tofinancial capability
is essential forsuccessfulfinancial inclusioninitiatives.
Providers andpolicymakershave stronginterests in afinanciallycapable clientele.The scale of theneed means that
many actors arewelcome,includingproviders,governments,non-profits,schools andothers.
Behavioral researchreveals that peoplewho knowdontalways do (that is, actin their own bestinterests). It isimportant to test anddesign interventions
that use insights fromresearch to supportpositive behavior.
Financial capabilitydevelops throughlearning by doing.There is a uniqueand enormousopportunity todeliver targetedfinancial capability
messages at thevery timescustomers aremaking decisions.
Technologyoffers excitingopportunities togive customersfinancialcapabilitymessages atlarge scale and
low cost throughdiverseplatforms suchas mobilemessages andmass media.
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I.Introduction
Successfulfinancialinclusionrequiresfinanciallycapableconsumers.1Withinthisdecade,anenormous
numberoffirst-timeclients,alargenumberofthemfromtraditionallyunservedpopulationsegments,
willbeginusingformalfinancialservices.Butthisexpansionoffinancialservicesatthebaseofthe
pyramidmustbeaccompaniedbyattentiontofinancialcapabilityifitistobringthedesiredbenefitsfor
providers,governments,andmostofall,forclients.
TheFI2020FinancialCapabilityWorkingGrouprecognizesthe
complexsocietal,economicandindustryrelationshipswithin
whichfinancialcapabilitydevelops.Theworkinggroupnotes
thatwhilefinancialserviceprovidersandclientsareperhaps
thecentralstakeholdersinfinancialcapability,othersocietal
institutions(e.g.,schoolsandsocialserviceorganizations)alsohaveastakeinthefinancialcapabilityoftheirconstituents.
Toguidethedevelopmentofourrecommendationsforactionwehaveidentifiedthreecorepremises:
1. Many,orevenmost,peopleexperienceagapbetweenknowinganddoingwhenmanagingtheirfinances.Capabilitydevelopmentmustgobeyonddeliveryofinformation(financialeducation)
andfocusonyieldinghealthyfinancialbehavior.
2. Opportunitiestopromotehealthyfinancialbehavioramongconsumeraboundinthefinancialservicesdesignanddeliveryprocess.Thispointstoauniqueandimportantroleforfinancial
serviceprovidersinbuildingtheirclientscapability .(Thisobservationalignswithand
reinforcesmessagesfromtheFI2020WorkingGrouponAddressingCustomerNeeds.)
3. Financialattitudesandbehaviorsarestronglyshapedbycultureandthebroadersociety.Multiplefactorscontributetoacontextthatsupportscapability.Accordingly, schools,media
andothersocietalinstitutionshaveimportantroles infinancialcapabilitydevelopment.
Thesethreepremisessuggestthatamulti-stakeholderstrategytofinancialcapabilityisneeded,that
buildsonlessonsfromthefieldoffinancialeducationandgoesfurther.Workonfinancialcapability
mustmovebeyondknowledge-andskill-buildingtoincorporateeffectivestrategiesforchangingthe
waypeoplebehave.
II.Vision
WhatIsFinancialCapabilityandWhyDoesItMatter?Financialcapabilityisnecessaryforeffectiveday-to-daycashflowmanagement,planningforthefuture,
anduseoffinancialservices.Withoutadequatefinancialcapability,someclientsarelesslikelytotake
advantageoffinancialservicesthatcouldhelpthem,whileotherswillsufferharmthroughmisuseor
1Whilewerecognizethatshadesofmeaningexist,withinthisdocumentthetermsclient,customer,andconsumer
areusedinter-changeably.
We define financial capability as thecombination of knowledge, skills,attitudes and behaviors needed tomake sound financial decisions thatsupport ones well-being.
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susceptibilitytorogueproviders.Thestakesareespeciallyhighforlower-incomepeople,aspoor
decisionscanhavesevereconsequences.Withstrongercapability,clientscanusefinancialservicesto
makethemostoftheirscarceresourcesacrosstheirlifetimesandadvancetheirgreaterlifegoals.
Itisintheinterestofproviderstoensurethatclientshavehighfinancialcapabilitysothattheywilluseservicesactivelyandresponsibly,whichinturnminimizesgapsbetweentheextensionofaccessand
actualusage.Forgovernments,financialcapabilityisacrucialbuildingblockofeconomiccitizenshipand
ameanstoprotectclientsandpromotestabilityintheretailfinancialsystem.
AConsumersVisionofFinancialCapabilityThespecificwaysindividualsthinkoftheirownfinancialcapabilitywillbegroundedintheir
expectations,contextandpastexperiences.However,wecanbroadly describeafinanciallycapable
clientascharacterizedbyconfidence,along-termoutlook,andself-regulationintheuseand
managementoffinancialservices. Statementsafinanciallycapablepersonmightmakeinclude:
Abilitytotrackfinances:
Iknowhowtobudget,followahouseholdfinancialplanandmonitorprogresstowardmygoals. Imanagediversefinancialservices,formalandinformal,tohelpmeusemyresourceseffectively.
Abilitytoplanahead:
Iusefinancialservicestoachievefuturegoals. Ihaveasavingsgoal,andIusefinancialservicestobuildmyassets.
Abilitytoexerciseself-regulation:
Iknowmyfinanciallimitsandhowtostaywithinthem. Iamincontrolofmyuseoffinancialservices;financialservicesdonotcontrolme. Icanefficientlypaydowndebt.
Abilitytounderstandandmitigaterisk:
Iusefinancialservicestohelpmereducemyexposuretotheunexpected. Iamawareoftheconsequencesofpoorfinancialdecisionsandammotivatedtoavoidthem. Iknowmyrightsandresponsibilitiesasafinancialservicesconsumerandhowtoexercisethem. Iamalerttoavoidfinancialscamsandabletoidentifyandresisthigh-pressuresalestactics.
Abilitytostayinformedaboutfinancialservices:
Iaminformedaboutmultiplefinancialservicesandcanconfidentlyselecttheoptionthatsrightforme.
WhenIneedmoreinformationaboutfinancialservices,Iknowhowtogetit.
Asthesestatementsimply,financialcapabilityisnotstatic;rather,peopleadaptthroughouttheir
lifetimesastheirneedsandcircumstanceschange.
Financialcapabilityalsodependsonthecontextandobjectivesofanindividual.Forexample,amigrant
remittance-senderhasdifferentneedsfromasubsistencefarmerandfacesadifferentsetofdecisions;
therefore,eachwilldevelopadifferentsetoffinancialcapabilities.
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AFinancialLandscapePopulatedbyFinanciallyCapableConsumersFinancialserviceprovidersmostoftenapproachfinancialeducationandclientfinancialcapability
developmentwithgoalsofenhancingcustomerproductuptakeandusageratesandofretaining
customerloyalty.Theseconsiderationsareespeciallyrelevantwithfirst-timecustomerswhohavenotpreviouslyusedformalfinancialservices.
MonitorGroupsreportBusinessCaseforFinancialEducationexpressedthemarketmotivationfor
providerstoaddressconsumersfinancialcapabilityunderthreebroadheadings:
1. MoralImperative .Toempowerlow-incomeconsumerstoeffectivelyaddresstheirfinancialneeds.
2. AvoidanceofHarm.Tomitigatedangerstobothproviderandconsumer(suchasthepotentialforover-indebtednessinsaturatedmarkets),ensuringthatprovisionanduseoffinancial
servicesisasharedresponsibility.
3. GrowthOpportunities .Recognitionthatmovementfromentry-levelusetowardconsumersactiveparticipationwithuptakeofmultipleproductswilldependinpartoncustomersabilityto
understandtheproductfeaturesandvalueproposition.
Increasingly,financialserviceprovidersrecognizethatfirst-timeclients(especiallyyouthandthosefrom
newpopulationsegments)mayneedassistancetopreparethemtousetheirproductsandservices.
Whenprovidersmaketheinvestmentneededtoreachanewpopulationsegmentortooffera
technology-enhanceddeliverychannel,theywanttoensurethatlackofinformation,understandingor
self-confidencedoesnotpreventanactiveclientresponse.
Morebroadly,providersalsorecognizethatclientswhomanagetheirmoneywellandunderstandhow
tousefinancialservicesmaybemorelikelytoretaintheiraccountatafinancialinstitutionandbemore
profitableovertime.Today,researchersareseekingtounderstandhowfinanciallycapableconsumers
affectanorganizationsclientacquisition,clientretentionandprofits.Moreinformationonthese
questionscanhelptodeepenthebusinesscaseoncapabilityforproviders.
Governments,too,areacutelyawareoftheneedtoseemoreoftheirpopulationsparticipateinand
benefitfromformalfinancialservices.Theyrecognizethatbuildinganinclusivefinancialsystembrings
withittheimperativeofincreasingfinancialcapability.Giventheirresponsibilityasguardiansof
financialstabilityandconsumerprotection,governmentsareincreasinglypreparedtotakeanactive
roleinfinancialcapabilitydevelopment.
Thus,providersandpolicymakersrecognizethatwidespreadfinancialcapabilityisnotonlyadesirable
endstate,itisalsoanecessaryconditionforrealizingthebenefitsofincreasingaccesstofinance.
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III.FromVisiontoRealization
FromFinancialEducationtoFinancialCapabilityDevelopment Manypeoplearefamiliarwiththeconceptoffinancialeducation.Commonlydefinedasanactivity
intendedtobuildfinancialliteracy,financialeducationimpartsknowledgeandskillsneededtomake
informeddecisionsonthemanagementofmoneyanduseoffinancialservices.
Successfulfinancialeducationprogramscanequippeoplewiththebasicfinancialprinciplesneededto
keeptrackoffinances,planahead,understandandmitigaterisk,usefinancialinformation,andselect
financialproducts.However,despiteincreasingfinancialinclusionandthespreadoffinancialeducation,
behaviorevenamongpeoplewhohavereceivedfinancialeducationdoesnotkeeppace.For
example,highratesofover-indebtednessandlowlevelsofsavingappearamonglower-income
consumersthroughouttheworld.Thedisconnectbetweenknowledgeacquiredandbehaviors
demonstratedisonereasonmanyobserversbelievefinancialeducationhasstalledshortofdelivering
thepromiseoftangibleimpact.
Whatarewemissing?
Aspractitionersofadulteducationknow,knowledgemusttranslateintousefulskillsthroughpractice,
andskillsmustbeappliedinday-to-daydecision-makingbeforeinformationcanresultinbehavior.
Informationtransmissionandevenskilldemonstrationsdonotnecessarilyresultinbehavioral
responses.Whenweshiftconceptsfromfinancialeducationtofinancialcapability-building,weare
signalingourintenttobringleversthatcatalyzebehavioralchangeintothefinancialeducationpicture.
Theworkinggroupproposesadistinctionbetweenfinancialeducation,oftenconceptualizedsimplyasa
programoractivity,andfinancialcapability,aconceptthatincludesknowledge,skills,experienceand
contextandthataddressesalifelongjourney.
Ourrecommendationsarebuiltaroundatheoryofchangethatfirsthighlightsthemultipleinfluencesthatshapebehavior,andthenderivesimplicationsforinterventionsandactors.
TheoryofChangePart1:HowFinancialCapabilityIsAcquiredRegardlessofclientsegment,mostpeopleeventhe
well-offhavesomedisconnectbetweenfinancial
literacy(knowledgeandskills)andfinancialcapability
(knowledgeandskillsasappliedinreallife).Any
attempttosetgoalsforincreasingfinancialcapability
mustproceedfromanunderstandingofhowpeople
acquirethiscapability.Howdoesoneacquirethe
attitudesthatsupportfinancialcapability,suchasconfidencewithrespecttofinances,along-term
outlookandself-discipline?Thedegreetowhichanindividualdevelopssuchattitudesdependson
familyandculture,accesstotrainingandinformation,learning-by-doing,intrinsictraits(e.g.cognitive
biases),andexperiencesaroundkeydecisions(teachablemoments).Someoftheseelementsare
moreamenabletointerventionthanothers.
Whilelittleisknownabouttheextenttowhicheachofthesefactorshelpstoexplainapersonslevelof
financialcapability,severalpointsincreasinglyformthebasisforatheoryoffinancialcapability:
Peer influence is very strong in youthpopulations. Change might happen moreeasily in a group than individually.
-Child and Youth FinanceInternational Secretariat
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1. Culture,includingfamilyexperience,playsanenormousroleinshapingcommonpracticesandattitudesaboutmoney .Influencesincludefamily,peers,religionandpopularculture.These
influencesresultindeeplyingrainedpersonalaspirations,habitsandbeliefsthatarenoteasily
changed.2. Behavioraleconomicsresearchrevealsthatactingagainstonesownfinancialinterestoften
stemsnotfromlackofknowledgebutfromcognitivebiases towhichallpeoplearesubjectto
somedegree:tendenciestoover-valuethepresentrelativetothefuture,tobeoverlyoptimistic
aboutthefuture,togowiththeflowormaintainstatusquo,andtomakedecisionson
impulseratherthanbyrationalanalysis.Thissuggeststhatanumberofinsightsfrombehavioral
economicscanbeappliedtoinfluencepeoplesfinancialdecisions.
3. Peoplelearnbydoing .Forthatreason,theyaremostreadytoabsorbandusefinancialeducationmessagesatteachablemoments,suchaswhenmakingacriticalfinancialdecision
orsigningupfororusingaservice.Thisobservationappliesbothtoinformationneededinthe
immediatecontextofusingaproduct,suchasunderstandinginterestratesoraspecific
accountsterms,andtomajorlifecyclestages,suchasthefinancialknowledgeandpractices
neededfortransitionfromyouthtoindependentadulthoodortoprepareforexpensesneeded
inoldage.Informationismosteffectivewhenprovidedattherighttimeandusedbythe
consumertomakeadecision.
Althoughfinancialcapabilitygapsappearamongpeopleofallsocio-economicbackgrounds,special
considerationsapplytolow-incomepeople.Notonlyaretheymorelikelytohavechallengesdueto
limitedaccesstoeducation(includinglowliteracyanduseofanon-dominantlanguage),theyarealso
likelytohavelittleexposuretoformalfinancialservices.Researchisbeginningtoindicatethatthe
economicvulnerabilityinwhichmanylow-incomepeoplelivemayinitselfcreatedecisionbiases.
Tosummarize,ifoneweretodesignabroadefforttobuildfinancialcapabilitybasedoncurrent
thinking,itwouldproviderepeatedmessagesthroughmanykeyinfluencersacrosssociety,itwould
focusintensivelyontimeswhenpeoplearemakingfinancialservicesdecisions,anditwouldincorporate
elementsthatmotivatepeopletoapplytheirskillsinreallife.
TheoryofChangePart2:InterventionstoBuildFinancialCapabilityKnowingdoesnotequaldoing!Ifthisobservationistrue,ithasmajorimplicationsforthedesignof
interventionstobuildfinancialcapability.Herearesomeobservationsonbuildinginterventionsbased
onthethreepremisesjustnoted:
Multipledeliverystrategies .Thesestrategiesincludebasiceducation,massmedia,specializedtraining,andmessagesdeliveredatthepointofuse.Nosinglemethodissufficient,andallof
themcanbevaluable.Whiletherearecontroversiesoverthebestapproachtobuildingfinancial
capability(particularlyonefficacy,scaleandsustainability),itisimportanttoemphasizethatitisnotaquestionofselectingoneproviderormethodoverothersadiversityofcontributors,
deliveryvehiclesandapproachesareneeded.
Designinformedbyinsightsfrombehavioraleconomics .Better,notnecessarilymore,interventionssupportcapabilitydevelopment.Designsthatincorporateinsightsfrombehavioral
psychologyandeconomicsaboutcognitivebiasescanencouragegoodfinancialdecision-
making.Thiscanbeassimpleasceasingcertainpractices(suchasaggressivesalestechniques
thatuseteaserrates)tousingmoreproactiveapproachessuchasreminders,strategicdefault
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setting,rewardsforresponsiblefinancialbehavior,commitmentprograms,andrehearsal
opportunitiesforincreasingfamiliaritywithcontent.
Relevantandevolving .Financialcapabilitydevelopmentisapersonalandlifelongprocess.Messagesshouldberepeatedmanytimesandinmanywayswithspecialattentiontohelpingclientsmeettheirowngoalsandneeds.Theyshouldalsobeculturallyappropriateandtailored.
Forexample,messagesaboutpreparationforoldageneedtobetargetedatmatureadultsand
willbeineffectiveifdeliveredtoyouth.Similarly,financialcapabilityeffortsforwomenneedto
takeintoconsiderationhowlocalcultureandperceptionsshapeawomansgoalsandchoices,
andtherebyherfinancialdecisions.
Leveragetechnology.Technologyhasthepotentialtoimprovebothfinancial
educationandfinancialcapabilityand
toreachmorepeopleatalowercost.
Interactivecoursessuchasfinancial
educationvideogamescaninclude
immediateclientfeedbackand
simulationstoincreaseclient
engagement.Stories,gamesandskits
connectwithclientsemotionally(for
example,dramaticvideosshownbyUjjivaninIndia),andwhendeliveredthroughmassmedia
(magazines,radioandtelevisedsoapoperaslikeMakutanoJunctioninKenya),theymayeven
begintoinfluenceculture.
Byfacilitatingongoing,real-timeunderstandingofandinteractionwithfinancialconsumers,
technologycanplayanimportantroleinchangingbehaviors.Fromapplicationsthatalert
consumerswhentheyspendover-budgettobillreminderstoATMsthatpersonalizemenusto
encourageconsumerstotakecertainactions(forexample,tochecktheirbalancebeforetheywithdraw),technologycanenableconsumerstobecomemoreawareandpurposefulwiththeir
financialintermediation.Innovatorsinthisspace,suchasJuntosFinanzasandPiggyMojo,are
alsoleveragingtechnologyandpeerinfluencetoimprovesavingshabits.
HowStakeholdersCanImplementSuccessfulInterventions FinancialServiceProviders .Financialcapabilitydevelopsalongsideaccesstofinancialservices.As
peoplegaincapabilitythroughrepeatedexerciseofchoiceandinteractionwithservices,providers
influencecapabilitydirectlythroughprovisionofappropriatefinancialservices.Providersalsohavean
importantstakeindevelopingclientswhounderstandhowtousetheirproducts,particularlyifthey
wishtoexpandintonewmarketsegmentsorintroducenewproductstoexistingsegments.
Providerscanenhancethecapability-buildingvalueoftheservicestheyprovidethroughinformed
designandtakingadvantageoftheirprivilegedaccesstocustomersatteachabledecision-making
moments.Theyarealsowell-positionedtodelivermessagescost-effectivelyandatscale,havingalready
investedinthesystemsforreachingclientsformarketingandservicedelivery.Theycandesignproducts
thatincorporateinsightsfrombehavioraleconomics,withfeatureslikeautomaticremindersorrewards.
Thus,theyhaveopportunitiesunavailabletoanyotheractortoinfluencefinancialcapability.
Juntos Finanzas Like Weight Watchers forsavers at the base of the pyramid
When Juntos partners with a financial institution, itsends the banks account holders personalized textmessages via SMS that inform them about how
much they have saved (or spent) and encouragethem to keep saving. As a new startup in 2012,Juntos Finanzas won the G20 Innovation Award forFinancial Inclusion.
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Currently,theroleoffinancialservicesprovidersinpromotingfinancialcapabilityisunderestimated.
Manydiscussionsfocusonwhetherprovidersshoulddeliverfinancialeducationwhileoverlookingthe
manywaysproviderscaninfluenceclientcapabilitybyembeddingcapability-buildingapproacheswithin
theircoreoperations,asdescribedabove.Thisisauniquerolethatonlyproviderscanplay,andithasgreatpotentialtoadvancecapability.
Twoissuesariserepeatedlyregardingprovidersandfinancialeducation:conflictsofinterestand
financialsustainability.
Whileprovidershaveastakeinthefinancialcapabilityoftheirclients,itmayberelativelynarrow:to
ensurethatclientsunderstandhowtousetheirparticularproducts.Unlesstheyarefullservice
providersexpectingalong-termrelationshipwiththeirclients,providersmayberelativelyless
interestedindevelopingaclientsabilitytosetandachievefinancialgoals,bediscerningcustomers,
compareproductsorasserttheirrightsinadispute.Thelinebetweenclienteducationmessagesand
productpromotioncanbethin.Ourresponsetothisconcernisnottodiminishtheroleofprovidersin
financialeducation.Rather,itistoemphasizethatprovidersshouldnotbetheonlysource,andthat
directprovisionofeducationisnottheonlywayproviderscanhelpadvancefinancialcapability.Another
responseistoengageenlightenedprovidersindevelopingbestpracticeprinciplesforfinancial
education.
Thesustainabilityandscalequestionisnotsolelyaboutproviders.Thenumberofpeopletobereached
isenormous,andthecapabilitygapamongthetargetpopulationislargeandstubborn.Yetpublic
sourcesofsubsidyarelimitedandclientsarereluctantforfinancialeducation.Again,providersareinan
excellentpositionbecausetheyalreadyinteractwithclientsonalargescaleandthoseinteractions
generatetherevenuethatsustainsthem.Microfinanceinstitutions,forexample,oftenprovidepre-loan
trainingtoclientssothattheywillunderstandhowgrouplendingworks.Providersshouldbeableto
incorporatesomefinancialeducationmessagesorfeaturesatlargescaleintotheirclientrelationshipswithoutrequiringexternalsubsidy,andmaybewillingtodomorewithasmalladditionalsubsidy.
Furthermore,providerscanpartnerswithNGOsandfinancialeducationpractitionerstooffertheir
clientsfinancialeducationatkeyteachablemoments.
RegulatorsandPolicymakers .Whilepolicymakersincreasinglyrecognizethatfinancialcapabilityisan
importantcomponentofbuildingstablefinancialsystems,theyarestillsortingoutthemosteffective
rolesforthepublicsectorinthisarea.Certainlygovernmentshaveanimportantroleincoordinating,
crafting,andoverseeingnationalstrategiesforfinancialcapabilitythatoutlinetheresponsibilitiesofthe
variousactorsthatneedtobeinvolved.Thisroleincludesmeasurementofnationallevelsoffinancial
capability,fundingofresearch,testingofeffectiveapproaches,andcreationofstandardsandbest
practices,suchasstandardsondisclosureofproducttermsbyfinancialserviceproviders.Allofthese
stepsareneeded.
Inaddition,governmentshaveanimportantbriefasdeliverersoffinancialcapabilitymessages,
especiallytoensurethatclientsunderstandtheirrights.Inanincreasingnumberofcountries,
governmentsareinvolvedinintegratingfinancialeducationintoschoolcurricula,althoughbest
practiceshaveyettoemergefromwidelydisparateefforts.Manyregulatoryauthoritiesprovide
consumerinformationthrougharangeofoutlets,fromtheonlinecoursesoftheU.S.FederalDeposit
InsuranceCorporationtotheinformativebrochuresofBankNegaraMalaysia.Governmentsalsodeliver
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financialeducationthroughspecializedclasses,counseling,andthelike(orcontractwiththird-party
deliverersusingpublicfunds).
Governmentsalsohaveauniqueroleinfundingthecost-effectiveresearchthatisneededtoadvance
thefield.Majortopicsforfurtherresearchincludemeasurementoffinancialcapability,thebusiness
caseforfinancialcapability,andtherelativeefficacyofvariousinterventions.Governments,donors,and
privatefoundationscansupplytheresourcesneededbyacademicsandotherresearcherstoinvestigate
thesetopics.
SocialSectorOrganizations .Becauseoftheirindependenceandfocusonclientwelfare,socialsector
organizationsareanessentialpartofthemixinfinancialcapabilitydevelopment.Theycanprovidethe
broader-basedmessages(e.g.,financialgoal-setting,moneymanagementandclientrights)andmore
extensivetrainingthanprovidersaresometimesinterestedinoffering.Theopportunitiesfor
engagementaretoomanyandvariedtolist,butthemostfrequentroleisinthedirect,face-to-face
provisionoffinancialeducationandcounseling.
Creativityiscalledforinthedesignoftheseinterventions.Stand-alonefinancialeducationcourseshave
anumberofdrawbacks:theyareexpensive(limitingscale),clientsareoftenuninterestedinattending,
andthemessagesareseparatedfrommomentsofdecision-making.Financialeducatorsareinnovating
tofindwaystoovercomethesechallenges,experimentingwithvariousdeliveryapproachesandforging
linkageswithfinancialinstitutionsandotherkindsofsocialprogramsinordertoconnectwithpeopleat
therighttimeandineffectiveways.Indeed,partnershipsbetweennonprofitsandfinancialservice
providersmaybeoneofthebestwaystoenableproviderstoinstalleffectivefinancialeducation
techniques.
Manycost-effectiveinterventionsaresimple,suchashavingfieldagentsusescripts,flipbooks
(promoted,forexample,byMicrofinanceOpportunities),andpostersduringclientinteractions.Another
simpleidea,theuseofrulesofthumbtohelpclientsdevelopusefulhabits(promotedbyIdeas42),isbasedonlearningaboutthechallengeofofturninginformationintobehavior.Providersarealso
trainingtheirfieldagentstobemorefinanciallycapablethemselvesinordertomakethemmore
effectiveinconveyingfinancialcapabilityconceptstoclients.
LookingtotheFutureTherecognitionthatfinancialcapabilityisanessentiallifeskillisexpanding,andvariousactorsglobal,
national,andlocalareinvestingineffortstoadvancecapability.However,atpresentthescaleofthese
effortspalesbeforethemagnitudeofthechallenge.
Atamulti-nationallevel,theOrganisationforEconomicCo-operationandDevelopment(OECD),through
itsInternationalNetworkonFinancialEducation(INFE),haspublishedguidelinesonnationalstrategiesforfinancialcapability.TheGovernmentofRussiasFinancialLiteracyandEducationTrustFundatthe
WorldBankhasjustcompleteditseffortstomeasurefinancialcapabilityinsevencountries,including
Mexico,Nigeria,andTurkey.Thestudiesofferafirstlookatsimilaritiesanddifferencesincountry
populationsregardingspecificfinancialcapabilitycomponents.Forexample,onusinginformationand
notoverspending,peopleindifferentcountriesscoredsimilarly,whereasonbudgetingand
saving,differencesweremuchgreateracrosscountries.Sucheffortstomeasurefinancialcapabilityin
countriesoffersinsightsoneffectivepolicyandprogramdesignforfinancialcapability.
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Anumberofnational-levelofinitiativesarealsobeingimplemented.Brazilhasbeenrecognizedforits
effectivepublic-privatepartnershiptoimprovefinancialcapability.Policymakersinsomecountries,
includingTanzania,arecraftingstrategiestoimprovetheircitizensfinancialliteracy.TheFinancialServicesRoundtable,whichrepresentsmajorintegratedfinancialservicescompaniesintheUnited
States,isonlyoneofmanysourcesprovidingaccestofreeresourcesforschoolstoincorporateinto
theirK-12curricula.
Theseandmanyotherinitiativesprovideconfidencethattheplayersinthefinancialinclusionworldare
increasinglyalerttotheimportanceoffinancialcapabilityandwillingtosupportitactively.The
challengeisgreat,muchinvestmentandhardworkisneeded,butweincreasinglyunderstandhow
importantthetaskis,andarestartingtodevelopbettertoolstohelp.
Weproposefoursummarypointsforallactorsto
keepinmindastheyworktoadvancefinancialcapability :
1. Financialcapabilityisanongoingprocessofbuildingmasteryinonesfinanciallife.2. Behaviorisattheheartofadvancingcapabilityandwemustintegratewhatweknowabout
humanbehaviorintotheprovisionoffinancialservices.
3. Everyactorinvolvedinfinancialinclusionhasauniqueandimportantroletoplayinadvancingcapability.
4. Wearestillatastageoflearningandexperimentationabouthowtoadvancefinancialcapabilityandwhatbusinessmodelscansupportit.
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Roadmap to Financial InclusionFinancial CapabilitySeptember 2013
1. Embed Financial Capability into all Aspects of Finan cial Inclusion
Increasingfinancialcapabilityisanessentialenableroftheexpansionoffinancialservicestoboth
unservedandunderservedpopulationsandisalsoessentialforproblemminimizationinthefinancial
system.Financialcapabilitycannolongerbeseenasanafterthought;itmustbeconsideredasa
mainstreamprincipleembeddedacrossconsumer-orientedfinancialservices.Consumercapabilitymust
beprioritizedinproductdesign,technologyinterfaces,andclientprotection.
2. Incorporate What We Know About Learning and Behavior Changeinto Financial Capability Intervention Design
Muchisknownabouthowpeoplerespondtodifferentkindsofmessages,abouttheircognitivebiases,
andaboutwhatittakestocreatenewhabits.Interventionsaimedatincreasingfinancialcapability
shouldmakeuseofsuchinsightsespeciallythoseregardingteachablemoments,theroleofemotions
inlearningandbehavior,culturalinfluences,changinglifecycleneeds,decision-making,andsoon.
3. Providers Take Responsibility to Contribute to FinancialCapability Building
Allprovidersshouldlookforopportunitiesintheirbusinessorservicedeliverymodelstoprioritize
clientsfinancialcapability.Ataminimum,theymustensurethatclientshaveaccesstotheinformation
necessarytomakeaninformeddecision,whichalignswiththecoreprinciplesofclientprotection.We
encouragefinancialserviceproviderstoincorporatespecificfeaturesintotheirproductdesignand
delivery,suchasstrategicpositioningofchoices,useofreminders,orrewardsforresponsiblebehavior,
andtoavoidpracticeswhichmayleadtopoorfinancialbehaviors,suchasusingteaserratesandotheraggressivesalespractices.
IV.Recommendations
SupportOrganizations
Regulators
Providers Regulators Support
Organizations
Providers
Providers Addressing Customer
Needs
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Roadmap to Financial InclusionFinancial CapabilitySeptember 2013
4. Governments Design Government-to-Person Payment Systems inWays That Promote Financial CapabilityGovernmentscanbesomeofthelargestprovidersoffinancialservicesinacountrythroughtheir
disbursementofgovernmentpayments.Assuchtheyhaveanopportunitytopromotefinancial
capabilitybyprovidinghouseholdswithopportunitiestoexerciseit.
ActionPoint:Providerecipientofgovernmentpaymentswithconvenient,evenautomatic,
optionstoapplyportionsoftheirgovernmentpaymenttowardsfinancialactionssuchassaving
orpayingdowndebt.
5. Governments Create and Implement Cohesive National Strategiesto Promote Financial Capability
WerecommendthatallcountriesbuildonprinciplespresentedinresourcessuchastheOECD/INFE
High-LevelPrinciplesonNationalStrategiesforFinancialEducationtocoordinateeffective,multi-
stakeholderplansforimprovingfinancialcapabilityacrosstheircitizenry,especiallyamongthoseatthe
baseofthepyramid.Financingmodelsthatbringtogetherpublicandprivatefundingshouldsupport
thesemulti-stakeholderstrategies.
ActionPoint:Allgovernmentsshoulddesignatealeadagencythathasownershipand
responsibilityovercoordinatingthenationalstrategy,andthisagencyshouldatminimum
engagetheministersofeducationandfinanceandfinancialregulators.
ActionPoint:Developandimplementindicatorstomeasureandtrackfinancialcapabilitylevels
atanationallevel.
6. Educate the Public on the Importanc e of Financial Capability
Tofacilitatetheadoptionoffinancialcapabilityasasocialvalue,werecommendawareness-building
campaignswithincountriestosensitizeallstakeholders,andnamelyfinancialconsumers,onthe
importanceoffinancialcapabilityandtheconsequencesofitsabsence.
Regulators
Regulators
RegulatorsSupport
Organizations
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Roadmap to Financial InclusionFinancial CapabilitySeptember 2013
7. Ensure All Students Receive Financial Education Before CompletingPrimary and Secondary School
Toensurethateveryonehasabasicleveloffinancialliteracy,everycountryshouldincorporatefinancialeducationclassesaspartofregularschoolcurriculum.Researchisneededtodevelopbestpracticesinthis
area.
8. Continue Innovating to Improve Financial Education DeliveryMethods and Scale
Increasedinnovationisneededtofindsustainableandeffectivewaystodeliverfinancialeducation.Thispracticalinnovationshouldbecoupledwithevolvingresearchoncapabilityacquisition,inordertoimprove
theefficacyfinancialeducationefforts,aswellasstudiestrackingtheimpactofvariousinterventions.
9. Deepen Understanding of the Busines s Cases for FinancialCapability for Consumers and ProvidersToensurethatfundingisallocatedtopriorityareasforbuildingfinancialcapability,werecommendthe
generationofresearchthatcomparesthecostsoffinancialincapability(fornationalfinancialsystemsas
wellasforfinancialserviceproviders)withthecostsofimplementingeffectivestrategiestobuild
capability.Researchisalsoneededonhowtomakethefinancialcapabilitysupportssustainableand
scalable.
Regulators SupportOrganizations
ResearchAgenda
SupportOrganizations
ResearchAgenda
SupportOrganizations
ResearchAgenda
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Roadmap to Financial InclusionFinancial CapabilitySeptember 2013
10. Use Partnerships to Get the Right Intervention to Clients at theRight Times. Experienced Financial Education Providers ShouldLeverage their Expertise and Knowledge About Clients Needs to InformPrivate and Public Sector Actors
Thisrecommendationenvisionspartnershipsbetweenfinancialserviceprovidersandnon-profit
organizationsspecializedinfinancialcapabilitythatcanhelpdesignanddelivercapability-building
interventions.Thismatters:Knowledgeaboutfinancialcapabilityisrapidlyevolvinganddoesnotoftenreside
withinproviders,andyetthespecialistsneedtotapintotheclientinteractionsprovidershavethe
teachablemoments.
Opportunitiesforpartnershipsinvolveawiderangeoforganizations,includingpublicactors.Forexample,
agenciesorinstitutionsthatinteractwithindividualsatlifemilestoneevents,suchasschools,maternity
clinicsoremigrationandimmigrationoffices,areallprospectivepartnerswithfinancialcapabilityspecialists,
astheyarewellplacedtooffertargetedfinancialeducationresourcestotheirconstituents.
Example:NGOextendsaninvitationtoafinancialserviceprovidertogathertheirexperienceand
perspectiveonafinancialcapabilityprogramfornewmicroinsuranceclients.
Example:NGOand/orMFIreachesouttoleadcontactintheministryofeducation,employment,
and/orsocialwelfaretoguidethedevelopmentandlaunchofanewfinancialeducationandjob
trainingprogramforunemployedpeople.
11. Technology Providers Support the Delivery of Financial Educationand Development of Financial Capability
Weencouragetechnology-providers,suchasmobileoperators,toexplorehowtheycanintegratelow-cost,
technology-basedapproachesforbuildingfinancialcapability.
ActionPoint:Throughapublic-privatepartnership,buildanonlineresourcethat:
Canserveasastorehouseforallfinancialproductsofferedbyprovidersandavailableto
consumers.
Useaseriesofquestionstoprovideeachconsumerwithafilteredandpersonalizedsetof
financialservicestochoosefromwhendecidingtouseafinancialservice.
ActionPoint:UseSMSandmobiletechnologytoincentivizefinanciallycapablebehaviourthrough
reminders,community,andreal-timeinteraction.(Example:JuntosFinanzas)
Providers Regulators SupportOrganizations
Providers Technology-
EnabledBusinessModels
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Roadmap to Financial InclusionFinancial CapabilitySeptember 2013
ThisworkingpaperwascreatedthroughaseriesofconsultationswithanexpertsworkinggrouponFinancial
Capability.WewishtoexpressourgratitudetotheFinancialCapabilityWorkingGroupmembersfortheir
activeparticipationingroupdiscussionsandthoughtfulcontributions.
Wealsothankthemanyadditionalexpertswhorevieweddraftsofthepaperandprovidedinput.Finally,we
wishtothankthemanyCFIandAccionstaffmemberswhoprovidedsupportincludingAllisonBernstein,
MereneBotsio,ElizabethDavidson,AnitaGardeva,SonjaKelly,andAmandaLotz.
TheCenterforFinancialInclusionacceptsresponsibilityfortheviewsexpressedinthispaper.Thoseviewsdo
notnecessarilyreflecttheviewsofindividualworkinggroupmembersortheirorganizations.
ExpertsWorkingGrouponFinancialCapability
JasmineThomas ,CitiFoundation(Chair)
AnitaGardeva,CenterforFinancialInclusion
(Facilitator)
MoniqueCohen,Microfinance
Opportunities/IndependentAdvisor
SolanaCozzo,MasterCardWorldwide
SarahGordon,CenterforFinancialServices
Innovation(CFSI)
MartinHintz,Allianz
RichardHinz,Consultant,U.S.
ClaireInnes,U.K.DepartmentforInternational
Development
IdaRademacher,TheCorporationforEnterprise
Development(CFED)
RobynRobertson,MicrofinanceOpportunities
BeniaminoSavonitto,InnovationsforPovertyAction
AndreaStilesPullas,AVALConsulting
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This publication was produced by Financial Inclusion 2020:
1101 15th Street NW, Suite 400, Washington, DC 20005 USA Tel 202.393.5113 Fax
202.393.5115 www.centerforfinancialinclusion.org