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Strengthening the Population's Financial Capability – What does international experience tell us?

Sofia, Bulgaria 11 June 2014

Shaun Mundy

shaunmundy@hotmail.com International Financial Literacy Consultant

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• My definition:
• It concerns personal and household finances.
• The aim is to influence how people behave – not merely to give

them knowledge, understanding and skills.

Financial literacy is the know led ge, und ersta nd ing, skills and confid ence w hich lead a person to m a ke fina ncia l d ecisions and take actions w hich are a p p rop ria te to their circum sta nces. It excludes:

• Marketing initiatives;
• Advice or encouragem ent to use a particular financial institution; and
• Entrepreneurship.

W ha t is m ea nt by fina ncia l litera cy ?

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• Prudential regulation, financial consumer protection

regulation, financial inclusion initiatives and financial literacy initiatives all have a vital role to play in the development and maintenance of a stable and vibrant financial sector.

• None is sufficient on its own: they are complementary,

rather than alternatives.

Fina ncia l litera cy initia tiv es a re necessa ry , but not sufficient.

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A national strategy can help to:

Benefits of ha v ing a na tiona l stra tegy on fina ncia l litera cy :

In the absence of a national strategy, financial literacy initiatives tend to be p a tchy and uncoord ina ted and to la ck stra tegic focus.

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Set priorities.

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Harmonise the activities of stakeholders with the national strategy.

3

Reduce the risk of both unplanned gaps and unnecessary duplication.

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Countries w ith or d ev elop ing na tiona l fina ncia l litera cy stra tegies includ e:

Armenia Azerbaijan Australia Belarus Brazil Canada Colombia Czech Republic Estonia Ghana India Indonesia Ireland Japan Kenya Latvia Lebanon Malawi Malaysia Mauritius Mexico Netherlands New Zealand Nigeria Peru Poland Portugal Romania Russian Federation Rwanda Serbia Singapore Slovenia South Africa Spain Sweden Tanzania Thailand Turkey Uganda UK Ukraine USA Zambia

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W ho benefits from a m ore fina ncia lly litera te p op ula tion?

$

Consum ers

more likely to take advantage of formal financial products which are suitable for them; less likely to accumulate unmanageable debts; less likely to fall victim to financial frauds, such as Ponzi schemes

Fina ncia l serv ices ind ustry

consumers who are informed and engaged are more likely to buy appropriate financial products and services (this increases business volumes; reduces marketing costs; and leads to fewer complaints)

Fina ncia l serv ices regula tors a nd the Gov ernm ent Ed uca tiona lists Em p loy ers NGOs

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W orking in p a rtnership : Interna tiona l exp erience

• No single organisation can im prove financial literacy on its ow n
• There are m any organisations w ith an interest in im proving

people's financial literacy w ho can potentially contribute

• Typically, a broad range of partners from the public, private and

non-profit sectors collaborate

• Most com m only, the im plem entation of national strategies on

financial literacy is led by a financial services regulator

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W orking in p a rtnership : UK exa m p le

• Developm ent and im plem entation of first national strategy on

financial literacy led by regulator (Financial Services Authority).

• Steering Group advised FSA, com prising Ministers + Chairm en &

CEOs of FS industry, NGOs, educationalists, em ployers, m edia.

• Many different types of organisation w orked in partnership –

e.g. FSA, Governm ent, financial institutions, educational bodies, NGOs (especially those supporting various types of disadvantaged people), em ployers & m edia.

• Organisations typically consulted FSA before deciding on FL

projects – to enable them to fill gaps & to avoid duplication.

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• ... so long as “financial literacy” programmes are not, in reality,

marketing.

• People need to be able to trust a financial education initiative as

providing objective advice. They will not do so if it is – or seems to be – an advertisement or other marketing.

• In UK, an educational NGO awards Quality Marks – which teachers

can rely on – to resources which meet criteria, including objectivity

Ba nks a nd other fina ncia l institutions ca n p la y a n im p orta nt role…

Financial Literacy Marketing

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W hy should fina ncia l litera cy b e

• b jectiv e?

1.

In many countries, there is a luck of trust in the financial services industry (e.g. because of poor experiences of themselves/others –

• r simply unfamiliarity). People need to understand why using

financial services will benefit them (and not merely be good for the business of financial institutions)

2.

Financial education is like other forms of education – the purpose is to equip people with life skills, not persuading them to acquire particular products or helping them to complete forms. (Nothing wrong with these things – but they are not financial literacy.)

3.

If people think that an initiative is marketing/advertising, then the reality is that it is marketing/advertising

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Tea ch p eop le the b a sics

If people do not budget, they are unlikely to have money to save. They need to be educated about why budgeting would benefit them – not just the mechanics of how to budget. Similarly, people need to be educated about why saving would be in their interests – not just the mechanics of how to save. People need to be educated on how to avoid financial frauds and

• ther unexpected losses – if they (or people they know) suffer

frauds/losses, they will not feel confident in using financial institutions. People need to be confident that they will be treated fairly and that they will feel welcome – or they will not use financial institutions.

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Insig hts from b eha v ioura l econom ics

Consumers' behaviour depends not only on their knowledge and skills, but also on their psychological biases/attributes. Important to focus on people's attitudes, as well as on education, information and skills. People tend:

• to be overwhelmed and do nothing if they are given too much

information or too many choices

• to be over-confident about their ability to manage their personal

finances and to ignore information which calls into question their views

• to struggle to make good decisions.

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Lessons for fina ncia l ed uca tion p rog ra m m es

Lessons include:

• keep things as simple as possible
• use relevant and engaging language and contexts
• repeat messages
• use a variety of methods and channels
• direct people to particular steps (e.g. increase their saving); and

make active interventions rather than merely provide passive information or education

• provide people with training on how to make good decisions.

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Ty p ica l fea tures of effectiv e fina ncia l litera cy p rogra m m es:

1.

User-friendly – being based on what consumers will in practice engage with.

2.

Different programmes use a variety of approaches and channels.

3.

Start with the basics – build on these for those consumers who need to have more sophisticated knowledge and skills.

4.

Use clear, simple and lively communications (less is more!).

5.

Focus on attitudes and changing behaviours, not just knowledge and skills.

6.

Programmes are tested; and are monitored and evaluated.

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Exa m p les of fina ncia l litera cy p rogra m m es:

Financial education in schools Financial education for young people Financial education presentations in workplaces Financial education via clubs, associations and community groups Financial education for people in rural communities Taking advantage of teachable moments Use of trusted intermediaries Mass communications Financial education days/weeks

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UK exa m p le: Fina ncia l ed uca tion for exp ecta nt m others

1.

User-friendly – a “teachable moment”. New mothers helped to design the resources. Pack is distributed by midwives (trusted intermediary).

2.

Variety of approaches and channels – hard copy and internet.

3.

Starts with the basics – different sections on different topics.

4.

Uses clear, simple and lively communications + behavioural focus.

5.

Both concept and draft resources were tested in advance with expectant mothers + programme was monitored and evaluated (a high proportion of new mothers said the resources helped them to manage their family finances at a time of change in their lives).

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Prioritise:

• This includes deciding not to undertake initiatives which could be

cost-effective – because there are other initiatives which would be more cost-effective.

• If any organisation tries to do too much, resources are likely to be

spread too thinly.

• Decide on some initial priorities – taking into account needs, likely

reach, likely impact (i.e. changes in people's behaviour), the resources which are expected to be available, and opportunities.

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Test in a d v a nce, then m onitor a nd ev a lua te:

• Testing can be via focus groups and/or via pilot tests.
• It is important to monitor and evaluate each financial education

programme in order to: determine whether it is cost-effective and should be continued (possibly with changes) or whether it should be stopped; and to establish any lessons for other financial education programmes.

• Qualitative as well as quantitative assessments should be made.
• Evaluation should be built in from the outset – otherwise, there will

almost certainly be gaps in what can be assessed.

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Skills w hich a re need ed to und erta ke effectiv e fina ncia l litera cy p rogra m m es:

1.

Ability to see things from consumers' perspective.

2.

Understanding of how people learn.

3.

Excellent communication skills – ability to put things simply and clearly.

4.

Ability to work successfully with partners.

5.

Project management skills.

6.

Note: the necessary levels of financial expertise can fairly easily be acquired.

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Com m on m ista kes:

• Unnecessary duplication – e.g. more than one financial literacy

website

• Undertaking programmes which are unlikely to be cost-effective

(in terms of impact, reach and sustainability – given the costs involved)

• Going it alone – rather than working in partnership
• Providing what it is thought that people need – rather than what, in

practice, they are willing to use

• Over-complicating
• Combining financial education with marketing – so, people do not

trust the “financial education”

Tha nk y ou!

Shaun Mundy shaunmundy@hotmail.com