Enabling Financial Capability Along the Road to Financial Inclusion: Financial Inclusion 2020 Financial Capability Working Group

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  • 7/29/2019 Enabling Financial Capability Along the Road to Financial Inclusion: Financial Inclusion 2020 Financial Capability Wo

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    Enabling Financial Capability Along

    the Road to Financial Inclusion

    Financial Inclusion 2020 Financial Capability Working Group

    September 2013

    CreditReporting

    FinancialCapability

    ClientProtection

    Addressing Customer

    Needs

    Technology-EnabledBusinessModels

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    www.financialinclusion2020.org

    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    About the FI2020 Roadmap Working Groups

    Whatwillittaketoachieveastateoffullfinancialinclusion?In2011,theCenterforFinancialInclusionaskedthis

    questioninaglobalsurvey,andover300practitionersgavetheirperspectivesonthekeyopportunitiesand

    obstaclestofinancialinclusion .

    Basedontheresponses,theCenteridentifiedfivepriorityfocusareasthatarekeytoachievingfinancialinclusion,

    whichhavebeenusedasthebasisforabroadconsultativeprocesstowardaRoadmaptoFullFinancialInclusion.

    Overthecourseof2012and2013,thisprocessengageddozensofexpertsandindustryparticipantsindeveloping

    anaction-orientedblueprintforreachingnewandunderservedmarkets.Thefivefocusareasare:

    AddressingCustomerNeeds ,chairedbyConsultativeGrouptoAssistthePoor(CGAP),focusesondeepeningourunderstandingofclientneedsandtranslatingthatknowledgeintopracticewhile

    expandingtherangeoffinancialservicesavailabletounderservedmarkets

    Technology,chairedbyVisa,analyzesthepotentialofnewtechnology-intensivechannelstoreachnewcustomers,loweroperatingcosts,increasesecurity,anddiversifyfinancialproductsavailabletolow-

    incomeclients.

    FinancialCapability,chairedbyCiti,focusesonempoweringclientstoknowtheirrightsasconsumers,andhavetheskills,attitudes,aspirations,andconfidencetoexercisethoserights.

    ClientProtection,chairedbytheSmartCampaign,outlinesstepstodeepentheimplementationofclientprotectionmeasuresforthebenefitofconsumersandstabilityofmarkets.

    CreditReporting,chairedbyInternationalFinanceCorporation(IFC),promotesextendingcreditreportingsystemsinordertoexpandaccessfornewclientswhilemanagingriskforfinancialinstitutions.

    Eachofthefiveworkinggroupshascraftedaroadmapthatasks:Whatisthevisionforthistopic?Whatstandsin

    thewayofachievingthevisionandwherearethegreatestopportunities?Whataretheenablingactionsand

    correspondingactorswhocanadvancethevision?

    The Main Idea

    Financial 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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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    I.Introduction

    Successfulfinancialinclusionrequiresfinanciallycapableconsumers.1Withinthisdecade,anenormous

    numberoffirst-timeclients,alargenumberofthemfromtraditionallyunservedpopulationsegments,

    willbeginusingformalfinancialservices.Butthisexpansionoffinancialservicesatthebaseofthe

    pyramidmustbeaccompaniedbyattentiontofinancialcapabilityifistobringthedesiredbenefitsfor

    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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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    susceptibilitytorogueproviders.Thestakesareespeciallyhighforlower-incomepeople,aspoor

    decisionscanhavesevereconsequences.Withstrongercapability,clientscanusefinancialservicesto

    makethemostoftheirscarceresourcesacrosstheirlifetimesandadvancetheirgreaterlifegoals.

    Itisintheinterestofproviderstoensurethatclientshavehighfinancialcapabilitysothattheywilluseservicesactivelyandresponsibly,whichinturnminimizesgapsbetweentheextensionofaccessand

    actualusage.Forgovernments,financiallycapabilityisacrucialbuildingblockofeconomiccitizenship

    andameanstoprotectclientsandpromotestabilityintheretailfinancialsystem.

    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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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    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,providersandpolicymakersrecognizethat widespreadfinancialcapabilityisnotonlyadesirable

    endstate,itisalsoanecessaryconditionforrealizingthebenefitsofincreasingaccesstofinance.

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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    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

    educationandfinanicalcapabilityand

    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

    finanancialintermediation.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,theroleoffinanicalservicesprovidersinpromotingfinancialcapabilityisunderestimated.

    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.

    LookingtotheFutureTherecognitionthatfinancialcapabilityisanessentiallifeskillisgainingrecognition,andvariousactors

    global,national,andlocalareinvestingineffortstoadvancecapability.However,atpresentthe

    scaleoftheseeffortspalesbeforethemagnitudeofthechallenge.

    Atamulti-nationallevel,theOrganisationforEconomocCo-operationandDevelopment(OECD),

    throughitsInternationalNetworkonFinancialEducation(INFE),haspublishedguidelinesonnationalstrategiesforfinancialcapability.TheGovernmentofRussiasFinancialLiteracyandEducationTrust

    FundattheWorldBankhasjustcompleteditseffortstomeasurefinancialcapabilityinsevencountries,

    includingMexico,Nigeria,andTurkey.Thestudiesofferafirstlookatsimilaritiesanddifferencesin

    countrypopulationsregardingspecificfinancialcapabilitycomponents.Forexample,onusing

    informationandnotoverspending,peopleindifferentcountriesscoredsimilarly,whereason

    budgetingandsaving,differencesweremuchgreateracrosscountries.Sucheffortstomeasure

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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    financialcapabilityincountriesoffersinsightsoneffectivepolicyandprogramdesignforfinancial

    capability.

    Anumberofnational-levelofinitativesarealsobeingimplemented.Brazilhasbeenrecognizedforitseffectivepublic-privatepartnershiptoimprovefinancialcapability.Policymakersinsomecountries,

    includingTanzania,arecraftingstrategiestoimprovetheircitizensfinancialliteracy.TheFinanical

    ServicesRoundtable,whichrepresentsmajorintegratedfinanicalservicescompaniesintheUnited

    States,isonlyoneofmanysourcesprovidingaccestofreeresourcesforschoolstoincorporateinto

    theirK-12curricula.

    Theseandmanyotherinitiativesprovideconfidencethattheplayersinthefinancialinclusionworldare

    increasinglyalerttotheimportanceoffinancialcapabilityandwillingtosupportitactively.The

    challengeisgreat,muchinvestmentandhardworkisneeded,butweincreasinglyunderstandhow

    importantthetaskis,andarestartingtodevelopbettertoolstohelp.

    Weproposefoursummarypointsforallactorsto

    keepinmindastheyworktoadvancefinancialcapability :

    1. Financialcapabilityisanongoingprocessofbuildingmasteryinonesfinanciallife.2. Behaviorisattheheartofadvancingcapabilityandwemustintegratewhatweknowabout

    humanbehaviorintotheprovisionoffinanicalservices.

    3. Everyactorinvolvedinfinancialinclusionhasauniqueandimportantroletoplayinadvancingcapability.

    4. Wearestillatastageoflearningandexperimentationabouthowtoadvancefinanicalcapabilityandwhatbusinessmodelscansupportit.

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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    1. Embed Financial Capability into all Aspects of Financial Inclusion

    Increasingfinancialcapabilityisanessentialenableroftheexpansionoffinancialservicestoboth

    unservedandunderservedpopulationsandisalsoessentialforproblemminimizationinthefinancial

    system.Financialcapabilitycannolongerbeseenasanafterthought;itmustbeconsideredasa

    mainstreamprincipleembeddedacrossconsumer-orientedfinancialservices.Consumercapabilitymust

    beprioritizedinproductdesign,technologyinterfaces,andclientprotection.

    2. Incorporate What We Know About Learning and Behavior Change intoFinancial Capability Intervention Design

    Muchisknownabouthowpeoplerespondtodifferentkindsofmessages,abouttheircognitivebiases,

    andaboutwhatittakestocreatenewhabits.Interventionsaimedatincreasingfinancialcapability

    shouldmakeuseofsuchinsightsespeciallythoseregardingteachablemoments,theroleofemotions

    inlearningandbehavior,culturalinfluences,changinglifecycleneeds,decision-making,andsoon.

    3. Providers Take Responsibility to Contribute to Financial Capability Building

    Allprovidersshouldlookforopportunitiesintheirbusinessorservicedeliverymodelstoprioritize

    clientsfinancialcapability.Ataminimum,theymustensurethatclientshaveaccesstotheinformation

    necessarytomakeaninformeddecision,whichalignswiththecoreprinciplesofclientprotection.We

    encouragefinancialserviceproviderstoincorporatespecificfeaturesintotheirproductdesignand

    delivery,suchasstrategicpositioningofchoices,useofreminders,orrewardsforresponsiblebehavior,

    andtoavoidpracticeswhichmayleadtopoorfinancialbehaviors,suchasusingteaserratesandother

    aggressivesalespractices.

    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 in WaysThat Promote Financial CapabilityGovernmentscanbesomeofthelargestprovidersoffinancialservicesinacountrythroughtheir

    disbursementofgovernmentpayments.Assuchtheyhaveanopportunitytopromotefinancial

    capabilitybyprovidinghouseholdswithopportunitiestoexerciseit.

    ActionPoint:Providerecipientofgovernmentpaymentswithconvenient,evenautomatic,

    optionstoapplyportionsoftheirgovernmentpaymenttowardsfinancialactionssuchassaving

    orpayingdowndebt.

    5. Governments Create and Implement Cohesive National Strategies toPromote 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 Importance of Financial Capability

    Tofacilitatetheadoptionoffinancialcapabilityasasocialvalue,werecommendawareness-building

    campaignswithincountriestosensitizeallstakeholders,andnamelyfinancialconsumers,onthe

    importanceoffinancialcapabilityandtheconsequencesofitsabsence.

    Regulators

    Regulators

    Regulators SupportOrganizations

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    Roadmap to Financial InclusionFinancial CapabilitySeptember 2013

    7. Ensure All Students Receive Financial Education Before Completing Primaryand Secondary School

    Toensurethateveryonehasabasicleveloffinancialliteracy,everycountryshouldincorporatefinancialeducationclassesaspartofregularschoolcurriculum.Researchisneededtodevelopbestpracticesinthis

    area.

    8. Continue Innovating to Improve Financial Education Delivery Methods andScale

    Increasedinnovationisneededtofindsustainableandeffectivewaystodeliverfinancialeducation.Thispracticalinnovationshouldbecoupledwithevolvingresearchoncapabilityacquisition,inordertoimprove

    theefficacyfinancialeducationefforts,aswellasstudiestrackingtheimpactofvariousinterventions.

    9. Deepen Understanding of the Business Cases for Financial Capability forConsumers and ProvidersToensurethatfundingisallocatedtopriorityareasforbuildingfinancialcapability,werecommendthe

    generationofresearchthatcomparesthecostsoffinancialincapability(fornationalfinancialsystemsas

    wellasforfinancialserviceproviders)withthecostsofimplementingeffectivestrategiestobuild

    capability.Researchisalsoneededonhowtomakethefinancialcapabilitysupportssustainableand

    scalable.

    RegulatorsSupport

    Organizations

    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 the Right Times.Experienced Financial Education Providers Should Leverage their Expertise andKnowledge About Clients Needs to Inform Private 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 Education andDevelopment 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,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