What is “financial capability” and how can we best nurture it to boost the social and economic prospects of the poor? This central question permeated the latest Citi-FT Financial Education Summit held last month in Jakarta, Indonesia. While I was there to present on YouthSave interventions in Nepal for the panel, “Financial Edutainment Strategies – Using Multimedia Content to Engage Target Audiences” as a component of their core theme, “Empowering the Disadvantaged: Inclusive and Innovative Approaches to Financial Capability”, several other relevant and interesting takeaways from participants stood out to me at the end of the two day conference...
Financial Education means different things to different people. Clearly the content and beneficiaries will vary by the financial education provider. From the presentations and discussions, it was observed that grant-funded financial education tends to have more generic topics for communities whereas financial education conducted by financial service providers tends to focus on educating the clients on the process and benefits of the product or service. Certainly, this is not always the case as community-based and financial institution-led education can be grant funded. While this seems intuitive, it’s an important point, especially as the financial education field continues to find ways to (re)define itself.
Financial Education is not just about education anymore. There was a general consensus that any financial inclusion agenda must incorporate financial education, but that financial education by itself is not sufficient and has to be linked with access to financial products and services for greater effectiveness. This is where a broader understanding of financial capability becomes important. In fact, CSD’s definition of Financial Capability – both ability to act (knowledge, skills, confidence, and motivation) and the opportunity to act (access to financial products and services) – was used during the conference. Interestingly, however, despite the increasing interest in the expanded notion of “financial capability”, the term “financial education” still dominated in most discussions and often the terms were used interchangeably.
More Governments are Getting Involved in Financial Education for Youth. Different country governments are taking different approaches to promoting financial education for youth. The Central Bank in Indonesia considers financial education to be an important part of their financial inclusion agenda, working closely with the Ministry of Education to include financial education in the school curriculum. The Department of Education in Australia also includes financial education programs in the Australian school curriculum, integrating financial education content in existing subjects rather than creating a new one. Financial education for youth (both in these examples and in most cases globally) when initiated by governments or government bodies, tend to exclude the link to financial products and services of any specific provider and thus is arguably not a financial capability intervention.
Data, Data and More Data. Disappointed with limited assessments of – and lacking any agreed upon international methodology to evaluate – the effectiveness of financial education programs, there was heavy emphasis on the need for data, data and more data in order to evaluate why and how financial education programs impact financial behavior.
Who is Responsible for Financial Education? Though most of the onus seemed to fall on microfinance and commercial financial institutions, many agreed that effective financial education would take a multi-stakeholder effort by the Government/Central Bank, agencies/NGOs, consumer bodies, financial institutions and media. Who pays for the financial education also depends largely on the business case. If the microfinance and commercial financial institutions can recover their costs, they will consider financial education as an investment. But without better assessments of what formats of financial education yield the greatest benefits, it is difficult to know whether cost-recoverable financial education formats are the best or most appropriate options.
New Financial Education Tools Come with Trade Offs. There are always tradeoffs among costs, depth of message and outreach while selecting channels to deliver financial education. For instance, mass media (TV, radio, print) may have high outreach but shallow depth of message, while the opposite can be true for direct training. Unfortunately, cost-benefit analyses of the different methods have not been conducted in a way that allows us to fully understand which tradeoffs are most effective.
Should Consumer Protection be integrated with Financial Education? Consumer protection also came through as an important component of the financial capability equation. While providing better access to financial products it is equally important to ensure that the clients understand the benefits, the risks and the costs of the products on offer.
The issues and questions raised at the Summit provide ample food for thought for the evolving financial education/capability field; I personally left with more questions than answers. However, if there was one core lesson I took away from the meeting for YouthSave, it is that we should do what we can to capitalize on opportunities that arise during our implementation to uncovering some answers.
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Jaya Burathoki