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Financial Education Innovations and Impact

April 28, 2015Guy Stuart, Ph.D.Executive Director, Microfinance Opportunities

INTRODUCTION

Key Questions1. What problems can financial education address?

2. What challenges exist for financial education?

Examples of Impact

• Knowledge and Skills– Know how to save– Understand the uses of credit– Awareness of different types

of financial products– Ability to understand terms

and conditions of products– Ability to make interest rate

calculations– Know how to put together a

budget– Know how to track income

and expenses

• Behavior– Save more– Borrow less– Use more financial products

– Choose cheaper products

– Shop around for loans and borrow from cheapest lender

– Follow a budget

– Track income and expenses

AttitudesSelf-Efficacy

The Financial Capability Gap is large and likely to grow

Lack of capability directly impacts consumers’ ability to access and benefit from financial services

63%

37%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mobile Money Subscribers

Inactive Active

The Challenge: A Capability Gap

Recipients of Financial Capability

TrainingReceived Training: 100 Million Consumers

Need Training: 500 Million Consumers

Costs to Scale

WHAT WE KNOW ABOUT IMPACT

Overview

• Financial literacy predicts financial behavior• One study of studies showed that financial

education had limited impact on literacy and behavior (Fernandes and others, 2013)– Limited number of studies deliberately evaluating FE

impact• More recent study of studies by World Bank

researchers found that FE does have an impact on literacy and some behaviors (Miller and others, 2014)– Highlighted saving and record-keeping

Financial Education in Schools

• Classroom education can result in improved knowledge and behavior, if done right

• Bank of Italy study of effect of financial education on school children showed positive increases in knowledge (2008 to 2012)

• Federal reserve study of states’ variations in provision of financial education in high schools showed positive impact on credit scores

• World Bank study in 868 high schools in Brazil showed improved knowledge and increased savings

Financial Education out of School

• Out-of-school youth and adults harder to reach and more expensive

• Trade off: depth, breadth, and cost• As a result, there have been many innovations

in delivering FE to adults

INNOVATIONS AND IMPACT

Common Characteristics

• Timely– “Just-in-time” content– Reinforcement

• Relevant• Simple

– Intuitive design– Rules of thumb and other methods

• Interactive, at three levels:– With the content– With peers– With an educator

Recent Innovations

• Text messages• Embedded education• Online education

TEXT MESSAGES

Innovations for Poverty Action Studies

• Savings reminders experiment – (Karlan et al., 2014)– Bolivia, Peru, Philippines– Messages that mention both savings goals and financial

incentives are particularly effective• Loan repayment experiment

– (Karlan and Zinman, 2012)– Text messages did not help with repayment rates except

when the name of the loan officer was mentioned• Rules of thumb for business accounting experiment

(Drexler et al., 2011)

Juntos

• 2-way, automated SMS conversations • Partners with banks & MNOs offering financial

services to the mass market & low income• Colombia: a bank offering a mobile savings

account to the newly banked, the Juntosgroup had 50% higher savings balances and a 33% higher active client rate compared to the control

EMBEDDED EDUCATION

MFO Embedded Consumer Education: Zambia

Results from Zambia

South Africa Soap Opera Call to Action

ONLINE EDUCATION

Online Education

• Benefits– Scalable– Interactive at all three levels– Always available and self-paced

• Challenges– We still don’t know what works– Access for low-income and marginalized

populations

Revolution Credit

Revolution Credit’s Impact

FINAL THOUGHTS

FE is a Gateway to a Client-Centered Approach

Innovations and Impact

• Timely– “Just-in-time” content– Reinforcement

• Relevant• Simple

– Intuitive design– Rules of thumb and other methods

• Interactive, at three levels:– With the content– With peers– With an educator

Guy Stuart, PhDguystuart@mfopps.org

Julie Leejuliel@mfopps.org