The global financial crisis has focused many governments and international financial institutions on financial literacy and capabilities (FLC) among people in low, middle and high-income countries (L/M/HICs). The crisis accelerated concerns about FLC that were already a priority among some economists and retirement experts who saw the need for more FLC programs to address the increase in the supply and complexity of financial products and institutions, the drift of governments towards having individuals assume more risk and responsibility for life-cycle planning (for example, retirement), high levels of household debt in HICs, and the need to improve access to these products and institutions in LICs as well as to provide basic business education and programs that help people to understand the costs and avoid indebtedness.
Last week I joined 40 experts from around the world in a workshop on measuring financial capability and the effectiveness of financial education programs sponsored by the World Bank and OECD. The emphasis was not on what we know, but to prepare for new research projects. The organizers of the workshop believed that social marketing might be an important component of some of these research projects, though what most participants seemed to believe social marketing consisted of when we began was mass media campaigns, entertainment education (particularly via soap operas) and, in a few cases, using social media.
Though my 'Evaluating social marketing, including media campaigns and soaps' panel was not until the second day, social marketing came up early and often in the prepared comments and discussion. What was interesting to me was how the majority of the participants were focused on behavioral outcomes and not just cognitive ones and how segmentation of audiences was also a critical part of many of their strategies. We heard from Daryl Collins about her work using financial diaries to understand the financial behaviors among the poorest of the poor in LICs [see Portfolios of the Poor]. She noted that most of these people do know how to save and budget as well as plan for life-cycle events, such as weddings and funerals, fairly well. What they don't know, she added, was how the financial systems and products work and the existence of, and how to access, consumer protection structures that are in place - such as credit bureaus. Among people in LICs she asked, what should be the impacts of FLC programs? Changes in assets...savings...use of financial services? And what do we measure - abilities and competencies or more pervasive concepts such as a future orientation that is believed to underlie or motivate financial planning behaviors?
Santosh Anagol also put on the table the question: Why isn't financial education provided by the market if people need it?' His hypotheses included (1) low demand and low perceived value of FLC programs by consumers; (2) behavioral biases on the part of consumers including myopia, discounting and overconfidence in their abilities to manage their finances; and (3) market failures, particularly the lack of consumer trust and the low credibility of the private sector (banks and other private financial institutions), that lead consumers to mistrust the information and be fearful of being swindled or deliberately misinformed by them. These market failures are one reason why governments are now looked to as a chief proponent and provider of FLC programs at this time. And why, he also asked as an example, can people in India be so cell phone literate that 500 million have one and yet only 200 million have a bank account? Clearly, we all agreed, more consumer research and some insight are needed.
While measurement and evaluation strategies were center stage, the discussions ranged far and wide about how to frame and understand the issues around financial literacy and education (FL&E). Some of the notes I made included:
- Can there be a universal evaluation framework for FL&E that is applicable across H/M/LICs?
- How do people in H/M/LICs think about and describe people they consider to be financially literate and illiterate?
- What are the objective indicators of financial capability and can they be arrayed on a continuum?
- What are the influences of peoples' social networks on their own financial behaviors and capabilities?
- What are the policy enablers and inhibitors of more or fewer financial competencies across countries?
- What are the consequences of low financial literacy - how do they vary for different segments of the population and across countries?
- Are social financial competencies, for instance knowing how to cope effectively with financial difficulties, as important as 'individual' capabilities such as opening a bank account and using credit responsibly?
- What are the potential inadvertent or negative consequences of financial education programs?
- Should FE programs focus on specific decision-making or event planning skills rather than more general or global financial capabilities?
- How are political election cycles and grant time limits constraining the use of innovative evaluation designs such as delayed treatment and time series analyses?
These and many other questions, issues and concerns - and possible solutions and approaches - were captured by the workshop organizers and will be used to inform a series of studies that will be launched later this year or early in 2010. They will also be shared with global networks of FL&E researchers and program designers including the US Treasury and the Social Security Administration that have become quite active in this area. Michelle Greene, the Deputy Assistant Secretary for Financial Education and Financial Access at Treasury, summed up the view that the financial crisis focuses us on financial education as part of financial security. And I can report that after 2 days of listening and being very patient with me at times, many of the participants have a new appreciation of how to use some social marketing concepts and strategies to think about and evaluate financial education programs around the world. The slides from my presentation.
About the Author:
R. Craig Lefebvre, PhD is an architect and designer of public health and social change programs. He is an Adjunct Professor of Prevention and Community Health at The George Washington University School of Public Health and Health Services. Most recently he was the Chief Maven at Population Services International (PSI) where he led PSI's technical teams in capacity-building, HIV, malaria, child survival and clean water programs, reproductive health, and social marketing as well as its research and metrics functions.