From Financial Literacy to Financial Action

Expanding financial access can be a beautiful thing, but how people understand and make use of financial tools deeply matters, too. Acknowledging the importance of financial literacy has become quite the trend in microfinance circles, even if folks aren’t entirely sure of how best to approach the subject.

Jonathan Morduch and I recently wrote a white paper for the McGraw-Hill Research Foundation about the state of financial literacy—and attempts to improve it—in the U.S. While the consumer finance landscape is, of course, quite different in the U.S. than it is in the developing world, many of the lessons we draw are applicable to other pockets of the world. After all, if people in a country where high-quality, low-cost financial products tend to be plentiful so often make foolish decisions about money management and financial planning, there clearly must be more complicated dynamics at play.

Indeed, as we read through the U.S. literature and processed its implications, we came to realize just how much things like institutions, social norms, and different types of knowledge have an impact on financial behavior. It’s not just facts, but self-knowledge and self-confidence that matter too. It’s not just about having access to good financial products, but also about being surrounded by others using them.

Improving financial literacy emerged not as a singular charge, but as a tangle of endeavors that necessarily brings together individuals, non-profits, financial service providers, government agencies, as well as the educational system. You can read the full white paper here.