What does financial access look like? I like to think of it as a non-prescriptive goal in two parts. First, high-quality, affordable financial services are available. Second, people are aware of the services available to them. When these conditions are met, people are free to choose whether or not to use the services, and “access” is created.
A recent working paper challenged me to probe this definition of access further. Using data from the Mexican Family Life Survey, the authors explore a) whether households are aware of a specific financial product, and b) given that awareness, if they use the product. They found, among other results, that while the availability of one type of formal loan in a given locality did predict households’ knowledge of that credit, it did not lead them to use it . . . Read More
Whether it is education generally or domain specific skills, it seems obvious that imparting knowledge and skills should be an effective approach for improving outcomes. What’s not so obvious is how to deliver useful knowledge and skills. A few new papers shed some light on two areas of specific interest to us: financial literacy and business training for microentrepreneurs.
A new paper based on a two-year, in-school, financial literacy program for high school students finds increased use of savings over borrowing, increased likelihood of financial planning and spillover of financial knowledge to the students’ parents. There are two important things to note in these findings. First, this is a very intensive program, with training of teachers, significant investment in curriculum materials, and many hours of instruction. Second, the results are self-reported. So the impact noted is not whether, for instance, the students actually saved up for a large purchase rather than borrowing at expensive rates, but whether they report doing so (for fairly obvious reasons of time and expense, it is rarely possible to measure actual behavior in large samples). A cynical interpretation of these results would be that two years of financial literacy training is effective at teaching people how to respond to financial behavior survey questions . . . Read More
We at FAI have been closely following work on financial education and financial literacy to better understand whether financial education can improve financial capability. So far, the evidence has been mixed at best. A recent meta-analysis, largely focused on the United States, finds overall little evidence for impacts of financial literacy education on financial behaviors, and effects that attenuate over time.
Is financial literacy education doomed to failure? One possibility is that programs aren’t always well-targeted towards populations that could benefit most from financial education programs – the less financially sophisticated, and those newly facing important financial decisions – and that the effects of financial education programs among these populations could be significantly greater. It’s possible that reaching the right people, in the right circumstances, could make all the difference . . . Read More
Poor households in developing countries face large and varied risks. Many agriculture-dependent households, for example, are at risk of drought- or flood-induced crop failures or livestock deaths. The death of a family member often implies having to fund expensive burial ceremonies, and if the deceased was the household’s primary earner, replacing her/his stream of income is an even bigger problem. A short “Client Math” survey by the Microinsurance Learning and Knowledge (MILK) project of Compartamos borrowers in Mexico, for instance, shows that funeral costs alone (including the costs of the funeral itself as well as connected costs such as food and drink, but excluding lost wages) typically amount to half of a family’s annual income (my calculations from data described in Poulton and Magnoni 2012). Similar figures have been reported from around the world.
Poor families have imperfect tools to manage these risks. They rely on self-insurance, traditional risk-sharing arrangements, informal insurance networks, and/or credit and savings. These strategies, however, are inflexible and/or expensive, and do not provide enough protection . . . Read More
We do our best (not always successfully) to keep up with new research relevant to finance, poverty and development. Today, I’ll be sharing highlights from some new papers by FAI affiliate Sendhil Mullainathan.
In “Behavioral Design: A New Approach to Development Policy,” Mullainathan andSaugato Datta advocate for employing a behaviorally-informed economic perspective to design development policies and programs. Since behavioral economics helps us understand why people behave as they do, analyzing development policies through a behavioral lens allows us to make better policy diagnoses, which in turn lead to better-designed policies.
Mullainathan and Datta outline three ways in which behavioral economics can improve program design. First, it can change how we diagnose problems . . . Read More
Most players in the microinsurance sector would agree that to increase the outreach of microinsurance products, more education is needed. But, this is where the agreement ends. Discussions around content, delivery, funding and measurement of insurance education raise more questions than answers. What is insurance education, and how should we define it? How is it different from product marketing? What are the most effective delivery channels? Who should pay for education? How do we measure its impact? Read More
It is a difficult and not particularly fruitful debate when different sectors important to economic development are pitted against one another in the quest for donor attention. Lasting development progress usually encompasses many areas, and debates that fail to recognize this are often just distracting. Some of the more interesting (and no less heated) debates are waged once a specific sector of focus or growth constraint has been identified.
For example, once we have decided that education is crucial, how do we act upon this decision? Read More
A few months ago I did a quick review of the literature on financial literacy training to find out whether there was any indication that those programs have been successful. I was struck by the lack of evidence. Out of all the studies I could find only a couple stood out as being remotely credible... Read More