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Peter Burgess
[MFP] Financial literacy
12 messages
ahmad zia
Sun, Sep 30, 2012 at 2:06 PM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Dear All,
I would like to know a bit about financial literacy for clients and it,s efficient on the financial institutions.
thanks
Ahmad Zia Baha
Jami Solli
Mon, Oct 1, 2012 at 2:39 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Dear Mr. Zia Baha,
Your question is interesting.
If you go to Google Scholar and do a variety of searches using the words 'financial literacy' and 'effect on financial institutions' you will get an array of articles.
Here is one of my searches for example:
http://scholar.google.it/scholar?q=financial+literacy+effect+on+financial+institution&hl=en&as_sdt=0&as_vis=1&oi=scholart&sa=X&ei=CDZpUNSSMYnl4QTfoIC4CQ&ved=0CBcQgQMwAA
And, here is one publication that seems to specifically address your question:
http://www.nber.org/papers/w18412.pdf?new_window=1
It would be interesting to hear from the practitioners on their experiences, and any noted increase in savings behavior or repayment behavior -- or, maybe customers start renouncing loans entirely as a result of financial literacy efforts. Is anyone doing any pension planning education?
On an unrelated note, I just read that Visa is starting to sell prepaid debit cards with bank partners in Tanzania (and probably throughout Africa). That is another product about which consumers need to be educated to read the agreement and calculate all the costs to determine whether it is the best deal for them in a cash based culture.
Best,
Jami Solli
Malcolm Harper
Mon, Oct 1, 2012 at 9:31 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Thank you, Jami, and all. Maybe I am repeating myself but I believe we should be cautious about seeing financial literacy as an important or realistic solution to client's problems with microfinance.
Three points:
1. Good responsible marketing is about learning 'to dance to your customers' tunes', that is, addressing them in terms which they will understand and with products from which they will benefit. It is not about trying to teach your customers to dance to your tune.
2. In so-called literate societies such as those in Europe and the USA, where just about everyone has had ten years or more of fairly good full time schooling, payday lenders and others make loans at annual rates of interest well over 1000% (see www.quickquid.co.uk for instance, at 1734%) openly advertised as such.
3. Even if we could provide financial literacy training which was effective and which illiterate and very busy clients had time to attend, who would pay for it ?
Malcolm Harper
N. Srinivasan
Mon, Oct 1, 2012 at 10:42 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Dear Malcolm,
As usual you have sounded a warning at the right time, for the right reasons. Financial literacy is fast becoming a suppliers dream. The financially literates and institutions are jumping in to make the poor and excluded literate. It is naive to assume people (rich or poor) routinely take financial decisions that go against their interest. During my field work I find that many of these customers are able to cope with the problems posed by lack of credit, inflexible credit products, unreasonable documentation requirements and plain bad attitude on the part of suppliers. We know that poor handle a complex set of financial arrangements from multiple sources, which calls for at least rudimentary financial management skills. Training the customer to learn how to use your product is not a practice in other industries. They just design the products better in a customer friendly manner after doing demand research. If the [roducts are not good they go out of the market. The telecom companies that sell handsets do not train the customers about their products, but design them simple enough for the customer to operate. The same is the case with sellers of soap, cycles, pumpsets, and many other 'innovative products' for the poor. Only in financial sector that we see complex products are designed by the literate suppliers and then donors have to step in to make the customers literate about the product.
I wish the financial literacy training is addressed at the financial institutions so that they can introduce products that lay persons on the street can use with basic intelligence, intuitively. Financial institutions will continue making small pigeon holes and then train the customers (regardless of their girth and inclination) to fit in. What this also implies that financial institutions have no further responsibility to make the products and processes simpler. (Let us also recognise that a few institutions have better designed products and good communication of the features).
It is time to assess the motivations and the assumptions behind financial literacy drives. Also it is time to look at the curriculum and delivery. While there are many good training materials developed and well delivered, there are also marketing exercises carried out in the name of financial literacy.
Best regards
Srinivasan
Jami Solli
Mon, Oct 1, 2012 at 11:03 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Wow, call me naive because I routinely make financial and purchasing decisions that are contrary to my own best interests (like buying gelato for 2 euro a cone at a gelateria, when I could get a liter for that price at the supermarket; and I believe that there is a vast quantity of literature illustrating I am not the only one who engages in behavior that judged by a 'rational' economist would be deemed irrational.
Still, I believe financial literacy is extremely important, and do believe that it should be taught by a mix of actors -- schools, parents, regulators, consumer organizations and even suppliers. I spent the better part of the morning reading financial literacy comics and 'financial football literacy' created by Visa on its Practical Money Skills site -- which seemed to offer excellent teaching tools for educators to begin discussing 'boring' concepts with youth. (for free).
Sure, I can be skeptical of the motivation of a financial services provider teaching me to 'better consume their products,' but that does not mean the knowledge is not useful for comparison purposes, and making me a more savvy consumer.
In fact, I wish that technology providers would offer me free courses on how to use my laptop or cell -- because I probably only use 2% of the features. But, like Malcolm implied, it just probably is not profitable as a business model. From what I see online, Visa has made a rather large (multimillion?) investment in financial literacy -- I gather they've judged that there is a strong business case to having more financially literate consumers than less literate.
And, Visa has been in the financial services business much longer than most MFIs, so if I had a MFI, I believe I might offer this additional service as well. But, that said, I'd have a cooperative.
Malcolm Harper
Mon, Oct 1, 2012 at 11:16 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Thanks Srinivasan, confirmation from you is worth a lot.
I suppose one could argue that some firms which industrial equipment provide operator training, and sewing machine manufacturers used to offer training along with their machines, but, as you say, one of the main skills in product design is to make things so that their intended users can use them. In fact, in most industries suppliers are not allowed to sell things which can injure those who buy them. 'Caveat emptor' does not always apply.
Malcolm
N. Srinivasan
Mon, Oct 1, 2012 at 11:24 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Jami,
With all the financial literacy training you and I will be still buying the gelato at a higher price. Except in economic theory 'ordinary prudence' does not exist. That is not the point. The point is about spending time on getting the financial institutions to design their products better in a manner that customer is able to use it without too much of 'education'. The customer will still take a decision that is irrational and literacy cannot prevent it. Can we spend part of the resources on the suppliers to get their products right and customer friendly? Can we get them to be transparent in their communication so that it does not require an army to decipher the product features for the customer.
I am not against financial literacy, but I am against making a religion of it while neglecting the financial institutions' responsibility.
Regards
srinivasan
Mahlon Barash
Mon, Oct 1, 2012 at 11:56 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Do you know about Microfinance Opportunities? Their specialty is financial education/literacy. The focus is on family finances in general, not just on how to manage debt or how to be a responsible borrower. I see it as a way for MFIs to mitigate risk.
One of their projects is Global Financial Education Program which might be what you are looking for. Here is an excerpt from their website: http://microfinanceopportunities.org/case_studies/global-financial-education-program-citi-foundation/ Hope this helps.
Global Financial Education Program – Citi Foundation
Resource Development:
In 2006, the Citi Foundation supported Microfinance Opportunities to launch the first large-scale, global initiative to build financial capabilities of low-income individuals in developing countries. Microfinance Opportunities led the program, in collaboration with Freedom from Hunger, and conducted market research with six microfinance institutions to determine the appropriate content and delivery mechanisms. Throughout the initial three-year program, Microfinance Opportunities continued to work with organizations from around the globe to review and adapt the curricula to ensure it was based in the realities of low-income consumers. The resulting financial education curricula includes:
•Budgeting: Use Money Wisely [link to these in the Resources section]
•Debt Management: Handle with Care
•Savings: You Can Do It!
•Bank Services: Know Your Options
•Financial Negotiations: Communicate with Confidence
•Young People: Your Future, Your Money
•Remittances: Make the Most of Them
•Risk Management and Insurance: Protect Your Family’s Future
•Consumer Protection: Balancing Rights and Responsibilities
Expanding the Reach of Financial Education:
Microfinance Opportunities has broadly spread financial education through building the capacity of microfinance and community-based organizations’ trainers as well as providing technical assistance to partners to help them develop and implement their own financial education programs. Through partners, key messages of the curriculum have been promoted via print, radio, television and street theater to further raise awareness about the importance of sound financial behaviors.
To date, the Global Financial Education Program has reached approximately 30 million people through its curricula, trainings, mass media and other outreach activities. More than 450 organizations in 60 countries have participated in the program.
Mahlon Barash
Lima, Peru
Meyer, Richard
Mon, Oct 1, 2012 at 11:58 AM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Very well said. Dick
Meyer, Richard
Mon, Oct 1, 2012 at 12:09 PM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Last week MFO conducted an interesting webinar. The issue of consumer protection came up. A supplier of services (microfinance in this case) may be concerned that many people sign up for its product (such as mobile money) but rarely use it. So the issue of consumer education comes up. How to teach the user how to use it better, demonstrate it is safe, etc. in order to stimulate usage. But it is still the supplier giving the training with the obvious interest of stimulating use of the product, perhaps arguing for its superiority over a competitor’s product, and in the process earning more revenue for itself. So how are these interests to be balanced? And what role is there, if any, for regulation or broader financial literacy supplied by a disinterested party? Dick
Jami Solli
Mon, Oct 1, 2012 at 12:10 PM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
Hi Srinivasan,
Thanks, I see your point more clearly now, but given what I have seen of most consumer loan agreements, which are a mirror of the product itself (most recently doing a comparison of 3 consumer loan products offered by commercial banks of North American origin targeting consumers in the Caribbean, selling credit cards, home loans and personal/consumer unsecured loans) and the 25-30 MFI loan contracts I've collected in past years, I believe that the 'incentive' to make financial products more transparent needs to come from the regulators -- or be demanded by consumers.
The latter, for the most part are not doing this (seeing it as a 'business conduct' issue vs. prudential regulatory -- I guess), so I think that leaves the consumers who need to learn to demand a contract prior to signing, and to actually read/understand it prior to signing which requires financial literacy.
Admittedly this is difficult, commercial banks, including HSBC and Wells Fargo have told me that they do not have these written documents available: 'ma'am all of this is done electronically, just sign here with this magic pen on the screen). And, only after my continued protests, miraculously the contractual documents were found. HSBC helpfully produced several books for me and a nice pamphlet which provides information on 'where to go if I have a financial services complaint.' Knowing where to go to get redress is an essential part of being financially literate too. And, this is another challenge for MFIs and topic of another email.
In short, I don't have much faith that financial institutions will ever design a product 'just for me' like Levis (though in retrospect, not so sure that venture worked so well for Levis). But, regulators should be pressed to be more pro active in reviewing consumer loan and MFI loan agreements and product contracts. In the meantime, consumers need to learn.
Best,
Jami
Meyer, Richard
Mon, Oct 1, 2012 at 12:22 PM
Reply-To: MicrofinancePractice@yahoogroups.com
To: MicrofinancePractice@yahoogroups.com
This si election seasons in the US and one of the puzzles is why some low-income people vote for conservatives that may be more likely to develop policies against their interests and not vote for liberals that are more likely to favor policies that are more in their interests. One of the explanations offered is that social messages are used (such as regarding marriage by gays and abortion) to distract them from recognizing what is happening to them economically. It seems that higher levels of average general education alone do not resolve the problem.
Of course in spite of fairly high education levels for most levels of income, a surprising number of people are quite ignorant of basic economics and finance so they fail to ask the questions necessary to inform themselves. This occurs in spite of several consumer protection measures designed to help them become informed about the details of financial products that are offered. Dick
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