INTERNATIONAL EXPERIENCE: FINANCIAL LITERACY STRATEGIES

AND PROGRAMMES

Moscow 4 April 2011

Shaun Mundy shaunmundy@hotmail.com

International Consultant (Former Head of Financial Capability Department, Financial Services Authority, UK)

Structure of presentation

1. What is meant by being financially literate? 2. Why develop a national financial literacy

strategy? 3. Tips for developing a national strategy 4. Potential partners – who are they and how can

they contribute? 5. Lessons from behavioural economics and from

social marketing programmes 6. Evaluating financial literacy programmes and

national financial literacy surveys

1. What is meant by being financially literate?

What is meant by being financially literate?

•  Having the knowledge, understanding, skills, motivation and confidence to make financial decisions which are appropriate to your personal circumstances.

•  Ultimately it is about how people behave. •  The UK’s Financial Services Authority distinguished five

components of financial capability: –  making ends meet –  keeping track of your finances –  planning ahead –  choosing financial products, and –  staying informed about financial matters.

Depends to some extent on personal circumstances

•  What it means to be financially literate depends to some extent on a person's financial circumstances. For example: –  someone with little money needs to know

accurately how much s/he has available, because consequences of running out could be severe. But may not need to know about investing.

–  a wealthy person only needs to know in general terms how much money s/he has available – but may well need to know about investing.

Why is it important for people to be financially literate?

  People who lack financial literacy are less likely to use formal financial products – ie they are more likely to be financially excluded

  Many people are not saving enough – or at all   Consequences of not being insured, or being under-

insured, can be devastating   Increasing range and complexity of products – which

give rise to risks which people may not understand   There have been a number of fraudulent “get rich

quick” investment schemes – people who lack financial literacy are more likely to be cheated out of their money

2. Why develop a national financial literacy strategy?

Why develop a national strategy?

  A variety of initiatives/channels/messages are needed in order to reach and influence a population. People learn in different ways – and messages often needed to be repeated to have effect

  A national strategy helps with: engaging a broad range of stakeholders; providing focus, drive and coordination; and setting priorities

  Reduces risk of both unplanned gaps and unnecessary overlaps

3. Tips for developing a national strategy

Key components of a national strategy – based on international good practices

  Clear priorities are set – with these priorities taking account of impact, reach, sustainability and scalability

  Is based on partnership working

  Uses a variety of approaches and channels

  Financial education is provided to schoolchildren, beginning at an early age

  Starts with the basics – potentially builds on that for those who need to have more sophisticated knowledge and skills

  Communications are relevant and clear - and lively and engaging

  Monitoring and evaluation built in from outset

  Reaches out to people – doesn't wait for them to come to you

Developing a national strategy   Key stakeholders should be actively engaged – eg through

being consulted on, and helping to steer, development of strategy

  Prioritise – don't try to do too much too soon. If resources spread too thinly, little gets done – resources are wasted and disillusionment sets in

  Priorities should take account of opportunities as well as areas of greatest need (eg: in some countries, financial education is provided in workplaces – not because those in work have greater needs than those who are not in work, but because workplace financial education can potentially reach large numbers of people)

  Priorities should take account of impact, reach, sustainability and scalability

Developing a national strategy (continued)

  Project planning – and robust project management – needed

  Strategy should be monitored and regularly reviewed, and adjusted where appropriate

Developing a national strategy is a means to an end – not an end in itself. Important not to devote so much time and effort to the development of a strategy that there is no capacity to develop financial literacy initiatives on the ground. On the other hand, important not to rush ahead with initiatives – which may turn out not to be the best priorities – while a strategy is being developed

Countries with, or developing, national strategies include:

Australia Brazil Canada Eastern Caribbean Currency Union Hungary Ireland Kenya Malaysia New Zealand Singapore South Africa Tanzania Trinidad and Tobago Uganda UK USA

UK's initial priorities:   Wide-ranging; but coherent and

realistic

-  Schools -  Young adults -  Employees in workplaces -  Community groups -  New mothers -  Website – and securing links

from other websites -  Personalised advice (non-

product-specific)

Leadership - and championing - needed

  If everyone is responsible, no-one is responsible   Leadership particularly important in field of financial

literacy because – ideally – broad range of partners will be involved

  In some countries (eg UK, US, Kenya and Philippines), the leader of the national strategy is supported by a steering group of senior stakeholders

  Senior level champion can be very useful, eg in bringing in additional partners and in securing media coverage

Who is leading national financial literacy work in other countries?

Leaders include:   central bank (eg Bank Negara Malaysia, Central

Bank of Trinidad and Tobago, Central Bank of Azerbaijan, Eastern Caribbean Central Bank)‏

  Government/Government agency (eg US Treasury, New Zealand Retirement Commission)‏

  financial services regulator (eg Australian Savings and Investments Commission, South Africa Financial Services Board)‏

4. Potential partners – who are they and how can they

contribute?

Need to work in partnership   No single organisation can improve financial

literacy on its own. There are many organisations with an interest in improving people's financial literacy who can potentially contribute

  Improving financial literacy is challenging! It requires long-term behavioural change – a single programme is unlikely to have much impact on its own

  Need to reach out to people, in ways with which they will engage, through a variety of channels and using many different approaches

Improving financial capability is a win-win for:

  Consumers – helps people make their money go further; protect themselves against unexpected events; avoid unnecessary risks, being over-charged or becoming over-indebted; and avoid falling victim to financial frauds. Less likely to be financially excluded

  Financial services industry – consumers who are informed and engaged are more likely to buy appropriate financial products and services (increases business volumes; reduces marketing costs; fewer complaints)‏

  Central Bank and other financial services regulators – less need to deal with results of poor money management skills among consumers

  Government – boosts the economy and economic welfare

  Employers – employees with money worries may be less productive

  Educationalists – being able to manage your finances well is an essential life skill

All of the above are potential contributors to financial literacy work

How can partners contribute?

  Incorporating financial literacy initiatives into their other activities

  Developing materials   Distribution – eg of booklets   Expertise and experience – eg in how best to reach

particular groups   Providing trainers   Undertaking projects   Securing further partners and support   Providing funding

Potential partners – some UK examples

A wide range of organisations have an interest in improving people's financial capability – though this interest may need to be pointed out to them! These include:

  Financial services regulators   Government Departments   Financial services firms and their trade associations   Employers and trades unions   Schools education bodies

Potential partners – some UK examples (continued)‏

  Universities/colleges – helping young people manage their own money (money problems one of main reasons that students fail to complete courses)

  Support groups (eg for disadvantaged young people, single parents, elderly, those with mental health problems, ex-offenders) – money problems behind many of problems their clients face

  Midwives – they distribute (free of charge) to expectant mothers the Parent's Guide to Money. (They are willing to do so because expectant mothers with money worries are less likely to be able to focus on midwives' messages regarding health care.)

Other potential partners

  Foundations and trusts, including those associated with financial services firms

  Donors and development agencies   Micro-finance institutions   Rural outreach organisations   Broadcasters and other media   Cell phone and utility companies

Financial services industry can play important role

– so long as it's not, in reality, marketing, for example:

  Indonesia: financial education taken forward initially by Banking Education Working Group, with a focus on banking customers' education. Now being expanded into a national financial education programme, which covers the financial services sector generally

  the Prudential conducts ‘Investing in Your Future’ seminars (highlighting key issues involved when making financial decisions at different life stages – single; married; family planning; child’s education; retirement) in China, India and Vietnam to raise financial capability among women, who often have responsibility for household finances

  Citi has undertaken a range of financial education initiatives, including developing financial education curricula for children, teenagers and adults

5. Lessons from behavioural economics

and from social marketing programmes

Insights from behavioural economics

•  Behavioural economics provides pointers to the sorts of approaches which are likely to be successful. People tend: –  to be overwhelmed and do nothing if too much

information or too many choices –  to be over-confident about their ability to

manage their personal finances and to ignore information which calls into question their views

–  to struggle to make good decisions – need training/coaching on good decision-making.

Learn lessons from a range of social marketing programmes

•  Lessons which can be learned from a range of social marketing programmes, including financial education initiatives, are to: –  keep things as simple as possible –  use relevant and engaging language and

contexts –  repeat messages –  use a variety of methods and channels.

6. Evaluating financial literacy programmes and national financial literacy

surveys

Evaluation and national surveys   Evaluation helps to establish what is effective   Evaluation should be built in from the outset –

otherwise, there will almost certainly be gaps in what can be assessed

  Evaluating financial literacy projects is challenging – eg in obtaining objective information on whether behaviour has changed (some behaviour change may take years to happen) and in establishing the impact of the particular intervention

  A national survey can establish a baseline; and future national surveys can then measure overall impact of financial literacy initiatives. World Bank is developing a survey for use in a range of countries

Thank you!

Shaun Mundy shaunmundy@hotmail.com