Financial Literacy: challenges and opportunities

1
Financial Literacy challenges and opportunities
Financial Literacy challenges and opportunities
Financial Literacy challenges and opportunities
Financial Literacy challenges and opportunities
Financial Literacy challenges and opportunities
6th Azerbaijan Micro-finance Conference  Azerbaija
n Micro-finance Conference   Challenging Time
How to mitigate Risks?
Baku, 4-5 October 2012
2
Why financial education?

• Changes negative attitudes towards family
  financial planning, promotes saving behaviors,
  and introduces long-term financial planning
• Prepares low-income households to be more
  proactive in managing emergencies and in taking
  the right debt decisions. Develops the knowledge
  about safe borrowing practices
• Provides knowledge necessary for the wise use of
  financial services, including information about
  product parameters, terminology, supply research
  hints, as well as linking the use of financial
  services to the family financial goals

3
Low financial capability risks
3

• Micro-level
• Lack of budget planning
• Little or no saving
• Short time horizon
• Victimization by banks/financial Institutions
• Uneducated consumer spending and borrowing
  irrationally

• Macro-level
• Excessive indebtedness of the society
• Lack of saving for retirement
• Credit-led economic boom
• Lack of resources of economic growth

4
Who is it important for?

• Individuals
• To better manage own resources and protect their
  assets
• Financial institutions
• To develop adequate financial services taking
  into account peoples limited understanding and
  psychological biases
• Policy makers
• To promote healthy policies that provide adequate
  protection of the consumer without stifling the
  development of financial markets

5
Use of finance from passive payment to active
management

• Transitional and emerging economy adds complexity
  and urgency to financial education
• Market economy requires active use of financial
  markets and instruments
• Little knowledge of financial management from
  previous system
• Financial markets evolved much faster than human
  understanding and adaptation to their use
• Few options to learn about financial management

6
Level of financial education

• Financial capabilities differ across countries
  and within each country
• Many factors influence financial management
  skills
• Level of education
• Cognitive skills in particular numeracy skills
• Certain personal characteristics (e.g., locus of
  control)
• Level of development of financial markets
• Household organization
• Cultural norms

7
Financial capability segmentation
7

• Involvement in key three financial behaviors
  (planning, expense tracking, savings)

8
Savings behavior
8

• In general people save (too) little both for
  short term precautionary reasons and longer term
  goals
• Savings rates increased during the financial
  crisis
• EU average 15
• Why low savings
• Remittances may crowd out savings (Tajikistan)
• Easy access to credit services (Hungary)
• Social protection policy
• Family structure and lifestyle

9
Financial education program at MFC

• Educational tools
• Plan your future fundamentals of financial
  education
• Debt management module
• Risk management and insurance module
• Remittance module
• Counseling tool
• Communication campaigns/ conferences
• Financial capability studies
• Stakeholder mapping studies/ country strategies
• Assistance with national strategies for financial
  education
• Countries in Transition
• Armenia, Azerbaijan, Belarus, Bulgaria, Georgia,
  Hungary, Kyrgyzstan, Kazakhstan, Macedonia,
  Moldova, Poland, Romania, Slovakia, Russia,
  Ukraine, Uzbekistan, Tajikistan

10
MFCs framework for financial education
10
Classroom training Workshops Seminars
Financial counseling
Delivery Intensity Low
High
Reminders In-line messaging Social campaign
Matched savings/ IDAs Lotteries
Educational games
Low
High Engagement
Intensity
11
Who and how is involved in FE
11

• Macro level (central banks, regulators,
  ministries, etc.)
• Mezo level (networks, meso level organizations,
  country level NGOs)
• Micro level (service delivery counseling, credit
  counseling) financial institutions, NGOs,
  schools, government structures

12
Information campaign - development of AMFA
financial education booklets

• EFSE funded collaboration of MFC and AMFA on
  educational booklets
• savings booklet
• explaining important features of banks services
  fixed vs. flexible deposit
• Clients rights
• explaining an importance of saving

13
Information campaign - development of AMFA
financial education booklets

• debt and overindebtedness booklet
• What is the loan and how to compare different
  loans?
• When a client should not take a loan?
• Rules of a wise borrowing
• What is overi-ndebtedness and how to avoid it?
• budgeting booklet
• Show in few steps how to manage in a proper way
  the household budget
• Set financial goal Calculate an
  income plan expenses calculate
  expected savinng for each month
• Make financial smart decision

14
Policy recommendations

• Financial education is a worthwhile investment in
  human capital
• Personal financial capability
• Broad financial system stability
• Longer term perspective needed
• Basic financial literacy of the population
• Diverse channels of education, communication and
  influence
• Innovations to keep pace with the changes in
  financial markets
• Research and on-going monitoring
• Search for a good teachable moment to advocate
  financial education

15
Microfinance Centre Koszykowa 60/62 m. 52 00-673
Warsaw, Poland Tel. [phone] Fax 48
22 622 34 85 www.mfc.org.pl kasia_at_mfc.org.pl

• Microfinance Centre
• Koszykowa 60/62 m. 52
• 00-673 Warsaw, Poland
• Tel. [phone]
• Fax [phone]
• e-mail microfinance_at_mfc.org.pl
• www.mfc.org.pl

Thank you!