A Financially Capable Consumer Could Be Your Best Customer

> Posted by Jasmine Thomas, Program Officer for International Financial Capability & Asset Building, Citi Foundation

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

Lately, I’ve reflected upon the motto of a former clothing retailer that operated in the U.S.— “An educated consumer is our best customer.” In recent years, more NGOs, microfinance institutions, and financial service providers are beginning to embrace this notion. They are devoting more resources to building the financial skills of low-income microfinance clients and small savers, and increasing knowledge in the field about what helps them maintain positive financial behaviors.

Saving for the Big Day

So, does investing in the financial capability of clients really benefit both service providers and clients? Women’s World Banking and SEWA Bank in India believed that both investing in and ensuring that clients’ financial needs and goals were met would produce social and economic benefits for the institution and the clients. With our support, the organizations implemented Project Samruddhi to test this theory by embedding financial education within their core banking operations. To support clients’ efficacy, saathis, or bank agents, were taught how to embed short, concrete financial education messages in routine client banking interactions and services.

SEWA Bank and WWB also designed and launched a savings product that targeted clients’ specific financial goals, like paying for a daughter’s wedding. Each client established a savings plan, including the total amount needed as well as the frequency of deposits. A mobile phone app enabled clients with low literacy skills to visually see how their savings accumulated with each transaction. These regular graphic visuals of their progress fueled their motivation and sense of empowerment to continue saving to meet their goal. To measure client results, WWB assessed teller-client interactions, bank transactions, and client feedback.

Preliminary data indicates a 10 percent increase in savings balances within six months from $4.7 million to $5.2 million. SEWA Bank also saw the number of actively maintained recurring accounts increase by 10 percent (defined by fewer than four missed deposits in a 12-month period). Further, among many key findings, the data reflects that financial education has to be accessible and could be accelerated with intrinsic incentives and the ability to use a tailored product. In this case strategies to save small amounts of money over time could enable clients to increase their financial skills and capability to achieve their goals. To share their findings, WWB and SEWA are publishing an upcoming case study to highlight improved client outcomes and implications for the MFI’s operations. This effort will contribute evidence supporting the notion that when consumers exercise positive financial behaviors and habits, they are more likely to be good consumers in the long run.

A growing number of our partners, like Parinaam (India), Tsao Foundation (Singapore), Fundacion Capital (Colombia), Toynbee Hall (UK), and the Center for Financial Services Innovation (U.S.) are testing models with the potential to advance knowledge in the field about what works in building more financially capable consumers. This summer, the Citi IPA Financial Capability Research Fund, supported by the Citi Foundation and managed by Innovations for Poverty Action (IPA) will launch the second-round request for proposals to solicit ideas that test or evaluate product-linked financial education interventions and innovative product designs to improve consumer capability. In preparation, IPA will host a conference and matchmaking event in Lima, Peru later this month for practitioners and researchers interested in learning about the latest findings in financial capability and conducting new research using the randomized controlled trial (RCT) methodology. This partnership highlights our interest in learning, promoting dialogue, and contributing to field knowledge about effective practices that build financial capability.

Consumer Financial Capability within the FI2020 Project

Achieving full financial inclusion by the year 2020 appears increasingly within reach, yet success will require stakeholders to collaborate, make advancements in consumer financial capability, and place financial inclusion practices at the center of a broader global agenda. The Center for Financial Inclusion’s Financial Inclusion 2020 (FI2020) project seeks to do just that. The Citi Foundation’s support for FI2020 builds on our long history of investing in the financial inclusion of low-income communities globally. Being part of this initiative enables us to learn from practitioners, and engage in the dialogue underway within the working groups.

In particular, the Financial Capability Working Group is made up of dedicated, passionate, and knowledgeable experts that represent diverse perspectives and geographies. Our charge is to propose principles and recommendations for an agenda that would accelerate consumer financial capability globally. Among many questions, what is an ideal “vision” for achieving more financially capable consumers? How can it be accelerated within the broader financial inclusion framework? Throughout the process of developing a framework and vision, we’ve had many group conversations. The following are a few takeaways and opportunities:

  • The field must move beyond standalone classroom or workshop-based financial education to actively help people improve their financial skills and meet their goals. There’s little evidence that participation in traditional standalone workshops correlates directly with long-term, sustainable financial practices.
  • Expanding consumer capability globally will require ingenuity and experimentation by actors beyond the financial services industry. A unique opportunity exists to address an array of consumer needs by offering appropriate products and services, and increasing access through, for example, telecommunication, technology, and consumer goods companies.
  • More needs to be known about how to sustain positive financial habits throughout an individual’s life cycle.

The Financial Capability Working Group will continue working together throughout the next few months to refine and propose recommendations for accelerating consumer financial capability within the broader framework of FI2020. Bottom-line: Consumer financial capability is a social and public good with numerous benefits, including creating a greater sense of economic independence for individuals and families, facilitating new innovations and systems for delivering products and services, as well as increasing the competitiveness and productivity goals of countries. On behalf of CFI’s Financial Capability Working Group, I invite you to share promising consumer capability programs that we can highlight and from which we can learn.

For more information on Financial Inclusion 2020, sign up for campaign updates.

Jasmine Thomas is the Program Officer for International Financial Capability & Asset Building at Citi Foundation, responsible for making and managing philanthropic investments that enable youth, adults and families to develop financial knowledge and skills, change their financial behaviors and build and preserve financial assets in 89 countries. In addition she manages investments in Youth Education and Livelihoods which support educational, entrepreneurial and training opportunities that lead to improved employment prospects for low-income youth, ages 13-25, increasing their ability to contribute to the economy. Jasmine serves as chair of FI2020’s Financial Capability Working Group.

Image credits: IPA

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