Traditional financial education programs have, at best, a minimal impact on the financial capability of recipients. At least that’s what the research tells us. Still, the vast majority of time and energy contributed towards improving financial capability around the world is channeled through traditional methods. I had the opportunity to take a closer look – and contribute to – one country that is energetically trying to improve financial capability: Colombia.
The Colombian government recognizes that the average level of financial literacy and financial capability in the country is low, especially among rural and low income communities (as a joint-study by CAF and others across several South American countries demonstrates) and that the programs implemented thus far have been insufficient to address the issue. But, the country is poised for change.
Earlier this year, the government launched its National Financial Education Strategy, with support from the World Bank and CAF. CFI recently had the opportunity to conduct two workshops designed to help move this strategy from paper to reality, and in the process to rethink the paradigm of traditional financial education. The workshops aim to equip both policymakers and practitioners from Colombia’s financial sector with the right set of tools and knowledge to design new, more effective interventions that focus on creating long-lasting behavioral changes to improve the financial capability and ultimately the financial health of Colombian citizens.
Recognizing the size and breadth of the challenge, the Colombian government has engaged an enormous range of stakeholders to assist. The Central Bank hosted our workshop, with the support of Banca de las Oportunidades, a cross-governmental program focused on financial inclusion. The workshop had broad participation from the government agencies tasked with developing the national strategy, including representatives from the Education and Finance Ministries, the banking regulator, and the social development agency. The private sector was there, too, including representatives from commercial banks (ASOFINANCIERA), microfinance institutions (ASOMICROFINANZAS), savings cooperatives (CONFECOOP), insurance companies (FASECOLDA), and pension funds (ASOFONDOS).
The daunting challenge these players face is to shift the delivery of financial education programming away from traditional, knowledge-transfer-based financial education methods towards financial capability-building, which focuses on behavior change and the customer’s end state of financial health. The research behind a shift to the behaviorally-informed approach is abundant. Over the last decade, a large pool of evaluations have been conducted worldwide that assess the impact of traditional financial education programs. Presenting this body of research, Dr. Julian Jamison, Senior Behavioral Economist at the World Bank, pointed out that the measured impact of traditional financial education programs on the financial health of the recipients is minimal.
Financial capability-building is a relatively new methodology for the design of more effective financial health interventions. CFI defines financial capability as the combination of knowledge, skills, attitudes, and behaviors a person needs to make sound financial decisions that support well-being. As an alternative to traditional financial education approaches, the financial capability methodology is designed around the seven behaviorally-informed principles developed by CFI after an in-depth study conducted in 2015 that reviewed the most effective financial education/capability-building interventions worldwide, including deep dives on Mexico and India. This set of principles offers concrete recommendations for influencing sustained changes in the behaviors of clients, with an approach that focuses on lean, tailored interventions that engage clients “at the right moment” with easy to remember tips, nudges, and rules of thumb.
Action-oriented approaches are especially important for reaching people who are not comfortable with academic learning, and interventions need to respond to the unique characteristics and circumstances of the populations they’re targeting. That’s why the Colombian National Financial Education Strategy is being implemented through six distinct working groups, each aimed at a different population segment: microenterprise, vulnerable populations, older people, etc. During the workshop, participants delved into discussions aimed at understanding the target populations of financial education interventions in Colombia – their daily routines, their constraints, the challenges they face, and more broadly, the inherent behavioral barriers that all human beings face when trying to establish healthier habits in their everyday lives.
It is easy to see the need for new approaches, but not so easy to identify innovations that work. In the next months, CFI will continue to work with the public and private sector representatives involved in strategy implementation, to identify ways to make existing programs more effective as well as entirely new kinds of interventions that focus on behavioral changes.
We are grateful for the generous support of CAF that allows us to contribute to this exciting challenge. We look forward to sharing more details and developments as we continue.
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