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financial inclusion

PISA data on financial literacy: Unanswered questions on developing financial skills for the broad student population

Margaret Miller's picture

A few weeks ago, the results of the OECD’s PISA (Programme for International Student Assessment) module on financial literacy were revealed, with Shanghai taking top honors in this category – just as it has in the last two rounds (in 2009 and 2012) on the traditional academic curriculum (reading, math and science).
 
This is no coincidence, as the OECD results and many other studies suggest a close relationship between education levels and academic performance in math and reading comprehension and scores on financial literacy tests.
 
In the PISA report, the correlation coefficients between financial literacy scores and performance in mathematics and reading were 0.83 and 0.79 respectively across 13 OECD countries in the survey sample. For high performers like Shanghai and New Zealand, these correlations were even stronger: 0.88 for mathematics, 0.86 for reading.

While waiting for general improvement in academic performance is one path to improved financial literacy, the urgency of addressing financial skills for today’s youth has led many educators and policymakers to look for more immediate steps that can be taken, including financial education interventions at school. The PISA results, however, don’t include an assessment of the value of possible financial literacy curricula, due to the “limited and uneven provision of financial education in schools.” That factor makes comparisons across countries difficult, as described in the report.

Lessons learned from policymakers on how to establish a financial consumer protection supervision department

Jennifer Chien's picture

Financial consumer protection has become a hot topic among financial-sector policymakers in recent years. Consumer protection is increasingly recognized as a critical complement to financial inclusion, particularly after the global financial crisis.

Enabling consumers to understand what financial products they’re buying, and enabling them  to “comparison shop” among providers, can lead to safer access to financial services as well as to broader financial stability.

As a result, many policymakers around the world have been putting in place laws and regulation on financial consumer protection, as evidenced by the Global Survey on Consumer Protection and Financial Literacy. At the same time, international organizations have issued guidelines and principles on designing financial consumer protection policy and regulatory frameworks, such as the G-20’s High-Level Principles on Financial Consumer Protection and the World Bank’s Good Practices on Consumer Protection and Financial Literacy.

But less guidance exists on the tricky question that immediately follows new laws and regulation: How do you implement and enforce these new rules? Policymakers have many considerations to juggle, from legal and technical issues to practical and operational concerns. Unclear legal mandates, limited supervisory capacity, the different skill sets required of staff, the need for supervisory tools adapted to financial consumer protection, and the relationship with prudential supervision – these are just some of the many questions facing regulators who are seeking to establish a financial consumer protection supervision department (“FCPSD”).

The latest technical note from the Financial Inclusion and Consumer Protection team at the World Bank (“Establishing a Financial Consumer Protection Supervision Department: Key Observations and Lessons Learned in Five Case Study Countries”) seeks to shed light on this area of growing concern. Surveys and interviews were conducted with financial consumer protection supervisors in Armenia, the Czech Republic, Ireland, Peru and Portugal to gather concrete, practical insights from the experiences of these countries in setting up FCPSDs.

There is obviously no “one size fits all” approach to establishing a FCPSD, as the right approach will be highly dependent on country context. Nevertheless, the five case study countries highlight a few common obstacles and lessons learned.

New Data and Momentum for Financial Inclusion in Paraguay

Douglas Randall's picture



Paraguay’ s progress towards developing a National Financial Inclusion Strategy received a boost of energy and analytical rigor last week, as the Central Bank released new demand-side data describing the current state of financial inclusion for the country’s 4.8 million adults.

According to the EIF (Encuesta de Inclusion Financiera) data, 29 percent of adults in Paraguay have an account at a formal financial institution, 28 percent of adults use a mobile money product, and 55 percent use some type of financial service (including both of the former but also credit, insurance, and other payment products). This puts Paraguay below the average for account penetration in Latin America (39 percent as of 2011), but suggests that the country is a regional leader in the expansion of mobile financial services.

The EIF was conceived of last fall when the Paraguayan authorities, eager to paint a comprehensive and up-to-date picture of financial inclusion in their country, expanded the Global Findex questionnaire to cover additional topics including financial capability, insurance, and domestic remittances. Efforts were also made to align the EIF questionnaire with the unique financial-sector landscape in Paraguay, which features a strong cooperative sector and a fast-growing mobile financial service industry led by mobile network operators (MNOs) Tigo and Personal.

The resulting EIF data, collected in late 2013 in partnership with the World Bank and Gallup Inc., represents a valuable update and extension of the 2011 Global Findex.

On June 4, the data and related analysis were presented to the public by Santiago Peña, board member of the Central Bank of Paraguay, in an event that included key stakeholders such as the Minister of Finance, the President of the Cooperatives regulator (INCOOP), the World Bank Resident Representative, and representatives from the public and private sector as well as a wide range of civil society actors.

The data and event – described in detail the next day on the front page of a national newspaper – also served to renew momentum toward the development of the National Financial Inclusion Strategy. The authorities plan to use the EIF data to define targets, identify priority populations, and develop policy actions. The data will also act as a baseline from which to measure progress and as a means to hold the government accountable for its financial inclusion commitments.

Increasing the Impact of Financial Education: Approaches to Designing Financial Education Programs

Andrej Popovic's picture



Recent evaluations of a number of worldwide financial education programs reported widely varied outcomes. While some found evidence of effectiveness, others reported mixed or no evidence. Yet an increasing number of developing countries are putting financial education strategies in place or are expanding financial education programs. The quality of design of such strategies and programs is therefore crucial.

Financial education programs can be ad hoc targeted interventions, aimed at addressing specific financial education gaps, or they can be more comprehensive approaches through financial education or literacy strategies that aim to address a number of priorities. Regardless of the approach – which depends on the local context – financial education programs have a higher likelihood of greater positive impact if they are based on reliable diagnostic tools and focused on clearly defined and sequenced priorities.
 
Over the past two years, the Financial Inclusion and Consumer Protection team at the World Bank Group has conducted substantial technical and diagnostic work in the area of responsible finance. For example, we have developed methodologies for financial capability surveys and impact evaluation, and we have conducted a series of diagnostic reviews in the area of consumer protection and financial literacy on a global scale.

Financial Inclusion Up Close in Rwanda

Douglas Randall's picture

You don’t have to spend very long in Rwanda before you start to be impressed by the financial inclusion landscape in this country – not only by the progress made over the past several years, but by the scale of ambition for the rest of this decade and beyond.

The government has set a target of 90 percent financial inclusion by 2020 and the evidence of progress toward this goal is everywhere: Advertisements for mobile-money products are painted and plastered onto almost every available surface and, if you know what to look for, it doesn’t take long to spot an Umurenge Savings and Credit Cooperative (Umurenge SACCO) – Rwanda’s signature financial inclusion initiative.

Six years ago, the 2008 FinScope survey found that that 47 percent of Rwandan adults used some type of financial product or service, but just 21 percent were participating in the formal financial sector, which was at the time made up mostly of banks but which also included a handful of microfinance institutions and SACCOs.

Largely in response to these figures – and in particular to the large urban/rural divide illustrated by the data – and the government set out to establish a SACCO in each of the country’s 416 umurenges, or sectors. The Umurenge SACCO was born.

Hidden Roadblocks: Structural Barriers that Limit Women's Financial Inclusion

Garam Dexter's picture



"Financial inclusion." This phrase has been found in several recent reports.  But what does “financial inclusion" truly mean? More important, what does it mean for women who constitute nearly half of the global population?

Financial inclusion is defined in the Global Financial Development Report as the “proportion of individuals and firms that use financial services.”  It is one of the main catalysts of economic growth and helps to reduce poverty in the world.  Access to financial services is one approach to greater financial inclusion.  As all formal transactions are tied to accounts, ownership of accounts is an important aspect to measure the degree of financial inclusion.  There are several crucial benefits to having a bank account, such as: facilitating the saving process; facilitating the receiving of government payments; and enabling entrepreneurship through the building of credit.

Acess to financial services has been expanding steadily as many countries have been adopting national strategies to achieve financial inclusion. (Financial inclusion strategy is defined as “road maps of actions, agreed and defined at the national or subnational level, that stakeholders follow to achieve financial inclusion objectives.”) Yet large gaps and hurdles to access financial systems remain worldwide. (See female percentages with bank accounts at formal financial institutions in 2011 based on the World Bank’s Financial Inclusion Data.)

These gaps and obstacles are especially arduous for women, for no reason other than their gender!  The Findex survey, for example, shows that women refrain from opening personal accounts because they rely on their relatives’ accounts. The Global Financial Development Report of 2014 links this matter to the income inequality and the quality of the economic institutions.

What matters – and what doesn’t – for youth financial inclusion



YouthSave, created in partnership with The MasterCard Foundation in 2010, investigates the potential of savings accounts as a tool for youth development and financial inclusion in developing countries by co-designing tailored, sustainable savings products with local financial institutions and assessing their performance and development outcomes with local researchers.
 
The project is an initiative of the YouthSave Consortium, led by Save the Children in partnership with the Center for Social Development (CSD) at Washington University in St. Louis, the New America Foundation, and the Consultative Group to Assist the Poor (CGAP).
 
YouthSave provides an opportunity to assess the effects of savings on tens of thousands of youth and find out what matters – and what doesn’t – for youth financial inclusion. Which youth will participate in a savings program? How will participants use their accounts? To track this, YouthSave has built the largest database of its kind and recently released a report on 10,710 young participants.

Financial Inclusion Targets and Transformational Change

Douglas Pearce's picture

Financial Inclusion Commitments through the Maya Declaration, the G20 Peer Learning Program, and the Better Than Cash Alliance.
 

Today at 2 o’clock in the Preston Auditorium, Jim Kim, the President of the World Bank Group – along with Queen Máxima of the Netherlands, the U.N. Secretary General’s Special Advocate for Inclusive Finance for Development – will challenge the global community to focus on transformational change in the level and quality of financial inclusion.

Why financial inclusion? Because it is an enabler for poverty reduction and shared prosperity, as has been recognized by the U.N. Secretary General’s High-Level Panel on the Post-2015 Development Agenda.

Progress in tackling financial exclusion can be accelerated through the current global wave of nation-by-nation financial inclusion targets and commitments; through improved data availability; and through transformative business models for providing financial services.

The Economic Cost of Gender Inequality

Katrin Schulz's picture


Madame Ngetsi of the Democratic Republic of the Congo
is one of thousands of women in the world who—despite their talent, drive, and potential to contribute to the economic development of their countries—may never be able to fulfill their dreams of starting their own businesses. Their dreams may be dashed because of outdated legislation that reproduces debilitating gender roles. 

If she were a man in the DRC, Madame Ngetsi’s initial steps in starting her business would be to obtain a certificate confirming the headquarters location, notarize the articles of association, and register with the Commercial Registry.  As a woman, however, a significant roadblock stands in her way:  She is legally mandated to first obtain her husband’s permission to register a business.  This legal requirement, found in the family code rather than in any commercial or business code, is fully in effect in the DRC.  Permission letters are readily found on file at women-owned company registries.  Married men face no such requirement.

Are you financially literate or financially capable?

Siegfried Zottel's picture


‘Imagine you have a lot of mangoes on your farm and your neighbor has lots of tomatoes. You make a bargain and he says he will give you three tomatoes for every mango you give him. If you give him fourteen mangoes, how many tomatoes do you expect him to give back to you?’

This question, amongst others, has been asked in the 2009 and 2011 Kenya FinAccess surveys. If you got the answer to this question right (see end of the blog for the correct answer), congratulations! It may be an indication that you are financially literate. Or would you rather be financially capable? ‘Financial Literacy’ and ‘Financial Capability’ are two terms many have heard about and usually they are used interchangeably. However, in a recent World Bank publication, which tries to ‘Make Sense of Financial Capability Surveys around the World’, the authors (Perotti, Zottel, Iarossi, and Bolaji-Adio) reviewed key approaches to measure financial literacy and capability. In doing so, they identified Financial Literacy to be often associated with financial knowledge.

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