How to Take Control of your Personal Finances

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​Many of our aspirations revolve around improving our personal finances—keeping better track of spending, saving towards a goal or perhaps getting out of debt.  How can we work towards these goals and follow through on these changes? 

New reports on financial behavior, attitudes and knowledge in Mexico and Colombia based on national survey data provide some insights on challenges and opportunities to improve how we manage our finances.

Many make financial plans—far fewer adhere to them. More than 70% of those surveyed in Colombia and Mexico said they planned their expenses,  but less than one-third reported consistently adhering to a budget.  Similarly, less than a quarter of those surveyed knew how much they had spent in the last week.
Financial planning horizons are relatively short term, and savings are limited. In Mexico, 43% of those surveyed reported planning horizons of one week or less and just 34% of survey respondents there felt they could cover a major unexpected expense.

Even anticipated life events like retirement are difficult to cover - just 28% of those under the age of 60 have plans to cover retirement expenses fully in old age. Income level is correlated with these planning behaviors, but it is not the only factor.

Few people are taught to manage their money.  More than half of Mexicans and Colombians noted that no one ever taught them to manage their money.  For those who did receive this instruction, parents provided the principal orientation—with mothers more likely to teach daughters and fathers more likely to teach sons. One interviewee described his experience: “My father was not formally educated but he was financially capable. He had some envelopes and designated quantities of money for each one. On that basis, I got organized and naturally learned from him.”

So what should those who want to improve their personal financial management aim to do?
  • Take advantage of technology. Technology that increases timely access to financial information can improve planning behaviors and enhance decision-making.  Personal finance tools -many of which are offered through the internet and mobile phones- can help users better administer their spending, savings and investments (Ex: Juntos Finanzas, Rocket, and the Mexican government supported household budgeting app Presupuesto Familiar. Text messages and social media can be used to send simple sustained messages related to personal finance, such as managing account balances, loan payment, and savings to promote desired behaviors.  Accessing financial education websites which are increasingly targeted to key “teachable moments” when people are looking for information, such as a decision about education, purchase of a vehicle education, the birth of a child or retirement can also be a good use of time and such content is increasingly available in Spanish.
  • Participate in financial education interventions.  Although the impact of formal financial education has been mixed certain well-designed school based financial education programs have shown impact (ex: Brazil), as have interventions designed for a population that is not accustomed to learning in a classroom setting, such as entertainment education through soap opera and other media. Incorporating family involvement in financial education interventions can be particularly powerful.
  • Choose products and services that promote financial goals. Financial service providers are increasingly developing product enhancements to encourage desired behaviors such as labeled savings accounts for specific goals and commitment accounts.  Future dated mobile payments (i.e., the ability to send money to oneself at a future date) could also serve as the functional equivalent of traditional commitment savings for mobile phones.  These are simple ways to make savings gains feel tangible and curb tendencies to overspend and view only the short-term.   A Peruvian financial institution created jigsaw puzzles with pictures of savings goals (such as a child in school or a vehicle). The group receiving a puzzle piece for each deposit was 2.3 percentage points more likely to meet its savings commitment than the control group (Karlan et al. 2009).
What are we missing?  Are there particular tools and interventions that will improve our ability to manage money?


Rekha Reddy

Senior Financial Sector Specialist

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