Paving the road to better financial decision-making

This page in:


Photo: ElishaCasas, Flickr Creative Commons

An increasing number of countries are developing national strategies for financial education and implementing programs to enhance people’s financial capability. At least 36 countries have already established or are in the process of designing a national strategy for financial education according to the OECD. Boosting people’s ability to take sound financial decisions has emerged as a new policy objective, both in developed and developing countries. The recent financial crisis has reinforced the view that being financially capable is important. However, let’s take a step back. What do we know about how capable people are in different countries across the world in managing their finances? Which knowledge and skills gaps exist that could be filled with financial capability enhancing programs? Which populations are the least financially knowledgeable and capable and would benefit the most from any interventions? Typically, the first step in designing a national financial education strategy is to conduct a nationally representative survey, which provides a baseline assessment of areas of weakness and helps to identify the most vulnerable segments of the population. Around 80 percent of the countries have used a survey as diagnostic tool to determine the key priorities for their national strategies (OECD).

There are numerous financial capability surveys, although, most of these do not provide internationally comparable evidence. One of the few which provides benchmarking opportunities is the World Bank’s Financial Capability and Consumer Protection survey.

To assess people's understanding of financial concepts the Financial Capability and Consumer Protection survey instrument includes core questions relating to knowledge of concepts such as inflation, simple interest, compound interest, and their awareness of deposit insurance schemes. Since knowledge alone does not necessarily translate into sound financial behavior the questionnaire further collects information on people’s financial behavior and attitudes. For instance, it captures people’s ability to plan how to use money they receive, whether they are able to keep track of expenses, or to make provisions for unexpected expenses. To get a better understanding of the current state of financial inclusion, some questions relate to the ways people save or borrow: formally or informally. To improve the effectiveness of existing financial consumer protection mechanisms the consumer protection section gathers information on the extent to which people trust in financial institutions and their confidence in existing recourse mechanisms

Up to now, data collected with this survey instrument is mainly available for countries in Europe and Central Asia, such as Azerbaijan, Bosnia & Herzegovina (BIH), Bulgaria, Romania, and Russia. In addition, it has also been used in West Bank & Gaza. Today the World Bank is launching its ‘Financial Capability and Consumer Protection’ website, where this individual-level survey data on financial capability, inclusion and consumer protection is made easily accessible. Data for additional 14 countries in different regions will be available soon.

Table 1: Low levels of financial knowledge


So, what can we learn from these baseline assessments in terms of areas of weakness and groups which could be targeted with financial capability enhancing programs? Interestingly, across all countries similar patterns emerge:
•    Large parts of the population demonstrate skills to perform simple calculations to identify cheaper bargains, but giving a rough estimate of the APR paid for a loan poses a challenge to between 60% and 75% of Bulgaria’s, Romania’s and Russia’s population.

•    Substantial parts of the population (see table 1) do not understand simple interest, compound interest, or how inflation affects their savings. Awareness of the maximum amount which is insured by deposit insurance schemes in case a bank goes bankrupt is also limited.

•    The findings also highlight that many adults are not able to make provisions for their children’s education or for unexpected expenses and do not check terms and conditions before choosing a financial product or service.

Figure 1: Knowledge gaps – gender and age matter


•    In most of the countries surveyed the least financially knowledgeable groups of the population are women, seniors (see figure 1), people with lower educational attainment, low income groups, rural populations and informally employed, retirees, or those who are out of the labor force.

Figure 2: Limited trust in banks, even less in insurance companies

•    Trust in financial institutions is limited. For instance, only 1 out of 5 adults highly trusts in banks in countries like Bosnia and Bulgaria, while in Romania only 1 out of 8 highly trusts in banks. In all countries, trust in insurance companies appears to be even lower (see figure 2).

These findings underscore the importance of initiatives designed to enable people to plan ahead and for the unexpected, and to choose financial products which fit their needs best. Further, they show the need to build trust in financial institutions by creating necessary financial consumer protection frameworks. To complement these demand-side snapshots the Financial Capability and Consumer Protection website also offers 13 country assessments of legal/regulatory and institutional frameworks to support low and middle-income countries in their efforts to strengthen financial consumer protection frameworks. Additional 5 diagnostics will be made accessible soon.

Visit the website to explore the available financial capability data, and read more about diagnostics of legal/regulatory and institutional frameworks for financial consumer protection.


Siegfried Zottel

Senior Financial Sector Specialist

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000