Increasing the Impact of Financial Education: Approaches to Designing Financial Education Programs
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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.
Based on this experience, the following steps should be considered to increase the likelihood of impact of financial education programs:
Diagnostic Assessment
A financial capability survey is among the most accurate instruments for diagnosing the demand-side gaps, and for establishing a baseline for financial capability and literacy levels. Ideally, a nationally representative financial capability survey should be considered to properly diagnose the demand-side gaps. As an alternative, a set of targeted financial capability questions can be added to other planned survey work – for example, to a financial inclusion household survey or to a more general household survey. Specialized surveys focusing on a particular group (e.g., schoolchildren) may be appropriate, however, for more targeted interventions.
Mapping exercise
A mapping of existing financial education initiatives is recommended, to determine the supply of current programs. It is important to conduct a review of existing initiatives so that new programs and/or financial education strategy can be informed by existing experience, can benefit from lessons learned, can avoid duplication and can potentially rely on successful programs and delivery channels.
Design work
The development and implementation of a financial education program and/or strategy should ideally be based on a previous demand-and-supply-side analysis. For countries that opt for a more strategic approach from the outset, the development of a national financial education strategy can be used to identify and set national priorities, to build consensus and to ensure the better coordination of diverse stakeholders.
Small Scale Piloting Prior to Roll-Out
The implementation stage should use pilot programs prior to a full-scale rollout, with impact assessment integrated from the outset. Small-scale initial implementation, scaling up to full implementation based on evaluations (via surveys, pilot tests and randomized control trials) can enhance effectiveness and safeguard resources.
For more information about operational steps aimed at maximizing the benefits of financial education initiatives, and for an overview of recently completed evaluations, see our recent brief Financial Education Programs and Strategies: Approaches and Available Resources.
Additional resources on financial capability issues, including country cases and toolkits are available at our Responsible Finance website, and at our Financial Inclusion Resource Center.
In this context, today, one should look at India and emulate the efforts done by the country’s Central Bank of India (RBI). They have done an excellent initiative in this field to address the growing need in this field and their plans of action essentially touches upon the current global economic scenario and its impact in India on local financial education, financial inclusion and customer protection. This is with the objective to help the country not only achieve stability but also pave way for sustainable and a balanced growth. RBI wishes to ensure that on a pan India basis Financial education should be directed to provide the population necessary skills and attitudes to become financially literate and money management practices with respect to earning, spending, saving, borrowing, and investing. They are essentially driving the message that financial education will eventually help individuals (in a developing country such as India with growing population of 1.25 billion) think and plan their financial goals by proactive decision-making and work towards fulfilling these goals. By this way, there will be a change in the attitudes of the customers to judiciously use financial products and services, in such a way so as to effective use this scarce resource. We are talking here about financial inclusion which will bringing people (below the poverty line ) to the mainstream, linking them to banks so that they become customers of Banks and are able to access the full range of services as loans and deposits offered by the banks. Banks in India level of penetration to tier 3 towns and villages should be about 35 % which if doubled will be a great boon economically. For this to happen, financial education at grass root levels is essential so that customer protection is achieved. In this regard it is worthwhile to state that financial service providers (banks) have a responsibility to understand their customer, market and provide error free and timely service . They should respond with a range of appropriate and affordable services, including savings and credit accounts, payment services, insurance products and the ability to send and receive remittance payments at competitive and affordable pricing. RBI has embraced financial education to protect consumers from fraud and abuse. At the micro level, financial literacy helps poorer households to use scarce resources more effectively, choose the financial products that best meet their needs and become pro-active decision makers. At the macro level, the institutional level, informed customers definitely make for better clients; they help lower institutional risk and contribute to a stronger bottom line. At the market level, financially literate consumers are a key element in effective consumer protection; placing pressure on financial institutions for services that are both appropriately priced and transparent.