By Jason Alderman
Providing Financial Literacy to the Unbanked
In today’s world of Internet banking, smartphone shopping apps and web-based access to investment accounts, it’s easy to forget that billions of people around the world, including millions in our own country, lag far behind when it comes to accessing even the most rudimentary financial management tools.
Indeed, according to the World Bank:
Approximately 2.5 billion adults worldwide don’t have a formal banking account.
In developing economies, only 41 percent of adults have bank accounts (compared to nearly 90 percent in high-income countries).
In developing countries, the wealthiest 20 percent are more than twice as likely to have an account than the lowest 20 percent.
There’s a gender inequality as well: 46 percent of men in poorer countries have a formal account, while only 37 percent of women do.
These statistics helped form the backdrop for the eighth annual Financial Literacy and Education Summit hosted by the Federal Reserve Bank of Chicago and Visa Inc. Renowned U.S. and international financial experts led lively discussions around the theme, Providing Financial Literacy Resources to the Unbanked and Underbanked. Approximately 1,500 participants in 50 countries attended or watched the live online telecast.
Central to the discussions was the underlying question: “Is financial education important for a segment of the population that is largely excluded from formal financial services?” According to Keynote Speaker Bill Sheedy, EVP, Corporate Strategy, M&A and Government Relations, Visa, and the other panelists, the answer is an unqualified “yes.”
“Providing these adults with useful, scalable and accessible financial services is just one piece of the puzzle,” said Sheedy. “They need to know how to use these products wisely and have the skills and confidence to manage their money soundly. The only way we can be successful in bringing these 2.5 billion people into the economic mainstream is to provide them with financial education long before they ever acquire account numbers.”
Along with identifying numerous challenges unbanked and underbanked people face, panelists also cited successful financial education efforts they’ve observed:
Paula A. Cox, Former Premier and Minister of Finance, Bermuda, described a successful program in Bermuda where government representatives took small business development workshops to construction workers at their worksites. Participants who successfully completed the six-week course then had a leg up when responding to government RFPs.
Jennifer Tescher, President & CEO, Center for Financial Services Innovation, cited her organization’s funding to help a financial coaching program become more cost-effective by allowing remote sessions and data transfer between clients and volunteer coaches. Follow-up research showed that the remote-session clients demonstrated greater involvement and participation than subjects who only had in-person counseling.
Leora Klaper, Lead Economist, Finance and Private Sector Research Team of the Development Research Group, World Bank, mentioned a World Bank project in Indonesia with migrant workers who frequently send money to family members. Staffers divided training about cost-effective remittance methods into three separate audiences: the workers themselves); the recipients; and the two groups being trained together. Interestingly, families who learned together had a much higher retention of information and made wiser choices than those who were taught individually.
Bottom line: Tremendous technological advances are being made around personal financial management. Our challenge is to find ways to bring those tools, and basic financial services, to vast populations of underserved individuals. A parallel challenge is to continue developing and distributing financial education materials that enable children and adults to understand how to manage their money.