Baku, 4-5 October 2012

6th Azerbaijan Micro-finance Conference Azerbaijan Micro-finance Conference Challenging Time: How to mitigate Risks?

Financial Literacy: challenges and opportunitiesFinancial Literacy: challenges and opportunitiesFinancial Literacy: challenges and opportunitiesFinancial Literacy: challenges and opportunities

FINANCIAL LITERACY: CHALLENGES AND OPPORTUNITIES

Why financial education?

• Changes negative attitudes towards family financial

planning, promotes saving behaviors, and introduces long-term

financial planning

• Prepares low-income households to be more proactive in

managing emergencies and in taking the right debt decisions. Develops the knowledge about safe borrowing practices

• Provides knowledge necessary for the wise use of financial

services, including information about product parameters, terminology,

supply research hints, as well as linking the use of financial services to the

family financial goals

2

Low financial capability: risks

• Micro-level

– Lack of budget planning– Little or no saving– Short time horizon– Victimization by

banks/financial Institutions– Uneducated consumer

spending and borrowing irrationally

• Macro-level

– Excessive indebtedness of the society

– Lack of saving for retirement

– Credit-led economic boom– Lack of resources of

economic growth

3

Who is it important for?

• Individuals

– To better manage own resources and protect their assets

• Financial institutions

– To develop adequate financial services taking into account

people’s limited understanding and psychological biases

• Policy makers

– To promote healthy policies that provide adequate protection

of the consumer without stifling the development of financial

markets

4

Use of finance: from passive payment to active management

• Transitional and emerging economy adds complexity

and urgency to financial education:

– Market economy requires active use of financial markets and

instruments

– Little knowledge of financial management from previous

system

– Financial markets evolved much faster than human

understanding and adaptation to their use

– Few options to learn about financial management

5

Level of financial education

• Financial capabilities differ across countries and within

each country

• Many factors influence financial management skills:

– Level of education

– Cognitive skills in particular numeracy skills

– Certain personal characteristics (e.g., locus of control)

– Level of development of financial markets

– Household organization

– Cultural norms

6

Financial capability segmentation

• Involvement in key three financial behaviors (planning,

expense tracking, savings):

7

29%23% 20% 17% 14%

9%

36%

32%33%

32%29%

21%

25%

31%25%

41%

41%

31%

10% 14%22%

10%17%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Uzbekistan Kazakhstan Poland Ukraine Belarus Bosnia and

Herzegov ina

None

Only 1behav ior

2 behav iors

All three behav iors

Savings behavior

• In general people save (too) little both for short term

precautionary reasons and longer term goals

• Savings rates increased during the financial crisis

– EU average 15%

• Why low savings:

– Remittances may crowd out savings (Tajikistan)

– Easy access to credit services (Hungary)

– Social protection policy

– Family structure and lifestyle

8

Financial education program at MFC

• Educational tools– “Plan your future” – fundamentals of financial education– Debt management module– Risk management and insurance module– Remittance module– Counseling tool

• Communication campaigns/ conferences

• Financial capability studies

• Stakeholder mapping studies/ country strategies

• Assistance with national strategies for financial education

• Countries in Transition:

– Armenia, Azerbaijan, Belarus, Bulgaria, Georgia, Hungary,

Kyrgyzstan, Kazakhstan, Macedonia, Moldova, Poland,

Romania, Slovakia, Russia, Ukraine, Uzbekistan, Tajikistan

9

MFC’s framework for financial education

Low HighEngagement Intensity

Del

iver

y In

ten

sity

Low

H

igh

RemindersIn-line messaging;Social campaign

Classroom trainingWorkshopsSeminars

Educational games

Financial counseling

Matched savings/ IDAsLotteries

10

Who and how is involved in FE

• Macro level (central banks,

regulators, ministries, etc.)

• Mezo level (networks, meso level

organizations, country level NGOs)

• Micro level (service delivery:

counseling, credit counseling) –

financial institutions, NGOs, schools,

government structures

11

Information campaign - development of AMFA financial education booklets

12

EFSE funded collaboration of MFC and AMFA on educational booklets:

savings booklet:

• explaining important features of bank’s services – fixed vs. flexible deposit

• Clients rights

• explaining an importance of saving

Information campaign - development of AMFA financial education booklets

13

debt and overindebtedness booklet:

• What is the loan and how to compare different loans?

• When a client should not take a loan?

• Rules of a wise borrowing

• What is overi-ndebtedness and how to avoid it?

budgeting booklet:

Show in few steps how to manage in a proper way the household budget:

• Set financial goal Calculate an income plan expenses calculate expected savinng for each month

• Make financial smart decision

Policy recommendations

• Financial education is a worthwhile investment in human capital

– Personal financial capability

– Broad financial system stability

• Longer term perspective needed

– Basic financial literacy of the population

• Diverse channels of education, communication and influence

• Innovations to keep pace with the changes in financial markets

• Research and on-going monitoring

• Search for a good teachable moment to advocate financial

education

14

Microfinance CentreKoszykowa 60/62 m. 52 00-673 Warsaw, Poland

Tel.: +48 22 622 34 65Fax: +48 22 622 34 85www.mfc.org.plkasia@mfc.org.pl

Thank you!Microfinance CentreKoszykowa 60/62 m. 52 00-673 Warsaw, Poland

Tel.: +48 22 622 34 65Fax: +48 22 622 34 85e-mail: microfinance@mfc.org.pl

www.mfc.org.pl