“One of the biggest challenges in implementing financial capability is helping people understand the difference between financial education and financial capability.”
– Andrea Stiles (AVAL Consulting)
Financial capability is on the agenda for a growing number of stakeholders, including policymakers who are developing national strategies to raise the capability of their citizens. The FI2020 Roadmap on Financial Capability recommended a shift in emphasis from traditional, classroom-based financial education toward a concept of financial capability focused on behavior change and integrated into product design and delivery. Our conversations with industry experts reveals that this shift is moving very slowly as the concept of financial capability is still largely conflated with financial literacy. Discussions on improving existing financial education models are lively, but there are still relatively few examples of incorporation into products. When providers take up financial capability, they tend to treat it as a stand-alone or complementary activity.
The Roadmap also recommended incorporating insights from behavioral economics into financial capability efforts, and we observe that this is gaining some traction, particularly in the very active U.S. financial inclusion community. A number of entrepreneurs are leveraging technology as a means to apply behavioral economics insights, with innovations such as personal financial management mobile apps that send automated, personalized reminders to help keep consumers on track to financial capability. Start-ups such as RevolutionCredit are providing “gamified” financial education at a teachable moment (when a person applies for a loan) to influence behavior. Global players such as Juntos Finanzas are expanding into new markets. However, few models have yet to be applied at scale.
At a policy level, there is little consensus on who should be responsible for different types of consumer awareness and financial capability interventions. We talked with some experts who believe the onus should fall squarely on providers. One expert comments, “It’s better to make simple products than try to achieve the goal that customers understand all these products.” While agreeing with this sentiment, others contend that good products need to be coupled with broader approaches with mass reach. These differences are reflected in national education strategies pursued by policymakers. For example, in Ecuador banks are now legally responsible for providing financial education, while India has taken a government-led approach. The Indian government contracts with multiple stakeholders to implement its National Strategy for Financial Education.
Financial Capability
6
5
RevolutionCredit
RevolutionCredit is an innovative start-up working in the U.S. that allows would-be borrowers to demonstrate creditworthiness through willingness to learn. The company partners with financial service providers to provide financial education while helping consumers with thin files gain access to products and terms for which they might not otherwise qualify. Through voluntarily completing financial education games and tutorials designed by RevolutionCredit, consumers can demonstrate positive financial behavior. Their responses help financial providers assess creditworthiness and financial fitness.
Financial Inclusion 2020: Round-Up 2014