Evidence on Financial Capability Products and Programs

Transcription

1 Evidence on Financial Capability and Programs Citi-FT Financial Education Summit 5-6 November 2014 Kuala Lumpur Pooja Wagh Initiative Coordinator, Global Financial Inclusion Initiative

2 Why Look to Existing Evidence? Use it to inform design! Learn from products / programs that have worked in similar contexts to yours Learn from products / programs that have worked (or not worked) in multiple contexts Think about what universal lessons an existing evaluation can teach us about human behavior

3 What is Financial Capability? The ability to make informed financial decisions and engage in healthy financial practices &

4 What is Financial Capability? The ability to make informed financial decisions and engage in healthy financial practices &

5 What is Financial Capability? The ability to make informed financial decisions and engage in healthy financial practices Improve Learning Programs Redesign Financial & Improve Product Information

6 Improving Learning Programs PROBLEM INPUT / ACTIVITY OUTPUT OUTCOME IMPACT Low financial capability among low-income people Provide improved learning programs to participants Participants gain financial skills & knowledge Participants have improved financial capability Participants have improved economic welfare &

7 Improving Learning Programs Learning programs with promising impacts have: Content that is modified Delivery channels that are engaging Better timing and targeting &

8 1) Modify Content Simplify, augment, or limit scope &

9 Modify Content Dominican Republic Microentrepreneurs Can a simpler training have a larger impact on business outcomes? Standard Accounting Program Rule-of-Thumb Training Control Standard approach to small business training Content focused on double-entry accounting, working capital management, and investment decisions Simple rules / routines rather than comprehensive knowledge Content focused on separation of business and personal accounts No training Drexler, Alejandro, Gregory Fischer, and Antoinette Schoar. "Financial Literacy Training and Rules of Thumb: Evidence from a Field Experiment." American Economic Journal 6.2 (2014): &

10 Modify Content Dominican Republic Microentrepreneurs Simplifying content can improve knowledge and behavior among those with limited initial skills. No impact detected from standard accounting training Compared to control, rule-of-thumb training improved: Financial management / recordkeeping Revenue (especially sales during bad weeks, which increased by 19%) Compared to standard accounting, rule-of-thumb more effective among low-skilled individuals Drexler, Alejandro, Gregory Fischer, and Antoinette Schoar. "Financial Literacy Training and Rules of Thumb: Evidence from a Field Experiment." American Economic Journal 6.2 (2014): &

11 Modify Content Citi IPA Financial Capability Research Fund India Rules of Thumb: Providing Timely Useful Financial Management Advice at Scale What is the impact of a mobile phone-based rules-of-thumb training on the financial behavior of microentrepreneurs? Photo credit: &

12 2) Rethink Delivery Channels Be engaging, leverage media to lower costs &

13 Rethink Delivery Channels South Africa Low- to Medium-Income Residents of Urban Areas Can financial education delivered via entertainment media impact financial knowledge and behavior? Scandal! Control Soap opera with financial messages ( Scandal! ) Soap opera with no financial messages ( Muvhango ) Berg, Gunhild and Bilal Zia. "Harnessing Emotional Connections to Improve Financial Decisions: Evaluating the Impact of Financial Education in Mainstream Media." World Bank Policy Research Working Paper 6407 (2013). &

14 Rethink Delivery Channels South Africa Low- to Medium-Income Residents of Urban Areas Financial education delivered through mass media can impact financial knowledge and behavior. Treatment increased scores on financial literacy test by 11% Treated participants 68% more likely to borrow through formal channels and 65% more likely to borrow for productive purposes Treated participants 23% less likely to engage in hirepurchase contracts and 17% less likely to gamble Berg, Gunhild and Bilal Zia. "Harnessing Emotional Connections to Improve Financial Decisions: Evaluating the Impact of Financial Education in Mainstream Media." World Bank Policy Research Working Paper 6407 (2013). Photo credit buzzsouthafrica.com. &

15 3) Adjust Program Timing and Targeting Timely instruction for the most receptive &

16 Adjust Program Timing and Targeting Indonesia Migrants and their families Do financial literacy programs most improve savings when offered only to migrants, only to their families, or to both the migrants and their families? Migrant Only Family Member Only Migrant and Family Control Training program for Training program for main Training program for No training program for migrants decision-maker in migrants AND any group migrant s household Training program for main decision-maker in migrant s household Doi, Yoko, David McKenzie, and Bilal Zia. "Who You Train Matters: Identifying Complementary Effects of Financial Education on Migrant Households. World Bank Policy Research Working Paper 6157 (2012). &

17 Adjust Program Timing and Targeting Indonesia Migrants and their families Financial literacy programs targeting both the migrant and the migrant s household can be more effective. No significant increase in financial knowledge or behavior when only migrant is trained No change in remittances sent in any group Greatest impacts when migrant + family trained: Greatest increase in financial knowledge More planning and budgeting Of remittances received, saved 2x as much as control 26% more likely to have saved in a bank account Doi, Yoko, David McKenzie, and Bilal Zia. "Who You Train Matters: Identifying Complementary Effects of Financial Education on Migrant Households. World Bank Policy Research Working Paper 6157 (2012). &

18 Improving Learning Programs Other ideas for improved learning programs? &

19 Redesigning Financial PROBLEM INPUT / ACTIVITY OUTPUT OUTCOME IMPACT Low financial capability among low-income people Provide redesigned financial products to customers Customers are able to access well-designed products Customers have improved financial capability Customers have improved economic welfare &

20 Redesigning Financial Financial products with promising impacts have: Encouraged financial planning Reminded clients to save Made risk more palatable &

21 1) Encourage Financial Planning Help consumers make plans and stick to them &

22 Encourage Financial Planning Philippines Existing or former bank clients Do people open commitment savings accounts and use them to save more? Agent Visit + New Account Agent Visit Only Control Received a visit from an agent who encouraged saving and offered a new savings account New account allowed clients to limit withdrawals based on time or savings goal Received a visit from an agent who encouraged saving No agent visit Ashraf, Nava, Dean Karlan, and Wesley Yin. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines." The Quarterly Journal of Economics (2006): &

23 Encourage Financial Planning Philippines Existing or former bank clients Commitment savings accounts can elicit a lasting change in savings. Individuals offered commitment savings accounts increased savings balances by 82% after 12 months Savings actually increased were not just shifted into the account from elsewhere More impatient women were more likely to take up account Ashraf, Nava, Dean Karlan, and Wesley Yin. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines." The Quarterly Journal of Economics (2006): Photo credit: &

24 2) Remind Clients to Save Make benefits of saving more salient &

25 Remind Clients to Save Philippines, Bolivia, and Peru Existing bank clients What is the impact of simple reminders to save on clients savings account balances? Clients made a plan for monthly deposits or goal savings amount Clients received monthly reminders to save (via text or letter) Variety of reminder messages: Emphasized gains of saving OR loss of not saving Contained signature of bank OR signature of client Were sent after client missed planned deposit Mentioned specific savings goals Mentioned savings rewards A control group received no reminders Karlan, Dean et al. Getting to the Top of Mind: How Reminders Increase Saving. Working Paper (2014). &

26 Remind Clients to Save Philippines, Bolivia, and Peru Existing bank clients Reminder messages can increase savings balances if they make the benefits of saving more apparent. Sending any type of reminder increased the likelihood of reaching savings goal by 5% Messages that mentioned the savings goal and the reward for saving worked best In Peru, increased savings balances by 13% In Bolivia, increased savings balances by 11% Karlan, Dean et al. Getting to the Top of Mind: How Reminders Increase Saving. Working Paper (2014). &

27 Remind Clients to Save Citi IPA Financial Capability Research Fund Global Messaging Replications Why and how does sending people text messages improve saving and payment behaviors? What is the best way to implement effective messaging programs? &

28 3) Make Risk More Palatable Make it easier for clients to take on the risk of investing in higher-return ventures &

29 Make Risk More Palatable India Poor urban borrowers What is the impact of more flexible microfinance loans on business investment and revenues? Repayment Grace Period Control 2-month grace period: loan repayments began 2 months after loan was disbursed Standard repayment: loan repayments began 2 weeks after loan was disbursed Field, Erica et al. Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India. American Economic Review (2013): &

30 Make Risk More Palatable India Poor urban borrowers A flexible loan product may encourage higher-risk, higher-return investments, leading to higher income in the long term. Grace period clients 2x more likely to start business; short-run business investment 6% higher 3 years later: grace period clients profits 41% higher and household income 19.5% higher Grace period clients 3x more likely to default and more likely to report riskier business practices Field, Erica et al. Does the Classic Microfinance Model Discourage Entrepreneurship Among the Poor? Experimental Evidence from India. American Economic Review (2013): &

31 Redesigning Financial Other ideas for redesigned financial products? &

32 Improving Product Information PROBLEM INPUT / ACTIVITY OUTPUT OUTCOME IMPACT Low financial capability among low-income people Deliver improved product information to customers Customers gain awareness of products and their usage Customers have improved financial capability Customers have improved economic welfare &

33 Improving Product Information Product information has had promising impacts when: It has well-designed, deliberate content Is delivered through trusted networks It is framed carefully &

34 1) Design Content Deliberately Be deliberate about the content of information provided to clients &

35 Design Content Deliberately South Africa Former clients of a consumer lender What is the impact of advertising content on the demand for loans? Varied the interest rate of the loan Varied a number of marketing features, including: Photographs Suggestions for loan use Number of loan choices Promotional raffle Compared changes in demand from content variations to changes in demand from interest rate variations Bertrand, Marianne et al. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment." The Quarterly Journal of Economics (2010): &

36 Design Content Deliberately South Africa Former clients of a consumer lender Content that does not seem informative may still play a major role in consumer decision-making. Loan applications increased by 7-8% when the interest rate was dropped by 25% Some marketing features had the same impact: Showing fewer example loans Not suggesting a particular use for the loan Including a photo of an attractive woman Bertrand, Marianne et al. "What's Advertising Content Worth? Evidence from a Consumer Credit Marketing Field Experiment." The Quarterly Journal of Economics (2010): &

37 2) Leverage Trusted Networks Reach more clients by using social networks to deliver information &

38 Leverage Trusted Networks India Farming households Does trust in the insurance salesperson impact the takeup of index insurance? Endorsed Salesperson Control Insurance salesperson visits household with someone the household trusts (BASIX Agent) Agent encourages household to listen to salesperson before product description begins Insurance salesperson visits the household alone Cole, Shawn et al. Barriers to Household Risk Management: Evidence from India. IMF Working Paper WP/12/195 (2012). & Rights

39 Leverage Trusted Networks India Farming households The endorsement of a trusted individual can significantly impact the demand for insurance. If insurance salesperson is endorsed by BASIX Agent AND household is familiar with BASIX, demand for insurance is 36% higher than control If insurance salesperson is endorsed by BASIX Agent BUT household is not familiar with BASIX, there is no impact on demand for insurance compared to control Cole, Shawn et al. Barriers to Household Risk Management: Evidence from India. IMF Working Paper WP/12/195 (2012). &

40 3) Improve Framing Improve the way information is framed when it is presented to customers &

41 Improve Framing Mexico Indebted credit card clients What is the impact of information disclosures on loan default and indebtedness? Tested 7 different information and warning messages Typical messages included: the loan interest rate the number of months it would take to pay off outstanding debt Social comparison messages included: a note that debt was high compared to peers, plus financial advice a note that debt was high compared to peers, without advice a warning that risk of default was high compared to peers a congratulatory message that risk of default was low compared to peers Warning against overconfidence Seira, Enrique and Alan Elizondo. Are Information Disclosure Mandates Effective? Evidence from the Credit Card Market. Working Paper (2014). &

42 Improve Framing Mexico Indebted credit card clients The framing of information disclosures may affect the actions of clients. Typical messages: No impact from disclosing interest rate Months to pay message increased delinquency by 8.6% Social comparison messages: High risk warning reduced delinquency by 5.6% Low risk congratulations increased delinquency by 65% Warning message reduced debt by 1% Seira, Enrique and Alan Elizondo. Are Information Disclosure Mandates Effective? Evidence from the Credit Card Market. Working Paper (2014). &

43 Improving Product Information Other ideas for improving product information? &

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