Financial Literacy Education and Pro-Poor Microfinance

What are the most effective financial education practices is in pursuit of pro-poor microfinance? Recent years haves shown much enthusiasm and effort to build financial literacy through financial education in both developed and developing countries. In this post, we will review a some of the literature on this subject and provide some resources for understanding the current state of good practices in pro-poor financial literacy education. We invite your comments and experiences with financial literacy and people living in poverty in the comments section below.

Earlier this year, Chris Dunford, a rural development professional with over 35 years experience, posted an excellent piece on his blog, the Evidence Project, looking at the effectiveness of financial literacy education.

Dunford’s post reviews two primary studies: Can Financial Education Change Behavior? Lessons from Bolivia and Sri Lanka, and Bridging the Gap: The Business Case for Financial Capability. He concludes that “the evidence that financial education leads to financial capability is mixed at best. In short,” says Dunford “the body of evidence for financial education effectiveness is a mess. But it is not so messy that we cannot discern some themes.” The primary themes drawn from the research are as follows:

The relevance of education content to the lives of the intended learners is critical
Education objectives strongly affect the probability of different outcomes, but often the objectives are not clearly manifest in the education design
Simpler is better, but how simple does it have to be?
Quality matters

To learn more about Dunford’s key takeaways, read the full post here .

Anita Gardeva, Senior Analyst with the Center for Financial Inclusion, has also offered key takeaways on the effectiveness of financial education, this time from the 2012 Citi-FT Financial Education Summit. Gardeva’s conclusion echoes Dunford’s sentiment that the current body of evidence is mixed: “it is clear that we need much more information and evidence about what works in regards to building financial capability.” All the same, she also offers takeaways that can deepen our understanding of what successful financial education for poor people looks like:

Targeting a niche population with tailored financial education and simple messaging can work
- “an important lesson learned is that there is a tradeoff between providing financial education at scale (less expensive, more general, unknown efficacy) versus targeting a niche population (more expensive, tailored, high potential for impact)”
Financial education as a separate core-curriculum in schools is part of the solution (eg. in public schools)
Changing behavior is a tremendous task—much more ambitious than the tools we are using

To read more on Gardeva’s learnings at the Fin Ed Summit, read the full post here. The 10th annual Citi-FT Financial Education Summit will be held this December in Hong Kong.

It is clear that the research still has a ways to go before more concrete conclusions can be drawn regarding best practices in financial literacy education. That said, we can still extract good practices and useful tools from the current body of work in order to effectively move forward. Here are some additional resources that help further our understanding of effective financial literacy education for people living in poverty:

Ujjivan in Bangalore, India currently runs a successful financial literacy program. Ujjivan’s program, as well as current Indian Central Bank (RBI) “Project Financial Literacy” are discussed in this blog post.
Results from the OECD’s large-scale PISA Financial Literacy Assessment will be available in late 2013-early 2014
Microfinance Opprtunities is providing financial literacy training to adolescent girls as part of a larger initiative in partnership with Nike.