Financial education, whether for the affluent or the indigent, may actually work best when it is linked to product marketing. This is a controversial premise because one is never clear where exactly the blurred line lies between “linked” (which implies merely a connection), and “nudge” (which can mean explicit sales efforts).
First, let’s start with a few brief definitions since many who work in financial inclusion for low-income, unbanked or under-banked customers tend to bandy these terms about in ways that may not be clear to readers less than fully immersed in this jargon.
The most common interpretation of “financial education” is the provision of knowledge and skills relating to managing one’s personal finances. This includes the knowledge of basic principles about money both rich and poor people need to make informed decisions for the choices available, and the short- and long-term impact of these decisions on their financial well-being.
An extension to this concept is “financial capability” which encompasses gaining knowledge and skills, PLUS the motivation to plan ahead, choose to seek advice, and then take action. (For a more in-depth discussion of these and the many other individual nuances involved, please see a recent Ignacio Mas/MicroSave research paper on Metaphors of Household Financial Management.)
The one concrete piece of evidence we have to work within all the above are the actual accounts, investments, and other services on offer. Everything else—“knowledge”, “skills”, “advice”—is fairly abstract. Most of us do not make decisions about money on the basis of abstractions. For someone with limited formal education and literacy, a purely theoretical approach for such decisions is even less likely. (For more insights on how people make financial decisions see Role Of Information Sources in Financial Capability; and why they make these decisions see Musings on Money).
Before putting any money down, investors at all levels of income tend to review their own successes and failures with similar financial offerings—which invariably involve such specifics as fees, interest rates, returns on investment, favorable and unfavorable terms and conditions. When possible, they often make little test forays requiring minimal cash outlays.
We also pay close attention to what others are doing. If one acquaintance just made a tidy profit via an insured mutual fund with company X, and another lost her life savings investing in a nefarious land trust, well, the choice is clear. No surprise, people of very limited means embrace the same strategies.
Julie Zollman and Daryl Collins have done a lengthy report for CGAP and FSD Kenya exploring more thoroughly the relationship between specific product marketing and the financial capability of poor people. (You can also read the short version “Financial Education—Time for a Rethink?” which outlines many of the same arguments.)
Managed carefully—i.e. no strong-arm sales techniques—we believe providing impartial information and a chance to try specific savings and credit options may work better than general classes on budgeting and debt management. If nothing else, a more immediate involvement with the choices available forces a personal assessment and decision-making process that group discussion will never quite achieve.
This is not to discount some of the excellent and quite effective financial education/ capability instructors and techniques that have developed in recent years. (Here’s a fairly recent World Bank overview on what’s available in multimedia and other channels.) These programmes may be effective in creating awareness and influencing attitudes but much of the desired actions may not be seen unless they are linked to financial service providers. So we look instead to governments, central banks, all deposit-taking financial institutions, and the numerous network operators, technology service providers and other interested parties actively seeking to push financial inclusion. Their budgets are more expansive and, perhaps more to the point, their goal is for full market involvement.
The catch is that, except for the first two players, everyone is selling something. MicroSaveplans to keep a close watch on how the financial education/product marketing alliance develops. For the moment, however, we think it might work. We like to call this approach “RPM—Responsible Product Marketing”.