> Posted by John Gitau, CEO, Kenya Financial Education Centre
This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to , Fellow, Center for Financial Inclusion at Accion.
I have taught financial literacy in East Africa for the past eight years, and have managed my own firm for the past four. And here is one thing I have noticed: the financial inclusion community as a whole does not have a common definition or goal for financial education. This lack of an agreed-upon definition makes difficult the process of creating financially capable populations.
Here is how I define key terms:
Financial education is the process of teaching the knowledge, skills and attitudes necessary in personal money management. The end result of financial education is financial literacy. Financial literacy is the ability to manage personal money well. But financial literacy is not an end in itself. It is a tool which when used well results in financial capability. Therefore, financial capability is the ability to apply financial literacy in personal money management to improve financial well-being. When a financially literate person takes action in a way that results in better money use, we say such a person is financially capable.
Not everyone maintains these definitions and goals, though. MFIs, corporations, NGOs, and SACCOs (savings and credit cooperatives) each come to me with different goals, some impossible to achieve. MFIs want me to teach their clients quickly so that they can improve on their loans repayments and increase saving. They are not keen on me teaching investment and some even warn me to be careful when handling the topic of the use of financial services. They want me not to dwell on costs but emphasize benefits. I sometimes find these requests quite amusing.
Some instructions I get from MFIs on how to teach their clients border on humorous. One MFI wanted me to teach four-hour financial literacy workshops to its clients, organized in groups of 50, in a way that could improve repayment performance by more than 20 percent. To such an instruction, I couldn’t resist a loud laughter. In spite of the money involved, I declined. Financial literacy to adults is not like an insulin dose to balance sugar levels.
And here is why it’s amusing: in my career, I have come to an understanding about how adults learn. The way the MFIs recommend I teach their clients goes against almost all the principles. Add to the mix the fact that it is money management at the centre of learning and you realize why most MFIs hardly get financial literacy right.
What corporations ask me not to do is even more comical. They want their staff to be taught how to budget their money to avoid impecuniary disruptions that affect working morale. But they don’t want me to emphasize savings because with savings comes investing and financial freedom that threatens employment indispensability. They would rather I emphasize passive income investments outside the companies’ business lines.
NGOs want me to teach everything that can create economic empowerment among their customers. To them, demonstrating effectiveness in money use attracts more donor funding. They respect me as the professional who knows how best to do my job. With them, I am able to effectively teach financial literacy as it is supposed to be taught complete with monitoring and evaluation. But still, there is a limit to the amount that can be taught in a set amount of time.
SACCOs want their members empowered, especially in investment and saving. However, they want to spend as little as possible for training. Thus, like MFIs they want rapid training, and most of the time they don’t seem to care whether the members have learned or not. Given that SACCO management decides what training is suitable for members in a top-down approach, members appear lost in the training, almost wondering what financial literacy is all about. In my experience, they are more difficult to teach even than corporate staff members. Those who are keen are the ones who plan to use the lessons for their personal investment objectives.
What’s even more interesting is that many students, whether they are staff of corporations, clients of MFIs or Sacco members, don’t want to learn financial literacy. In addition to thinking they know how to manage their money, they wonder why they have to learn. I take a lot of time in introducing financial literacy and outlining its importance and benefits. Fortunately for MFIs, they are able to entice their clients to embrace financial literacy training because it is a compulsory prelude to loan disbursement. But from my experience, most clients are just going through the motions. Their minds are not in the learning but in the loans they will get and what they will do with the money. To MFIs, the fact that they have had their clients taught gives them psychological satisfaction. Greedy financial education training companies do take advantage of such misalignment. Some MFIs train their staff as trainers to teach clients. To the staff, it is doing a job. Worse still, some MFIs have the same teachers manage debt repayments from the same clients they teach. With such a set up, financial literacy becomes the baby that is swept away with the bath water.
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John Gitau, a financial education consultant and trainer, is the CEO of Kenya Financial Education Centre, an independent centre that offers financial training to staff and clients of financial service providers. His passion is teaching financial literacy and designing financial products for the poor. From 1992 to 2010, he was a Capital Markets Authority regulated investment consultant with Bridges Capital Ltd. He is a master trainer of trainers with the Global Financial Education Program (GFEP), developed by Microfinance Opportunities in collaboration with Freedom from Hunger and Citi Foundation.
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June 21, 2012 at 6:30 am
Graham A.N. Wright
You are right John. Indeed traditional classroom based financial education has been optimistic at best. Recent research by Zollmann and Collins suggests that, particularly amongst the poor, traditional financial education is missing the mark both in terms of content and pedagogical approach. As the excellent Citi-Monitor “Bridiging the Gap: The Business Case for Financial Capability” report highlighted, we need to re-think the process of financial education to merge it with product marketing, thus making it more relevant for customers and more cost-effective for financial institutions. http://microsave.org/sites/files/technicalBriefs/briefingNotes/BN_112_Financial_Education_Time_for_a_Rethink.pdf
June 25, 2012 at 8:52 am
John Gitau
Graham,
Thank you for bringing into light in this forum, the research by Julie Zollmann and Daryl Collins ” Financial Capability and The Poor-time: are we missing the mark?: It is comprehensive and insightful and captures perfectly the poor’s psyche as they relate with money and financial services. The description of the Kenya poor relating with financial services especially M-pesa is very revealing. As a teacher, it helps in deepening the understanding of how best to handle the poor in financial literacy learning as they use the services. The poor are not as financially illiterate as we may think, this research reveals. The findings reinforce what the Citi-Monitor’s Bridging the Gap reveals( Graham, I agree with you that this is an excellent report). The two researches are helpful is guiding financial literacy curriculum developers and teachers. I like Julie and Daryl’s conclusions that inclusion is not just about bringing the poor to enjoy formal financial services as is currently assumed- there is much much more and indeed, they can be financially included at their terrain doing what they are doing with just additional protection and products access information.
Graham, I have a question. Inside ” Financial Capability and the Poor” report, there is in the topic “financial characteristics of different income groups”, two categories -the high and middle class as one category and The poor as the other. The poor described seem to be the urban based perhaps located in slums and other low income neighborhoods. How would we classify the rural poor? I find the rural poor almost completely different from the urban poor not by the environment and economic dynamics but also their self perception. They don’t seem to consider themselves poor, have some kind of defined incomes though as sporadic as those in the urban areas, and their lives are not as fast as in the urban areas. Are we likely to have a third category of the poor in rural areas? In my financial literacy teaching engagements, I find the two categories totally different especially in the way they learn and receive financial products. One almost wants to have a pedagogy for the rural poor and another for the urban poor. I will appreciate your help in perspective in this regard.
June 25, 2012 at 12:18 pm
monique cohen
Graham: I would not be so ready to throw out class room training. It works for some, not for others. I notice that two of three examples in your brief used direct/class room training. When Microfinance Opportunities (MFO) develops financial education program we begin with market research to identify the content as well as the most appropriate delivery channels. These have included flip books for front line staff, comics, radio, posters, and soap operas. Most of this work is product linked, focusing on how to manage money using financial services. For more informatiion see http://www.microfinanceopportunities.org
John: congratualtions on your your sucess with the Kenyan Financial Education Center.
July 5, 2012 at 12:04 pm
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