> Posted by Guy Stuart, Ph.D., Executive Director, Microfinance Opportunities and Fellow, Ash Center, Harvard University
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”
In the United States, it is financial literacy month, but all the talk these days is of financial capability. Why? Is this another fad to make the topic of financial literacy a little more interesting? Is it an effort by one group or another to differentiate themselves? Maybe. But there are also important, substantive, and practical reasons to be talking about financial capability, which means having the ability and opportunity to manage your money well. And there is no better way to understand this than to look to the pioneer of the capabilities approach, Amtya Sen, to see why it is important, both in the developed and developing world.
In brief, Sen’s capabilities approach:
- Forces a discussion of a multi-dimensional understanding of what it means to be a fully functioning member of society that takes into account not only what a person knows, owns, and earns, but also what they can do, and what they actually do
- Opens the door to thinking about financial capability in the broader development context that encompasses other capabilities such as being healthy, educated, and earning a sufficient income to support an individual and their family
- Recognizes that what it takes to be capable in one context is different from what it takes to be capable in another
The practical implications of this are important:
- A multi-dimensional understanding of what it means for an individual to manage their money well goes beyond being “literate” (having the right knowledge and skills). It also includes having an individual be able to act on that literacy (financial behavior) and having access to the appropriate financial instruments to fully realize their aspirations. In other words, the capability approach to money management includes a discussion of behavior and access. This means, practically, we have to understand the connection between financial literacy and financial behavior in all its complexity. It also means that talk of financial inclusion and increased access should focus on how they increase financial capabilities, which means a focus on financial service use, not just uptake.
- Development often happens in silos, and the burgeoning financial capabilities “industry” is no exception. A capabilities approach reminds us that financial capability is just one of many capabilities that people value. Furthermore, being financially capable can impact other capabilities directly, and vice-versa. Managing your money well can help a person better deal with a health crisis, which would otherwise cripple their capability of being healthy. Or being educated generally (being able to read and write) broadens the scope of what a person can learn about managing their money well. As a result, organizations and individuals interested in building the financial capabilities of individuals should be looking across development sectors for ways to cooperate and partner with others. Funders should be doing the same.
- The understanding that what it takes to be capable in one context may not be the same as what it takes to be capable in another has programmatic implications for those involved in building financial capabilities. So, for example, in a culture where there is a strong expectation of giving and receiving cash gifts to/from family and friends, whether it be for mutual support or other reasons, a financially capable person may be one who is adept at handling their requests for and receipt of cash gifts, and balancing them against their own need to accumulate personal savings. As a result, a financial education curriculum focused on the accumulation of personal savings might also include a discussion of effectively managing gift giving/receiving. Practically, this means that programs that aim to build financial capabilities must be adapted to their local context, not only in terms of language and content emphasis, but also substantively to take into account local understandings of what it means to be financially capable.
So as we celebrate financial literacy month in the U.S., let’s broaden our scope and think about financial capability across the globe.
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Guy is Executive Director of Microfinance Opportunities (MFO). Before becoming Executive Director, Guy was a Senior Advisor to MFO and served as Principal Investigator on five Financial Diaries studies and as project leader for the development of the Financial Capabilities Index Web Portal. Guy received his PhD from the University of Chicago in 1994, and subsequently worked for four years in Chicago in the field of community economic development. He then served 13 years as a Lecturer in Public Policy at the Harvard Kennedy School where he taught courses in management and microfinance. He continues to teach in Executive Education programs at the school, and is a Fellow at the Ash Center, Harvard University.
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April 18, 2013 at 7:35 am
John Gitau
Guy, this is a cogent and powerful tribute to the financial literacy month. I like financial literacy very much because, if well done complete with its trio pillars of knowledge, skills and attitude, it automatically leads to financial capability. The reason is that with the right attitude, it does not only become easier to seek access and use financial services but also encourages the cultivation of new ways of financing or managing personal finances. The ROSCA and ASCA systems are homegrown access to lump-sums in the absence of financial services providers. The multiplier informal money management mechanisms are results of well oiled attitude backed thinking process that always look for better ways of managing money rather than perpetually seeking or waiting for external financial services interventions. Financial inclusion presupposes a deliberate creation of financial services infrastructure that provides( or makes accessible) financial services. Systemism is slow and if homegrown literacy based capabilities can be nurtured, we shall wake up one day to find everybody included. A fully financial literate person knows how to navigate his/her financial management world and this is evidenced by behavior which is again effortless due to the power of attitude. I read somewhere that a person with desire for something doesn’t need to learn how to focus. Focus is the natural consequence of desire. Same with a truly financially literate person who inevitably behaves capably, desirously seeks and creates capability and if he is not included, it is by choice not by ignorance.
A good driver should be able to drive any car in any environment with a slight induction and that’s why your first point, at its best should take care of the other two considerations. They say an Indian can do business anywhere there are people( because of business literacy). So, let’s not talk of financial capability programs suited to local context. Instead, let the local people be so financially literate that they can adopt to any context within their locations and outside. The world is a village. Capability should no be seen as something to be cooked and served. No. It should be something flowing from inside out as a result of an effective financial literacy predisposition.