> Posted by Susy Cheston, Senior Advisor, CFI

A lot of money is being spent on financial education—and we’d like to see it spent more effectively. We still don’t know all that is needed about what works, but based on our scan of the current landscape for financial capability-building innovations, we can already recommend six major shifts in how financial capability resources are deployed.

The first three recommendations relate to who is building financial capability.

1. Bring financial capability efforts closer to the actual use of financial services by enabling providers to take a greater role.

2. Shift the expectation that the government is responsible for financial capability to an expectation of shared responsibility among all stakeholders, including financial service providers and other institutions.

3. Engage organizations serving BoP constituencies, from government social service agencies to employers to non-profits.

This calls for “all hands on deck.” We argue, first and foremost, that providers can and should take a primary role in building financial capability, as they are best equipped to reach customers at teachable moments and to help them learn by doing. Many providers are already spending significant resources on financial education. They could have a much greater return on their investment if they focused those resources on embedding financial capability into product design and delivery, looking at all the touch points in the customer experience as opportunities to help customers use products more successfully.

Fortunately, there are some easy wins, such as the use of nudges, reminders, and default options that bring high impact for very little cost. Other shifts may take more time but are worth the investment. For instance, customer data analytics can yield detailed segmentation so that interventions can be tailored to customers. At the same time, data analytics can support two-way communication so that providers can hear from customers directly and at the time convey important information to them. BBVA/Bancomer is one of a number of banks working with Juntos, a service provider specialized in data analytics for financial capability-building. Juntos provides BBVA/Bancomer customers with reminders through SMS messages. The good news for providers is that technology opens up tremendous opportunities to build capability—at relatively low per customer cost.

One legitimate concern is whether or not providers—and their front-line staff—have the capacity to build financial capability. If front-line staff are not themselves financially capable, it may be hard for them to explain services to customers. At this point, few financial service providers have deep expertise in financial capability-building, and even less in behaviorally-informed approaches. While investing in such expertise may pay off over time, a faster solution may be to bring in consultants specialized in the design of financial capability interventions or service providers that interface directly with the financial institutions’ customers. Over the long term, investments in building the financial capability of front-line staff and agents may pay off. Organizations such as Microfinance Opportunities have found success in providing aids such as scripts or flip books that help front-line staff and agents communicate correctly with customers.

We found a number of providers that are embedding behavioral insights into their financial services. Janalakshmi, a microfinance institution in India is working on a number of fronts, including developing easy-to-remember rules of thumb to communicate through mobile phones, using in-depth household data to customize advice, and providing one-on-one counseling. KGFS incorporates tailored financial advice into its service model. Some commercial banks are also innovating, as is the case with the Saldazo transactional account of Banamex in Mexico, which uses text messaging and a call center to inform customers, answer queries, collect information, and encourage product use. Customers who provide their mobile number receive an SMS after each transaction with messages that encourage account usage and provide tips.

A strong role for providers does not absolve governments of their responsibility. One natural role is to build behavioral principles into national financial inclusion and financial education strategies and into school curricula. At the same time, we see opportunities for governments to shift their focus toward equipping and enabling providers and other actors, including reducing barriers to innovation. These efforts must be supported by a strong client protection framework—one that helps draw the line between building capability and overly aggressive marketing tactics, so that customers are protected and providers are clear about their limits. Governments that provide G2P payments electronically also have a huge opportunity to use a direct deposit into an account as a teachable moment—one that leads to active use of accounts and becomes an on-ramp to other financial services.

We believe there is a role for all stakeholders, and urge the many service providers who work with people at the base of the pyramid to play their part to build financial capability and connect people to providers. This includes employers, social service organizations, hospitals and clinics, and others who connect with people during critical life events.

The remaining three recommendations have to do with the paradigm shift toward behavior and keeping customers and their needs at the center.

4. Incorporate proven elements that support behavior change into existing financial education and financial capacity efforts.

5. Measure results rigorously.

6. Foster customer-led financial capability.

We call on all actors—including financial education experts—to close the gap between knowing and doing by focusing their efforts on customers’ behavior. We have identified seven behaviorally-informed practices that we believe are a good start. But we also believe that these practices need a lot more refinement based on evidence of what works and what doesn’t—evidence that can only come about if those who work on building capability do the hard job of developing metrics for impact based on outcomes not just outputs. In other words, too much of what we know is how many participants receive messages, rather than what actions they take as a result.

Our final recommendation addresses the perspective of customers. We cannot presume to know what matters most to customers, what problems they are trying to solve, or how they would like to be contacted. Throughout our survey, we heard from many people who think deeply about what financial capability means from a customer perspective—and who caution us about the need to approach this work with humility. That means, above all, listening to customers, and developing feedback loops so that our efforts match what customers need in order to achieve healthy financial behaviors that support their goals.

Have you read?

A Change in Behavior: Innovations in Financial Capability

Clearing the Path to Financial Capability in Latin America

Mobile Microinsurance Products and Financial Capability