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> Posted by Elisabeth Rhyne, Managing Director, Center for Financial Inclusion at Accion

The following post was originally published on NextBillion and has been re-published with permission.

Two books published this year, The Financial Diaries, by Jonathan Morduch and Rachel Schneider, and The Unbanking of America, by Lisa Servon, take on the state of financial inclusion in the United States. Given the professional standing of their authors, we can expect that these books will contribute substantially to the body of knowledge on financial inclusion. What is perhaps more surprising is just how broadly important their messages are. Both books examine what is arguably the top economic challenge in America today – the crumbling of the economic foundation for many working-class and middle-class families – and they do so through the lens of financial services, a somewhat unusual but very revealing perspective.

The Financial Diaries: How American Families Cope in a World of Uncertainty focuses on the variability of income and expenses, which makes it hard for an increasing number of Americans to maintain a steady standard of living. The weekly and monthly extent of this volatility eluded most national statistics until the Diaries project, with its unique methodology, which was developed initially to study financial behavior in low-income countries. During a Diaries project, researchers record every financial transaction made by participating families each week for a year. This detailing yields intimate portraits of families’ financial lives at a level of magnification not previously available.

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> Posted by Elisabeth Rhyne, Managing Director, CFI

At CFI we often talk about financial health as if it is a crisp, free-standing concept. Moreover, by connecting financial health to financial inclusion we imply – and hope – that we can affect financial health by offering the right kind of financial services and/or developing a person’s financial capabilities. However, while there is truth to this view, it is sometimes easy to overestimate the power of financial services. We need to think about how both financial and economic factors intertwine to create outcomes. If we compartmentalize financial actions, we ignore the very powerful economic factors that influence financial health.

As defined by the Center for Financial Services Innovation (CFSI) – and embraced by us at CFI – three elements must all be present to declare a person, family or microenterprise to be financially healthy:

  • Balanced day-to-day money management – outflows balanced with incomes over time.
  • Protection from shocks – ability to draw down, borrow or call upon resources to lessen the blow when bad things happen.
  • Pursuit of goals – ability to accumulate resources for medium to long-term purposes, whether personal or productive.

In speaking with low income people around the world, we find that many people intuitively define financial health in these terms, and nearly everyone tries to pursue financial health in their own lives. But achieving these three elements is not just a financial task. It requires both economic and financial actions. (It also hinges on personal choices and capabilities, but we will set these aside for now.)

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> Posted by Elisabeth Rhyne, Managing Director, CFI

Last month CFI invited all of Accion’s staff, both inside and outside the U.S., to complete a questionnaire on their own financial health. Many of you have seen and even taken this survey (see blog post here). The survey is broadly based on the U.S. financial health framework developed by the Center for Financial Services Innovation (CFSI), which we believe is a better fit for Accion employees than the global financial health framework we developed with CFSI for base-of-the-pyramid markets. In this post we report on what we found when “Accionistas” took the survey.

It turns out that Accionistas are a pretty financially healthy bunch. Three quarters of the 122 people who took the survey scored in the good or excellent range. Given that Accion employees have steady employment with fringe benefits (pension savings plan, health insurance), this is not terribly surprising. As Jonathan Morduch and Rachel Schneider show in The Financial Diaries, income volatility is one of the biggest causes of financial stress among American families. Thankfully, Accion employees, like most employees of international development non-profits, can count on the same paycheck week after week, and this makes the task of staying financially healthy much easier. Health insurance is also an essential source of financial protection, as is car insurance.

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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.