Making Sense of Financial Capability Surveys around the World A Review of Existing Financial Capability and Literacy Measurement Instruments The World Bank Siegfried Zottel/Valeria Perotti Russia-OECD-World Bank Conference Moscow, June, 2013

2 Purpose of the Review o Guide policy makers on existing measurement instruments o Useful for policy makers who prioritize FC, FI, or FCP o Describe and compare key instruments that are: Innovative Focused on demand-side (household vs. business) Well established Well documented

Consumer Fraud US WB FCCP Portugal Jump$tart Singapore Eurobarometer Survey of Consumers New Zealand UK FSA US Health & Retirement Study Ghana FSS OECD/INFE CP Kenya Kenya FinAccess FinScope Fiji WB/Russia FLIT Financial Diaries Findex 3 Surveys Reviewed FSA Consumer Awareness

4 Content of the review o Key questions addressed by the survey review: 1.How can a survey support policy making? 2.What do these surveys measure and how? 3.How can the data be analyzed?

1. How can a survey support policy making?

Baseline assessment of weak areas/targets Identify potential channels for info or FE Understand knowledge/behavior relationship Understand behavior related to personal or household finances Baseline assessment of weak areas/targets Identify potential channels for info or FE Understand knowledge/behavior relationship Understand behavior related to personal or household finances Determine what products people use Understand reasons for limited use Understand how people use information Understand attitudes towards fin. issues Determine what products people use Understand reasons for limited use Understand how people use information Understand attitudes towards fin. issues Assess awareness of CP laws, mechanisms Identify potential victims of fraud Assess attitudes and trust in providers and regulators Assess awareness of CP laws, mechanisms Identify potential victims of fraud Assess attitudes and trust in providers and regulators Capability Inclusion Consumer Protection

2. What do these surveys measure and how?

Financial Capability Knowledge of financial concepts Awareness of financial products and services Practical Know-how inflation compound interest Risk diversification returns on investment insurance budgeting Questions on… money illusion

Financial Capability Knowledge of financial concepts Awareness of financial products and services Practical Know-how Questions on… Awareness of product existence Basic product features Advantages of using products Risks and costs

Financial Capability Knowledge of financial concepts Awareness of financial products and services Practical Know-how Questions on… How to set up a budget How to keep financial records How to make payments How to open a bank account How to seek for recourse

Financial Capability Questions on… Budgeting Paying bills on time Overspending Saving Borrowing Making choices Dealing with unexpected expenses/income loss Planning for old age BehaviorAttitudes

Financial Capability Questions on… Reasons for saving, borrowing, investing, budgeting, and choosing specific financial products Attitudes toward impulse purchases Attitudes towards the future Confidence in own retirement plans Propensity to save BehaviorAttitudes

Financial Inclusion Questions on… Types and number of financial products used Ways of accessing financial services Frequency and modality of use What products are used for BehaviorAttitudes

Financial Inclusion Questions on… Reasons for/for not using specific financial products Perceptions on service accessibility Reasons for changing a product Barriers in accessing services BehaviorAttitudes

Financial Consumer Protection BehaviorExperienceAttitudes Questions on… Actions taken to resolve issues with fin. service providers Where complaints were filed Entities consulted in case of disagreement

Financial Consumer Protection BehaviorExperienceAttitudes Questions on… Satisfaction with financial products and service providers Trust in service providers Perceptions on financial regulators and supervisors Confidence in resolving disputes

Financial Consumer Protection BehaviorExperienceAttitudes Questions on… Experience with pyramid schemes Being billed for a service not received/product not requested

3. How can the data be analyzed?

19 How to develop indicators WB Tajikistan FCCP Survey Frequencies and proportions of individual questions Combining data by creating simple scores Figure 1: % of respondents who answered FL questions correctly Figure 2: Discrete frequency distribution of FL scores.

20 How to develop indicators WB Tajikistan FCCP Survey Creating advanced scores (by utilizing factor analysis) Figure 3: Average FC scores. Due to the multifaceted nature of some topics, it may not always be meaningful to construct a single composite score or index!

21 How to identify potential target groups Use cross tabulations Figure 4: Average FC score related to ‘saving’, in different regions. Figure 5: Average FC score related to ‘saving’, by household income. Figure 6: Average FC score related to ‘saving’, by respondent’s childhood savings behavior. WB Tajikistan FCCP Survey 2013.

22 How to identify potential target groups Regression analysis Cluster analysis Can improve the understanding of the relationship between socio- demographic characteristics and FC, FI, or FCP Can be used to segment populations and to identify groups that show similarities in their scores

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