GOOD PRACTICES IN IMPROVING PEOPLE'S FINANCIAL CAPABILITY Azerbaijan June 2009 Shaun Mundy World Bank Consultant and Former Head of Financial Capability, Financial Services Authority, UK

What do I mean by “financial capability”? The ability and confidence to manage your own, and your family's, money well – now and in the future Includes financial education and financial literacy – but broader than these Includes knowledge and skills – but ultimately about how people behave Financial capability programmes can include education, information and guidance

Who are main beneficiaries of improved financial capability? Consumers – helps people to make their money go further; protect themselves against unexpected events; and avoid unnecessary risks, being over-charged or becoming over- indebted. Less likely to be financially excluded Financial services industry – consumers more likely to buy appropriate financial products and services (increases business volumes; reduces marketing costs; fewer complaints)‏ Central banks/regulators – less need to deal with results of poor money management skills among consumers Government – boosts the economy and economic welfare A win-win-win – but it will take time!

Who is leading the work? Who is leading the work? Leaders include: Government (e.g. US Treasury, Australia Financial Literacy Foundation and New Zealand Retirement Commission)‏ central bank (e.g. Central Bank of Trinidad and Tobago, Eastern Caribbean Central Bank and Bank Negara Malaysia)‏ financial services regulator (e.g. UK Financial Services Authority and South Africa Financial Services Board)‏ A senior level champion can be very helpful e.g. in opening doors and securing media coverage

Who are the potential partners? Government Central bank and financial services regulators Financial services firms, MFIs and trade associations + any trusts/foundations Employers and trades unions Consumer organisations Media Education bodies (schools; and universities/colleges)‏ Donors, development agencies Support groups, rural outreach bodies, cell-phone and utility companies, health bodies, etc, etc Wide range of organisations have interest and are therefore potential partners. For example:

How can partners contribute? Funding Funding Developing materials Developing materials Distribution – e.g. of booklets Distribution – e.g. of booklets Expertise and experience – e.g. in how best to reach particular groups Expertise and experience – e.g. in how best to reach particular groups Providing presenters Providing presenters Seconding staff Seconding staff Undertaking projects Undertaking projects Securing further partners and support Securing further partners and support

Need to focus on attitudes – not just knowledge, information and skills Important to focus on people's attitudes, as well as on education, information and skills Not sufficient, for example, that people know how to save. They also need to understand the benefits that this can bring them and their families, to recognise that it is worth deferring current expenditure and to be motivated to set aside money on a regular basis

Behavioural economics insights People are liable to be overwhelmed by too much information or by a large number of choices – so, it is best to keep things as simple as possible People tend to be over-confident and to overlook non- confirmatory information. Challenging people's views, or getting people to explain their views to others, can help them to be more objective People need to be helped (for example, through training and through counselling) to make good decisions – not merely given training and information about financial issues

Take advantage of teachable moments For example: people who are planning to get married couples who are separating parents before/after the birth of a child people whose close relative has recently died people starting a new job – particularly if it's their first job people coming up for retirement households receiving overseas remittances

Use lively and engaging communications Many people want to be able to manage their money well, but this doesn't necessarily translate into being receptive to personal finance messages Use range of lively and engaging methods – avoid “worthy but dull”. Trusted intermediaries can be very helpful Be positive (e.g. “make the most of your money” – not “this is how to avoid money troubles”)‏ Keep messages simple Focus groups, consumer testing and pilot exercises help to identify what works best

Use range of media Radio and television, for example: –soaps –“edutainment” i.e. use of entertainment and media to promote educational messages –radio, including call-in shows Helpful to refer to website, call centre number or leaflet line to get further information Publications, e.g. booklets, newspapers (in section which has broad appeal, not finance section), magazines, comic books, posters Consider developing a website (e.g. sorted.org.nz)‏ Only likely to be successful if perceived as impartial and not as marketing material

Financial education in schools Equipping next generation to manage money well (and children who have received financial education can go on to help their parents)‏ Curriculums are crowded – but financial education can be incorporated into a range of other subjects, e.g. mathematics, citizenship, languages, social sciences Schoolchildren find financial education programmes which are experiential and interactive (e.g. researching and solving problems which students regard as relevant to their lives) more engaging Many examples of resources for each age group which can be drawn on Most teachers don't feel financially capable – they need training and resources

Questions and comments Shaun Mundy