Bilal Zia (World Bank) Shawn Cole (HBS)

 Impact Evaluation in Indonesia-Results  Impact Evaluation in India - Ongoing  Impact Evaluation in South Africa-Plans

Shawn Cole (Harvard University) Thomas Sampson (Harvard University) Bilal Zia (World Bank)

 Financial literacy is now a prominent feature of financial reform across the globe: ◦ US: President’s Advisory Council on Financial Literacy ◦ Indonesia: 2008 was “Year of Financial Education” ◦ India: RBC has established Financial Literacy and Credit Counseling Centers

 International and Private organizations are also pushing heavily for financial literacy programs: ◦ World Bank: $15 Million Russia Financial Literacy Program ◦ Citi Foundation: 4 years into a 10-year $200 Million global program on financial education, operating in 65 countries

Why So Much Interest in Financial Literacy?  Compelling survey evidence from developed countries shows strong positive correlation. HHs with low financial education: ◦ Tend not to plan for retirement (Lusardi and Mitchell, 2007a) ◦ Borrow at higher interest rates (Lusardi and Tufano, 2008; Stango and Zinman, 2006) ◦ Acquire fewer assets (Lusardi and Mitchell, 2007b) ◦ Participate less in the formal financial system (Alessie, Lusardi and van Rooij, 2007; Hogarth and O.Donnell, 1999).

Research Question  But is this relationship causal?

Research Question  But is this relationship causal?  Our paper addresses this question with a randomized evaluation

 Piggy-backed experiment on a nationally representative household survey in Indonesia.  Unbanked households are our starting sample  Provided financial literacy training in groups at village level  Also provided financial incentives (to open bank accounts) (range $3-$14).

 Demand for financial services is low because: ◦ Consumers rationally decide that value of financial services is less than cost Or ◦ Services are not well understood

 We find effect of financial literacy training only in subsets of sample.  We find significant effects of financial literacy training on uneducated population and those who possess low ex-ante financial literacy.  We do find a very strong and significant effect of financial incentives in the full sample.

Interpretation  Financial literacy training has no effect on the likelihood of opening a bank account  Financial incentives have a very large effect: ◦ Compared to the baseline of $3, a $14 incentive increase probability of opening a bank account from 3.5% to 12.7% -- an almost three-fold increase

Interpretation  These results suggest financial literacy programs should be carefully targeted  However…

Cost Effectiveness  Our literacy training cost $17 per head  Among below median financial literacy, effect was 5%, so cost per head of effectively delivering program = 17/0.05= $340  In contrast, increasing incentives from $3 to $14 raises probability of opening bank account by 7.6%, so cost per head = $11/0.076=$145  Hence, even if financial literacy programs are carefully targeted, providing incentives instead costs less than half to achieve same objective.

Important Caveat  Financial education may have extra benefits that households may reap in the future (such as better internal savings, saving more informally, etc.)  We do not measure these benefits – to do in future follow-up survey  This paper focuses on extensive margin

Shawn Cole (Harvard University, J-PAL, IPA) Jeremy Shapiro (Yale University, IPA) Bilal Zia(WB)

Further Work in India  Video-Based Financial Literacy: ◦ Detailed, engaging modules on savings, credit, insurance and budgeting ◦ Local actors and good production firm hired for these videos (though not Bollywood!) ◦ Lab setup for screenings ◦ Low-cost, scalable intervention  Financial Counseling ◦ Unbiased consultation to discuss household budgeting, borrowing and savings options  Outcomes ◦ Measured financial literacy ◦ Real-world type savings and investment questions with financial consequences ◦ Follow-up household survey  Further Test Some Behavioral Theories: ◦ Do people respond (financially) to deadlines? ◦ Do people (investors) respond to de-biasing ?

Shawn Cole (Harvard University, J-PAL, IPA) Jeremy Shapiro (Yale University, IPA) Kartini Shastry (Wellsley College, IPA)

 Workers in mining houses in South African exhibit low levels of financial literacy ◦ May make poor savings and expenditure decisions ◦ Financial stresses may hinder work performance ◦ Financial habits may contribute to absenteeism  Avoid coming to work on payday, to avoid moneylender  May “celebrate” the evening after payday, and miss work in subsequent days

 Provide customized, two-day, experiential financial education module emphasizing: ◦ Financial planning ◦ Savings choices ◦ Lending choices ◦ Insurance ◦ Hire Purchase ◦ Legal rights ◦ Remittances

 Financial Education Foundation ◦ Funding and technical support  Goldfields and AngloGold Ashanti ◦ Two of world’s largest mining firms  TEBA Bank ◦ Cooperative bank serving mine workers  Innovations for Poverty Action ◦ Technical support and research direction  Ikhumiseng Consulting ◦ Provide financial literacy education

 Treatment assigned at individual level  Sample size ◦ 10,000 workers in treatment ◦ 10,000 in control  Administrative Data ◦ Financial data (Teba) ◦ Productivity and absenteeism (Mining Houses)  Survey data ◦ 1,500 household surveys  Baseline  Endline (one year later)

 Knowledge / awareness of financial tools  Numeracy and budgeting skills  More savings accounts, more savings  Decreased use of moneylenders  Reduced absenteeism  Improved debt management

 Baseline surveying: ◦ Starting January 2010 ◦ 30 individuals / week for one year  Financial intervention ◦ 200 individuals / week for one year  Administrative data collection: ◦ Periodically throughout study, and beyond  Endline surveying: ◦ Beginning January 2011  Study completion: ◦ December 2011

 Non-profit/private partnership ◦ Mining houses contributing 20,000 person-days of labor ◦ FEF funding training costs of 10,000 workers  If success demonstrated, mining houses may scale up to all workers  Individual-level randomization and large sample size allow detection of ‘small’ effects

 Range of experiments designed to understand importance of financial literacy ◦ India, Indonesia, South Africa ◦ Videos, Classroom, Community-Based  Taken together, along with a dozen other experiments conducted by colleagues around the world, will soon learn: ◦ What works, what doesn’t ◦ How financial literacy education works? ◦ What is most cost-effective ◦ Lead to: educational reforms, regulatory reform, new private markets