Financial Literacy Training Results in Big Rewards in Developing Countries
October 1, 2012
A new report from the World Bank (“Who You Train Matters: Identifying Complementary Effects of Financial Education on Migrant Households”, 2012) has identified that by providing financial literacy workshops in developing countries prior to a migrant leaving, both the migrant and the household left behind were significantly more likely to be more familiar with financial terms, have opened a bank account and saved money than members of a control group.
The World Bank, which collected its findings in Indonesia, partnered with local authorities who assist in educating individuals and families prior to a migrant’s departure. The training sessions for migrant workers lasted two full days at nine hours per day, and sessions for families lasted two half days at four hours each day. The training workshops were based on six core principles: financial management, understanding banking services, debt management, sending remittances, and understanding exchange risk and insurance programs. Utilizing an interactive and participative model, migrants and their families were educated through a series of discussion modules, and group games.
When the World Bank returned to measure the success of the program, it discovered both the migrant and his or her family were nearly 20 percent more likely to have a greater understanding of financial terms and knowledge, 10 percent more likely to have a savings account, and they were more than 50 percent more likely to save remittances received than before.
What is the significance of these findings? First, the World Bank estimates that $351 billion of remittances flowed to developing countries through official channels in 2011, more than three times as much as official development assistance from world governments. Thus, remittances are a major influence in developing countries and as payment technologies and infrastructure increase in emerging markets in the near future, expect to see remittance-based transactions to play a large part. Furthermore, the workshops highlight that despite very poor financial literacy initially, populations in developing countries are very open to learning and short training periods, as was the case for the World Bank, can have significant results in the long run.
The emerging markets represent a golden opportunity for financial institutions to reach millions of new customers, however without some instruction in financial literacy, it would appear that many will avoid new banking services and prefer more traditional means, even if that means losing money. In order to avoid this scenario, the private and public sectors should collaborate on improving financial literacy (particularly to rural populations) through awareness campaigns and similar financial literacy workshops and then emerging markets can reach their full financial potential in the future.