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Responsible banking 07 Feb 2018

Diana Mejía (CAF): “A lack of financial capability may reduce savings”

Diana Mejía, a senior specialist in productive and financial development at CAF-Development Bank of Latin America and member of BBVA EduFin Advisory Council, is an expert in measuring the financial capabilities of people in Latin America. The results obtained  in the last CAF financial education surveys found a gap between the financial products offered and the needs of the population, especially in terms of savings.

Financial education surveys reflect what people really know and how they are putting it into practice in their lives. The results obtained are vital for designing new strategies at the national level and for adapting financial products to customers’ needs. At the EduFin Summit 2017 Diana Mejía reported the results obtained in the CAF financial education surveys in five Andean countries: Bolivia, Chile, Colombia, Ecuador and Peru, with those from Argentina and Paraguay still pending.

Surveys that have an impact

The conclusions that Mejia and her team have drawn from the surveys have not gone to waste; some months later, results have started to appear: “The results of the surveys have been highly useful for designing national strategies of inclusion and financial education,” she explains. “They’ve served as a baseline for the implementation of effective financial education and inclusion programs that lead to better financial decisions by the population, and therefore, positively impact their wellbeing.”

The results of the surveys have been highly useful for designing national strategies of inclusion and financial education,”

The results from Argentina and Paraguay, the two countries whose surveys were not completed when BBVA’s financial education summit was held, reflected that their situation is similar to that of the five countries surveyed. However, there are some curious differences.

In the case of Argentina, “one interesting fact is that, possibly due to the inflation problems that have occurred throughout its history, theoretical knowledge about inflation reaches one of the highest levels in the world: 91% of Argentines correctly answered the question related to this topic.” In Paraguay, the trend toward a non-traditional approach to managing finances has emerged: “The financial products with greatest penetration are transfers and electronic payments on cell phones, which shows an increase in the use of mobile money by Paraguayans,” explains Mejía.

The problem is the lack of savings

However, there’s still much left to be done. The Latin American populations surveyed for these studies do not save; and if they do so, they prefer to keep their money at home or save through informal means such as group-contribution savings plans. The solution to this problem lies in education. “I would recommend countries to focus their financial education programs on the development of financial capabilities,” explains Diana Mejía. “A financially capable person is someone who can use financial products and services responsibly and effectively. In contrast, a lack of financial capability may reduce savings, the existence of inactive accounts, excess debt, and other problems can have serious consequences for people’s wellbeing.”

The brain can play tricks on people, which can also influence the level of savings. “People tend to value the present more than the future; and need frequent reminders to apply what they’ve learned. They often follow regular routines that make it difficult to positively change their behavior,” Mejía said. The solution? “To incorporate the good practices derived from the findings of behavioral economics, in order to contribute to changes in the behavior of certain population groups, particularly the most vulnerable ones, so that they improve their financial decision-making.”

Financial institutions play a very important role in the design of innovative savings products that are adapted to the needs of the different segments of the population.”

According to Mejía, people should become more aware of the need to contract financial products for saving, instead of keeping their money at home; this a task that involves everyone, including banks: “Financial institutions play a very important role in the design of innovative savings products that are adapted to the needs of the different segments of the population.”

Women in charge of handling the money at home should be more present in the design of these new financial products: “In those populations, we should promote the access to savings accounts without services charges at local, well-known banks, where financial education programs are offered to strengthen the customers’ savings capabilities, financial planning, money management and debt control, among other things.”

To have a good financial education, it is recommendable to stay informed. All of the relevant content about financial education in the world is available at BBVA’s Center for Financial Education and Capability.

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