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Financial education 18 Jun 2019

Five grants for five research projects promoting financial education across the globe

BBVA Edufin Research Grants 2019 announces the financial education research proposals that will benefit from the envisaged funds in this second edition. A total of €50,000 will be distributed among the five shortlisted projects to support them in developing their social and innovative approach to the issues they address.

The projects chosen in the last edition of BBVA Edufin Research Grants, organized by the BBVA Center for Financial Education and Capability, are widely diverse in nature, but have one thing in common:  the need for funding to keep contributing new knowledge to the sector’s expert and researcher community. A total of 38 applications were submitted in response to this year’s call for proposals, compared to 17 last year.  In addition to Spain, the other entrants hailed from Colombia, Peru, Argentina, United States, Venezuela, Mexico, United Kingdom, Belgium, Holland and less obvious countries such as China or Kenya, a variety that bears witness to the increasing global appeal of the center’s proposition. Below we offer an overview of the five chosen projects.

Improving access to credit  

The purpose of this project, developed by Jaime Millán and William Fuchs, two researchers from Carlos III University, Madrid, is to study access to credit: “one of the main concerns of public policy, especially in low and medium income countries” explains Millán. The research, carried out in collaboration with the Productive Development Bank (BDP), focuses on Bolivia, a developing country where microcredit has been promoted as a means to reduce poverty and inequality:  “We want to design new financial and non-financial products that can increase, not only access to credit, but also micro-entrepreneurs’ chances of success.”

The project will focus on finding out whether people pay their loans better when they are offered better payment terms and conditions or granted access to some type of training in the future. In addition, the research will study which incentives are most cost-effective, and the existence, or lack thereof, of complementarity between credit access and training:  “If we find positive answers, we will have the tools to design contracts that include credit and/or training, allowing banks to offer more loans to small entrepreneurs without needing to hike interest rates or risk bearing higher default rates and, possibly, even lower interest rates.”

Comparing prices to choose the best loan

Joeri Smits’ proposal focuses on the world of loans. Smits is a researcher from Harvard Kennedy School, United States.  According to the expert, “many borrowers do not compare prices before making a decision, so they end up taking out unnecessarily expensive loan.” Why this trend?  According to Smits, it is the result of two possible factors:  “the complexity of pricing schemes of a lack of transparency voluntarily promoted by lenders”.

His research project will focus on how information can drive human behavior:  “We are assessing how the people’s behavior, regarding loans, changes when they have access to easy-to-understand pricing benchmarks.” Finding the answer is essential to improving individuals’ financial health:  “The difficulty of comparing loans and finding an affordable loan may lead some people to not request products that could have served to smooth their consumption rates or harness profitable investment opportunities”. The results of Smits’ research could help design adequate information policies for these financial products.

Closing the gender gap in financial inclusion

María José Roa, a researcher at the Center for Latin American Monetary Studies (CEMLA) and Sonia Di Giannatale, a researcher at the Centro de Investigacion y Docencia Economicas (CIDE)  in Mexico, are studying a reality that mostly affects women: the gender gap in financial inclusion. “The main goal is to understand the low financial access rates among Latin American women,” says Roa. “This is important because, as several studies have found, improving access to formal financial markets is key to empowering women and giving them a stronger voice when making decisions on domestic issues, including education spending, children’s healthcare, and financial situation, to name a few.”

The insights derived from the study will have a positive impact on the female population:  “We hope that our results will provide a foundation for the design of financial education and skill-building programs aimed at promoting women’s well-being.”

Learning through group savings and borrowing

Savings and Borrowing Groups (GACC) are informal savings and borrowing associations formed by people who save, borrow and access a social emergency funds together through a group.  Martín Valdivia, a researcher of the Analysis and Development Group (GRADE), is working, in collaboration with the Development Bank of Peru (COFIDE), on analyzing these savings and borrowing groups:  “How these groups contribute to the well-being of their members remains largely unknown,” says Valdivia. “The most important effect identified so far, is that it reduces the vulnerability of these people.”

These groups have become financial education schools for their members:  “Learning occurs within the framework of actual financial decisions,” explains Valdivia. “Members effectively save, borrow and make decisions regarding interest rates in each case as a group, to ensure the sustainability of the association.  The purpose of the work is to find out “if the peer learning process leads to a healthy connection of these people with the formal financial system.” If this impact is confirmed, the research will allow “finding ways to insert, in traditional financial education programs, elements that connect messages with real-life decisions of the enrolled groups.”

Helping young people in their transition to the job market

Financial habits of young people as they transition from school to work is the core area of interest of Inter-American Development Bank (IDB) economist and researcher Verónica Frisancho and Northeastern University researcher Silvia Prina’s work: “I think this question has an incredible potential given the tremendous malleability of this age group’s habits and behavior,” says Frisancho. Financial education tends to reach out to young people through traditional methods that may not be entirely effective. Therefore the research project will focus on the use of other options such as financial journals:  “the study will allow us to assessing the effect of a strategy aimed at providing non-traditional financial education building on young people’s financial knowledge level and behavior.” Results can be very useful in the formal financial sector, contributing to “appeal to younger age groups as they transition towards maturity, with products and services relevant to them.”

The five teams will develop their research projects over the coming year, with support of the BBVA Center for Financial Education and Capability. Results will have an significant influence on the design of programs and policies that will improve many people’s lives and opportunities.  Besides this research support program, the Center completes another one of its strategic lines of action with the Edufin Summit 2019, which will be held in Madrid on July 11 and 12. An event that will gather leading global experts on the subject to share their insights on and discuss the current and future opportunities and challenges enabled and posed by digitization and financial education.

Interested in attending? Please register here.

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