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Financial education 19 Dec 2018

The biggest hurdle to an adequate access to banking services

Rolando Arellano Cueva is a renowned market expert specialising in developing countries, and is a member of the Advisory Board of the BBVA Centro para la Educación y Capacidades Financieras [Centre for Financial Resources and Education]. Throughout his lengthy career he has studied people’s natural tendency to constantly acquire goods, the consumer markets of Latin America, and the role that financial entities play in assisting with savings.

Since the time of cavemen, people have felt the need to consume more to guaranty their survival, something which continues to mark peoples’ behaviour: “The problem is that today, when the majority of humans can now provide for their daily needs, that instinctive behaviour persists,” Rolando Arellano explained. The key to overcoming the natural tendency to constantly acquire things is to open our eyes to reality: “Exaggerated consumption causes harm to individuals, and to society in general”.  According to this expert, the key to achieving this realisation is “to show the advantages of saving as compared to excessive cost. This entails motivation (showing people the advantages of saving), and education (showing them how to save). It seems so simple and clear, but society does not necessarily come to this naturally”.

Informal systems

Dr Arellano has had an important career as a consumer marketing expert, and is the president of Arellano, Consultoría para Crecer [Consulting for Growth], which has offices in Peru, Bolivia, and Paraguay, and operates in various countries. This experience has given him a very clear view of the key aspects of people’s behaviours with regard to finance, including those in his native Peru: “The most obvious is the lack of education about the price of money. We understand that unnecessary spending and personal credit are new aspects in Latin American societies, since up to the 20th century families did not have extra money to buy more, nor did banking credit exist for housing or spending purposes”.

Once again, that past, where money was handled in a more basic way, has brought consequences for the present. “Families are applying for loans and spending more than they can because they don’t know what they will have to actually pay in interest”. This does not only occur in relation to banks or formal financial institutions, and is actually worse with the informal system, which charges infinitely higher rates, which people do not understand”. Furthermore, the high degree of informality of society is one of the roots of the problem, since “people do not adequately relate to the financial system” which has become “a major obstacle to better “bankarisation” of society.

Faced with this situation, we inevitably ask: Why do so many people have money at home instead
of with a banking institution? “The main problem is the mistrust that Peruvians, and a large portion of Latin Americans, have of the banking system,” Arellano noted. There are various reasons for this lack of trust: “Perhaps it is because that system has not adapted its entry features, its need for status, to have adequate treatment that does not differentiate by traditional racial or social stereotypes, or because of the need for education and information about how the system functions. Banks have a lot of work to do in that area”.

Education from the start

In addition to better involvement from the banking sector, Arellano defends education as the key to overcoming financial challenges. In this field, it starts from the most basic level: reader understanding. “Anyone who cannot understand a text will not have information about how money functions and will not be able to be educated about its use”.

Once this base exists, specific training should be fostered.  According to this expert, schools are essential: “Including financial training in the primary school curriculum, perhaps through systems which already have long existed, like the school bank, would really help overcome the problem”. Children could thus incorporate the necessary tools for managing their finances. They are the key for breaking with the current general trends of consuming more than is necessary, and of encouraging savings, which will be able to provide them with better opportunities in the future.

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