In today's world of Internet banking, smartphone shopping apps and web-based access to investment accounts, it's easy to forget that billions of people around the world -- including many millions in our own country -- lag far behind when it comes to accessing even the most rudimentary financial management tools.Indeed, according to the World Bank's Global Findex Database:
- Approximately 2.5 billion adults worldwide don't have a formal banking account.
- In developing economies, only 41 percent of adults have bank accounts (compared to nearly 90 percent in high-income countries).
- In developing countries, the wealthiest 20 percent are more than twice as likely to have an account as the lowest 20 percent.
- There's a gender inequality as well: 46 percent of men in poorer countries have a formal account, while only 37 percent of women do.
These statistics helped form the backdrop for two panel discussions at the eighth annual Financial Literacy Summit hosted by the Federal Reserve Bank of Chicago and my employer, Visa Inc. Renowned U.S. and international financial experts led lively discussions around the theme, "Providing Financial Literacy Resources to the Unbanked and Underbanked." Approximately 1,500 participants in 50 countries attended or watched the live online telecast.
Central to the discussions was the underlying question: "Is financial education important for a segment of the population that is largely excluded from formal financial services?" According to Keynote Speaker Bill Sheedy, EVP, Corporate Strategy, M&A and Government Relations, Visa, and the other panelists, the answer is an unqualified "yes."
"Providing these adults with useful, scalable and accessible financial services is just one piece of the puzzle," said Sheedy. "They need to know how to use these products wisely and have the skills and confidence to manage their money soundly. The only way we can be successful in bringing these 2.5 billion people into the economic mainstream is to provide them with financial education long before they ever acquire account numbers."Along with identifying numerous challenges unbanked and underbanked people face, panelists also cited some of the successful financial education efforts they've observed here and abroad:
- Paula A. Cox, Former Premier and Minister of Finance, Bermuda, described a successful program in Bermuda where government representatives took small business development workshops (project management, job costing, etc.) into the field to meet construction workers at their worksites. Participants who successfully completed the six-week course then had a leg up when responding to government RFPs for capital works projects.
- Jennifer Tescher, President & CEO, Center for Financial Services Innovation, cited CSFI's funding for a technology platform to help a U.S. financial coaching program become more cost-effective by allowing remote sessions and data transfer between clients and volunteer coaches. Follow-up research showed that the remote-session clients demonstrated greater involvement and participation than subjects who only had in-person counseling.
- Leora Klaper, Lead Economist, Finance and Private Sector Research Team of the Development Research Group, World Bank, mentioned a World Bank project in Indonesia with migrant workers who frequently send money to family members -- a costly operation. Staffers divided training about cost-effective remittance methods into three separate audiences: the workers themselves (in cities or overseas); the recipients (often in rural areas at home); and the two groups being trained together. The study showed that families who learned together had a much higher retention of information and made wiser choices than those who were taught individually.
Beck cited a coalition of like-minded nonprofit organizations and government agencies pulled together by NEFE to roll out a national teacher-training program, "to bring the knowledge of the teachers about their own financial lives up to where they're comfortable incorporating it into their classrooms."
Beck said the training program (which takes as little as three days) has already rolled out in five states with four more planned this year. "We do a six-month follow-up to see if their personal behavior has changed and have they been able to bring real-life financial examples into the classroom," he added. "The statistical reports are very encouraging."
He also would like to extend that same type of training to youth social services organizations -- those who teach after-hours classes, boys and girls club leaders, etc. "Eight-six percent of the social services community answer financial questions," said Beck, "but they're not trained formally to do it."
Bottom line: Tremendous technological advances are being made around personal financial management. Our challenge is to find ways to bring those tools -- and basic financial services -- to vast populations of underserved individuals. A parallel challenge is to continue developing and distributing financial education materials that enable children and adults to understand how to manage their money.
To watch a free webcast of the 2014 Financial Literacy Summit, CLICK HERE.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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