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10.15.2013

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Re-think financial education for the poor

Should we rethink the traditional financial education? Is there a difference between this education in poor and rich countries? What method of education is the best to choose?

These are questions that have been through the researchers Zollmann and Collins in one of their recent studies which suggest that especially among the poor, the traditional financial education is not appropriate in terms of content and teaching approach.
Indeed, we should rethink financial education process and merge it with the marketing of the product to make it more relevant for customers and more profitable for financial institutions.

For the poor, financial decisions are not big and rarely come from analytical choices or allocation of funds.
Thus, despite good knowledge in budgeting or saving, certain gaps in financial products may be filled to help people achieve goals in the short and long term.

However, the participants in this study have reported that it seems difficult for them to learn money management in a class because it should be more a matter of experience.
Indeed, would it be better to make them test financial products with low value and low risk to ensure that product performance is consistent with their understanding?

Based on their own experiences, Zollmann and Collins hypothesized that all methods to help clients find their own operations and whether find out if their expectations are met, increase the use of the financial product (for example consultation and auditing expenses and bank balances).

On the other hand, these researchers have noticed that most of the people tend to imitate, that is to say learn from the successes and failures of their peers. Thus, peer support in the process of financial education may be important, leading to more comfort and product knowledge.

Today financial education, recognized as public goods, raises some interrogations: should financial institutions use these goods to market their products, even though education is made to protect people against exploitation by these?

First, we must try to understand the sources of information for people and how they affect their decision, before improving their financial capacity.
Thus, practical exercises can provide knowledge to internalize the concepts of money management. These can then be completed with information on products and services available.
This method would allow customers to take their own decisions about which products to use and thus fully exploit the mutual benefit of the financial institution and its potential customers.

With more than 2 billion people excluded from the financial system, it appears essential to link financial education and real products, to provide consumers with the use and testing of products, but also to enable a large-scale financial education.

A financial institution is already working on this; it is Kshetriya Gramin Financial Services (KGFS). Its model is maximizing the financial well being of every individual and every business with an assessment of their specific needs for financial products.
And asset managers of KGFS are evaluated on the welfare of their customers (net assets, level of protection, product diversification ...) and not on the number of products they sell.

Sources : Blog MicroSave

Tags : financial education, financial institution, KGFS, MicroWorld, financial products, money management