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How Do You Know Your Know-How?
Review of Original Methods to Measure Financial Literacy and Capability
(preliminary findings)
Giuseppe Iarossi Valeria Perotti
Russian Financial Literacy & Education Trust Fund Saint Petersburg Conference
June 26-27, 2012
Fiji Ghana FSS WB FLIT
Kenya FinAccess
Jump$tart
New Zealand
Fin. Literacy Portugal
Portfolio of the Poor
UK FSA
Health & Retirement
Study
Findex
Survey of the States
IPA OECD/INFE
FinScope
Survey of Consumers
Portugal
Opportunity Int’l
WB CPFL
2
List of Surveys Reviewed
Outline Policy Objectives Data Collected Cost and Quality
3
Policy Objectives
Increase awareness and knowledge of financial concepts and products
Enhance ability to manage financial resources effectively
Promote access and use of financial services
Strengthen consumer protection mechanisms
Capability
Access
Consumer Protection
Literacy
Policy Objectives of Different Surveys
1. Financial Literacy Identify the level of consumer understanding of
financial concepts and products.
Exploring knowledge
gaps by topic
Identifying best channels
to provide information on financial
products
US Health & Retirement, HRS, NZL, KEN, OECD Portugal
Interest Rate
Investment Diversification
Inflation
Assets & Liabilities
2. Financial Capability
Financial Knowledge of how to
Financial Behavior
Investment
Diversification
Understand whether people are able to manage their resources effectively.
UK, OECD, Kenya, Opp. Int’l
Jump$tart, Portugal, NZL, Finscope
Dealing with unexpected expenses
Planning
Budgeting
3. Financial Access
Understanding level of
participation in usage of financial
services
Identifying reasons
preventing usage of financial
services
Usage of banking services, credit products, savings, insurance,
remittances
Use of formal/informal savings and borrowing services
Identifying channels to provide information to consumers
Exploring habits and levels of sophistication of investors
Understand the level of financial inclusion
Portugal, NZL, LSMS, S. of Consumers
Finscope, OECD, FLIT, Findex
4. Consumer Protection Determine the level of awareness of consumer
protection laws and redress mechanisms
Portugal Kenya New Zealand WB CPFL
Knowledge of sources of
financial information and redress mechanisms
Users’ understanding
of financial rights &
responsibilities
Attitudes towards financial advisers
Level of trust in
financial services, financial
regulators, & redress
mechanisms
What data is collected?
Financial Literacy Knowledge of
financial concepts
Knowledge of financial products
and services
Knowledge of how to use financial products and
services
inflation
compound interest
portfolio diversification
returns on investment insurance
loan repayment
budgeting
Questions on…
WB CPFL, HRS, Opportunity Int’l
Financial Literacy Knowledge of
financial concepts
Knowledge of financial products
and services
Knowledge of how to use financial products and
services
Portugal, OECD, Jump$start
Home Banking
Overdraft fees
Money Management
Pension Funds
Insurance products
Consumer Protection Info Sources
Stocks and Shares
Questions on…
Financial Literacy Knowledge of
financial concepts
Knowledge of financial products
and services
Knowledge of how to use financial products and
services
Survey of Consumers
Saving for Retirement
Creditor Obligations
Loan Payments
Home Refinancing
Paying off Credit Balance
Insurance Policies
Questions on…
Financial Capability
Effective Saving & Borrowing Money management practices Portfolio Diversification Debt consolidation
NZL, Fiji
Knowledge of how to effectively manage money
Financial Capability
Numeracy skills Keeping financial records Planning Understanding investment statements
NZL, Fiji
Knowledge of how to effectively manage money
Skills in Financial Matters
Financial Capability Knowledge of how to effectively manage money
Planning for expected & unexpected expenses Retirement Ownership of financial products Savings and withdrawals
Financial Diaries
Consumer Behavior
Skills in financial Matters
Financial Capability
Consumer Behavior
Consumer Attitude
Skills in financial Matters
Reasons for saving, borrowing, investing, budgeting, and choosing financial products
Risk and coping strategies, attitudes towards advisers, preferences for receiving information on products
Confidence in formal saving, making complaints, comparing loans, understanding rules and policies, confidence in using new technologies
Survey of Consumers, Kenya, Portugal, Finscope
IPA
Opportunity Int’l
Knowledge of how to effectively manage money
Financial Capability Knowledge of how to effectively manage money
Knowledge, Skills,
Attitudes and
Behavior
Consumer Behavior
Consumer Attitude
Skills in financial Matters
Financial capability measured across four domains: managing money, planning ahead, making choices about financial products, and staying informed
FSA, FLIT
USAGE KNOWLEDGE ATTITUDES
Findex, Portugal
Informal Saving
Credit Cards
Saving & Borrowing
Formal accounts
Frequency of Using Fin. Products
Insurance
Questions on…
Home-banking
Loans
Financial Access
Financial Access
USAGE KNOWLEDGE ATTITUDES
Portugal, OECD
Overdraft Fees
Bank Websites Saving & Borrowing
Bank Fees
Knowledge of Financial Products
Questions on…
Cost of Using Credit Cards
Financial Access
USAGE KNOWLEDGE ATTITUDES
Portugal, Findex, Finscope
Perceptions of informal financial services
Perceptions of formal account ownership
Reasons for Obtaining Loans Perceptions of
banking products
Questions on…
Risk Aversion
NZL
Jump$tart
FLIT, Kenya,
Finscope
Consumer Protection KNOWLEDGE
CP as a problem of asymmetric info
TRUST CP is an issue of
confidence
Awareness of consumer protection laws.
Consumer understanding of debt guarantors responsibilities
Consumer awareness of protection rights and of existing recourse mechanisms.
Kenya
WB CPFL
Consumer Protection
Confidence in resolving problems with financial service providers Attitudes towards government institutions.
Experiences with financial institutions, degree of ease in receiving financial information Making complaints and evaluating agreements
KNOWLEDGE CP as a problem of
asymmetric info
TRUST CP is an issue of
confidence
Cost and Quality of Survey Data
Cost & Quality Irrespective of which policy goal is pursued,
designing effective interventions requires the collection of accurate survey data
In surveys the same amount of data can be collected
with a fraction of the cost by simply changing one aspect of the design
25
What is the right cost of a survey?
A number of factors play a role such as: sample size, mode of interview, experience of interviewers, length of questionnaire, number of locations covered, etc…..
Example of Cost
26
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Cost of HH Surveys
Sample Size Source: Financial Inclusion Measurement for Regulators
Main Components of Cost
27
Switch mode of interview 70 % of tot. cost in savings!
63% 15%
7% 6% 9%
Share of HH Survey Cost
Staff Transport
Equipment
Supplies Other
Source: The Power of Survey Design
Personnel & Transportation account for approx. 80% of cost
BUT this has an impact the quality and quantity of information available
Cost Savings Strategies
28
Without compromising quality, cost can be reduced by: Exploiting the underlying characteristics of the population
that is targeted, and Properly fine tuning the representativeness and the size of
the sample to the purpose of the analysis 3 APPROACHES
Sample Representativeness Sample Structure Sample Size
1. Sample Representativeness
29
“Nationally representative sample” can be
expensive ! How can you reduce the cost? By choosing the appropriate level of
representativeness Properly fine tuning the representativeness
and the size of the sample to the purpose of the analysis
2. Sample Structure
30
Reduce sample size & save resources by exploiting the characteristics of the population to design the structure of the sample
How? Within the population, identify
groups of individuals that are similar with respect to the issue measured, and divide the overall sample in groups
Sample Stratification
31
Example: Mongolia – Measuring financial capability
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
Checking accounts per capita
3. Sample Size
32
Save on sample size by tailoring the precision of the estimates to the purpose of the analysis
Decide how precise the estimate should be … the
more precise you want to be the more resources need to be expensed ….
Desired Estimate Level of Precision
Sample Size
60-80% 20% 96
60-70% 10% 384
60-64% 4% 2400
THANK YOU