In this special webinar, we discussed our 20 years of experience in financial education. Financial education is based on fundamental assumptions that don’t reflect the reality of most people.
- Controlling small expenses that people are not careful about can change their financial situation. Mostly false… in many cases, people, especially low-income people, manage their expenses, but what impacts their financial situation is big expenses such as health expenses or emergency expenses – which become more frequent with climate change. Commitments take a bigger share, especially rent and debt. When people spend on addictions, it is more a health issue than a financial problem. Finally, being a consumer nowadays is be included in society. Asking people not to spend, except on basics, also means to tell them they will never belong to our society and exclude them from our ‘modern’ world.
- Savings is introduced as money accumulating. The issue is not how to save – as most people, including very low-income people, know how to save. The issue is they must use their savings for emergencies or big expenditures; they cannot accumulate savings on the long term. So, the focus should not be on how to save, but how to address ‘dissaving’, i.e. the use of savings.
- Debt is presented as an individual decision, but it brushes away the pressure to take debt when the surroundings (physical and online) constantly offer loans. A second challenge is that financial education explains debt as the opposite of savings: when you buy something, you can save and then buy it… or you borrow and buy it at once, but it has a cost on your future expenses. This misses an important point: for many people, debt is not an alternative to savings, but a substitute for income, in a world where incomes do not increase as fast as expenses.
- Income generation also means expense generation for the customers, which results in just shifting money from people to entrepreneurs in closed communities. It also means interest generation for the lenders, as most small businesses are not profitable enough to pay back loans, pay the entrepreneur and keep enough cash for their working capital. These small businesses must take a new loan to operate. This interest payment directly hits how much the entrepreneur pays her or himself.
What approach can we take to make financial education tackle these complex situations and avoid giving simplistic solutions that do not have an impact?
- Start with a thorough needs assessment with the target group. Let them identify and analyse the financial issues they face, and map the ‘financial ecosystem’ they live in.
- Identify solutions with them, knowing that some will not be ‘financial education’: for example, a programme to help smokers quit smoking may have a bigger positive impact of their financial situation than a budgeting programme.
- Co-create with your target group programmes that address the core issues. Embedding financial education in other programmes is often more efficient than dealing with finance as a separate topic.
- Literacy is fundamental: basic literacy, numeracy, legal literacy and digital literacy, in order to build critical thinking and risks (especially scams) prevention.
More ideas in our webinar: