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Seminar Highlights Financial Literacy in Emerging Markets

The GWSB Financial Literacy Seminar Series highlighted the preliminary findings of a World Bank economist who examined how to give financial knowledge to people with limited education in emerging markets.

According to the World Bank, some 2 billion people worldwide are expected to enter the formal financial system in the next 20 years, said Bilal Zia, an economist with the World Bank’s Development Research Group whose research is focused on access to finance at the household, corporate and bank levels.

Many people in emerging economies have limited schooling and cannot calculate basic percentages — much less evaluate the meaning of compound interest and other banking terms, Zia said.

“It’s not clear that these people will be equipped to make optimal or well-informed financial decisions,” he said during his presentation at one of six biweekly financial literacy seminars organized this fall by Annamaria Lusardi, the GWSB Denit Trust professor of Economics and Accountancy and a financial literacy expert.

The disparity in financial access between developed countries and emerging markets is already wide, with 81 percent of adults in developed countries having bank accounts, compared with 28 percent in emerging markets.

“Why don’t people have a bank account?” Zia asked.

The first part of Zia’s study involved using videos in India to evaluate what kinds of financial literacy programs work and why they work.  Another phase of the study will involve delivering financial literacy messages via a popular soap opera in South Africa.

Understanding what improves people’s understanding of financial terms and products is “even more important in developing countries, where financial literacy matters so much,” said Lusardi.

The India study — aimed at urban households with average monthly incomes of $150 — uses examples instead of equations to teach people about financial matters.  Respondents consider, for instance, how a family might pay for a gifted child’s education, or whether a wife should include both expenses and income in her family’s budget.

So far, results indicate that teaching with such examples doesn’t improve people’s mathematical skills.  But it does increase awareness.

“Financial literacy is making them more aware of financial products and financial decisions,” Zia said.

Professor Annamaria Lusardi introduced World Bank economist Bilal Zia (center), who spoke at a financial literacy seminar co-sponsored by GWSB and the Federal Reserve Board. To the left is Alex Kaufman of the FRB.


Posted by gwsb on November 22, 2011 | Filed under: GWSB News.

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