The future of financial education

The world of client education in microfinance has been murmuring recently. Take a look at this MicroSave briefing note for one of the most interesting analyses I’ve read (and one of the shortest).

In fact doubts on financial education are far from new. Increasingly studies are showing that financial education increases people’s knowledge of financial tools, but... very often doesn’t actually make them use them more. A client might be able to explain the advantages of insurance, but not be any more likely to buy it. 

A lot of factors are at play here: you can get a good idea of how complex the impact of financial education is through the experience of Freedom from Hunger.

As the MicroSave briefing note argues, it seems that financial education works better (more impact on clients, more cost-effective for insurers) when it is more closely tied to marketing of specific products and to clients own experience of products and that of their peers.

Take this further and client education is often most effective when embedded in delivering products. The most effective financial education is experience of products that work. Offer microinsurance products designed to provide regular benefits, and clients will see potential of financial tools for themselves. Make mandatory products convincing, and clients might be persuaded to try more voluntary products.

Peter Gross was asked to defend one of MicroEnsure’s products, sold via mobile phones without a traditional financial education component. He argued that as a free product covering a large number of people and providing quick and very simple claims payments, the product was in itself education about what insurance can do for its clients.

From the MicroSave brief again: “Experience rules. People test financial products with low values and little risk to make sure the product performance conforms to their understanding before entrusting it with larger values.” 

The future of financial education lies in providing opportunities for clients to test financial tools for themselves.