Constance Considers
Financial Inclusion
What is financial inclusion? No-frills bank accounts? Mobile money? Microloans? In this short animated video, we learn how financial inclusion can improve lives through the eyes of Constance, a fictional prospective client.
Everyone agrees on the need for financial capability and client protection, but each topic faces major unresolved questions. Sendhil Mullainathan set the stage for both topics by describing how low income people often operate under stresses that can lead them to poor financial decisions. In the financial capability roundtable sessions, participants welcomed the idea that building financial capability is a responsibility of both providers and governments. The real controversy, however, is efficacy. “Are there techniques that really work?” Sessions ended with pleas for more applied research and exchange of experience.
Client protection discussions reflected skepticism that steps other than regulation will change provider behavior, although most participants did endorse incorporating client protection into the identity of banking professionals. There was interest in the concept of a “Money Advisor” that would allow consumers to voice their opinions of providers. This idea received a further boost in a side meeting of the FI2020 Consumer Protection Working Group at which representatives of Consumers International presented thoughts on avenues for direct consumer advocacy.
Financial Capability and Client Protection
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"What does it mean to be poor?" asked Sendhil Mullainathan, a behavioral economist at Harvard University, as he began his presentation on how the persistant worry of the poor caused by scarcity affects the ability to make good decisions. When people are focused on meeting day-to-day needs, according to Mullainathan, they are less able to resist temptation or stick to a plan. Financial services, by smoothing consumption and protecting against risk, can help people keep out of that scarcity mindset.
"The biggest effect of changing people's finances may have nothing to do with dollars and cents. It has to do with fundamentally changing the mind…[Financial services] takes care of people's everyday needs, so then their minds are clear to think about other things." -- Sendhil Mullainathan
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Sendhil Mullainathan on the Behavioral Economics of Poverty and Implications for Financial Inclusion