FINANCIAL LITERACY AND FINANCIAL INCLUSION IN ASIA AND THE PACIFIC
The OECD SEBON Conference was followed by 9th Roundtable on Financial Literacy and Financial Inclusion in Asia and the Pacific that was made open to public authorities from the region. The Roundtable is specifically meant for public officials from financial authorities (Central Banks, Ministries of Finance, besides Financial Regulators and Supervisors) in Asia and Pacific region, and also for OECD/INFE representatives.
Dr Rewat Bahadur Karki, Chairman, SEBON, thanked all the panelists for very productive conference and welcomed to the 9th Roundtable discussion
In his opening remarks, Dr Karki said that as the Roundtable exercise open only to public officials from financial authorities like the central banks, government ministries, regulators, supervisors and OECD/INFE representatives, this has been a unique platform for frank and open discussion to share country-specific experiences, challenges and possible policy and intervention approaches on present and future financial education endeavours. SEBON as the institution and Nepal as the country feel privileged to organise this meeting in Kathmandu. He once again thanked OECD/INFE for this opportunity.
The financial literacy in its comprehensive sense is no doubt gaining momentum over the years in the Asia -Pacific region. But in this august gathering, he proposed a specific approach to advance a dedication to South Asia region given its socio-cultural homogeneity, geographical proximity and comparable economic realities and level of financial deepening.
Our economies face three parallel challenges of increasing access of basic financial services to inner hinterlands, making financial products that addresses the need of marginalised population and saving the interests of the consumers from overtly profit oriented financial markets. In our subcontinent, perhaps it is not fundamentally different across the world, the regulators of the financial system face an unique trade-off of managing resources to set up efficient institutional and legal frameworks to facilitate all these financial education and consumer protection activities and, at the same time, maintain their operational independence.
The public institutions are expected to provide the financial services to mainly in poorer and remote areas where private sector is reluctant to go due to low margins of profits and the same institutions are responsible to regulate, mainly the private sector market participants that more often than not are likely to indulge in unethical practices with product diversification, over-banking and urban concentration.
In our economies, the significance of SMEs can hardly be overestimated. Apart from mere opening of the bank accounts only spurring the development of SMEs to ensure their competitiveness and scalability can meaningfully extend the access to finance to the larger section of the populace.
In the era of FINTECH and internet, faster adoption of technology is certainly helpful for financial inclusion, including the extension of securities and derivatives markets. But, the digital divide aggravated by the widespread illiteracy in literal sense still remains a real bottleneck for the developing nations. Nepal's own experience of financial literacy is that, some component of it embedded in the school curricula is more effective than other several methods.
Research and development of financial education materials and platforms, and their sharing across the nations is another important area from which the public authorities can benefit from each other. Since we all have to come up with new laws and institutional mechanism to develop financial education in line with global best practices, an increased level of cooperation and experience sharing is a critical imperative.
He expressed that this 9th roundtable of public officials from financial authorities of the region and OECD/INFE representatives will prove a new milestone in this direction. On behalf of SEBON, committed to contribute in every way possible to take this process and endeavor forward.
After the opening remarks, Dr Karki opened the floor for roundtable discussion. The first presenter was Mr Hariharan Iyer, Securities and Exchange Board of India (SEBI), who spoke on the topic of 'Understanding and Responding to the Impact of Demographic Changes for Financial Consumers'. His presentations included factual data about the demographics of India. As per the statistics, India had the highest demographic dividend across Asia. In the later part of his presentation, he focused on presenting various 'Initiatives taken for Financial Inclusion' by Government of India which were:
- Mahatma Gandhi National Rural Employment Guarantee: It is employment scheme which provided social security by guaranteeing minimum of 100 days paid work per year. He added that by fiscal year2019-20, there would be total of 11.71 crores active workers and 3.01 crores households who have been benefitted.
- Prime Minister’s Jan DhanYojana: Launched in 2014, it was one of the biggest financial inclusion initiatives in the world. Under the initiative, savings bank accounts were opened for individuals and account holders were provided with Rupay debit cards. These accounts were also used for direct transfer of several government benefits to bank accounts. Since the launch in 2014, total 35.92 crores beneficiaries have been created till June 19, 2019.
- Atal Pension Yojana: Launched in 2015, this was government backed guaranteed minimum pension scheme targeted at the unorganised sector. Individuals are guaranteed of minimum pension of Rs.1,000/-, Rs.2,000/-, Rs.3,000/-, Rs.4,000/- and Rs.5,000/- per month after they attain the age of 60 years (depending upon their contribution by subscribers).
- Ayushman Bharat Yojana: Centrally sponsored National Health Protection Scheme launched in 2018. Beneficiaries were allowed to take cashless benefits from any public/ private empanelled hospitals across the country. Scheme will target 10.74 crore poor, deprived rural families and identified occupational category of urban workers’ families as per the latest Socio-Economic Caste Census (SECC) of India.
Mr Iyer highlighted on the fact that how millennials are in urgent need of financial literacy as they are the chief wage earners in India with 47 percent share in the working age population and 70 percent of household income. The spending habit of millennials depicted that there is a shift from saving economy to consumption economy. Data showed that smartphone penetration in India is 12 percent and hence millennials needed to be financially educated digitally as they are digitally connected individuals.
Ms. Atkinson presented clearly about the major target audience to whom financial literacy is a must. According to her presentation: (a) Young people (b) Working age adults and (c) Senior citizen are the ones who should be taught prior about these concepts.
a) Young People: As young people are the target of most marketing campaigns and making financial decisions starts at young age, having knowledge of financial education is greatly beneficial to younger people.
b) Working Age Adults: Financial distress makes workers less productive as it creates distraction, stress and health issues. Employers may end up being directly involved in credit arrears through mandated automatic debt collection (a potential conflict of interest for employers trying to support the wellbeing of their staff). Reducing vulnerability through financial education, can lead to improved (financial) wellbeing, and a healthier, more motivated workforce. In turn, such members of staff are likely to be more productive, loyal, and motivated to develop their own skills. Also, micro and small business owners also need to become financially literate as financial literacy is important at all stages of creating and growing their business.
c) Senior Citizens: Older people are still repaying credit and may need support to get out of debt. They may not have saved enough to stop working. Hence financial education may help them to identify ways of reducing expenditure/ increasing savings to build a buffer for when they can no longer work.
Ms. Leigh Coughlan, Senior Manager, Financial Capability, talked about the scenario of demographic change in Australia. She pointed that Australian people were experiencing the twin problems of (i) population growth and (ii) change. She mentioned that 15 percent of the Australian population was aged 65+ (2016). The median age of Australians has increased from 23 in 1911 to 38 in 2016. Australians aged 65 and older will number 8.3million by 2053.
Ms. Leigh also presented the result of one survey that was conducted in Australia earlier. Survey pointed out that the best time to receive advice about money management and decision is when people were starting their first job, i.e., at young age. Similarly, 2nd highest poll was for 'throughout the life' option. The 2nd option indeed is meaningful as people should be educated about financial literacy throughout their life as options such as (i) only once or (ii) a package once in a while is not enough3.
Dr Joanne Yoong, Senior Economist, deliberated upon 'Behavioural Economics and Insights for Financial Policy Making in an Aging World'. While Ms.Yoong advocated for change of human preferences over time, she wanted them to be necessarily consistent with time always. Also, humans are irrational about losses. She elaborated that human beings generally could not make proper analysis of Gain vs. Loss and had ‘zero risk bias’. Similarly, she shared that behavioural economics advocated that human beings are generally susceptible to be influenced by others. Moreover, they are greatly affected by peer decision whether rational or irrational. Human beings in general have‘overconfidence bias’ as was shown with the help of a graph from the 'The Illusion Control'. Both the extremities viz., (i) above average and (ii) below average thinkers are equally vulnerable. It may be mentioned here that human beings are selective learners as well.
She added that human beings tend to believe what that already believed. She pointed that in behavioural economics, having more choices meant having no choices at all. Further there are three bounds of human nature namely, (i) bounded rationality, (ii) bounded self-control, and (iii) bounded self-interest. Moreover, behavioural economics advocated that young human beings have no connection with older self. If that were to be possible, people would make much better decision while they are young. She added that as and when the age bandwidth changed, it slowly moved from fluid intelligence to crystalline intelligence category.
Ms. Yoong, in the later part of her presentation, put forth her thoughts on various strategies that could be taken to improve behavior. Some of them are: (i) enabling defaults and pre-commitment to advance planning for finance and health care early in the life-cycle, (ii) promoting product design, (iii) incentives to support responsible choices for all consumers, designing choice environment, and (iv) Fintech and regulation for consumer protection adaptive to older adults. She added becoming aware of own biases and assumptions could also be one way.
Presentation was followed by a brief question and answer session where the regulatory authorities of participating nations shared their experiences, findings and challenges in promoting financial education in particular context of the developing world. Dr Rewat Bahadur Karki opined that the Indian experience in accelerating the financial inclusiveness could be emulative example and requested the Indian participants to share the strategies they applied in achieving such success. He also opined that 100 percent inclusiveness was not possible in a country like Nepal which is a tall ask. Nepal’s adult literacy rate in some sections of the demography is better compared to her neighbours which Dr Karki saw as an opportunity to further both, financial education and consumer protection.
Roundtable discussion came to an end with by Dr Rewat Bahadur Karki thanking all the panelists for their contribution to the discussion and hoped that it succeeded in paving the way for new discussions and deliberation in the domain of financial inclusion, literacy and education.
Source: OECD-SEBON;CONFERENCE AND ROUNDTABLE ON FINANCIAL CONSUMER PROTECTION AND EDUCATION IN ASIA-PACIFIC