Financial Capabilities in Mexico Results from the 2012 National Survey on Financial Behaviors,...

Financial Capabilities in MexicoResults from the 2012 National Survey on Financial Behaviors, Attitudes and Knowledge

G20-World Bank-OECD Conference on Financial Capabilities and Consumer ProtectionMoscow, June 13, 2013

Rekha ReddySenior Economist

Finance and Private Sector Development Group, Latin America Region The World Bank

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The access and usage of a portfolio of financial products and services for the population, under an appropriate regulatory framework that protects the interests of users and promotes its financial capabilities.

Working definition of

Financial Inclusion

QualityAdequacy of

financial inclusion

UsageBetter

Opportunities

Access

Higher number of people included in the financial systemFinancial Inclusion

Curve

Increase in financial

penetration

• Branches (Banks & MFIs)• ATMs• POS (debit & credit card)• Branchless banking

Savings, transactions, credit, insurance, pensions, remittances.

• Appropriateness of products & services• Consumer empowerment• Enabling environment

Financial education

Consumerprotection

Financial inclusion / financial education measurements (supply and demand-side data)

Financial Capabilities Relevance to Mexico’s Financial Inclusion Strategy

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Context of 2012 Mexico Survey

Key Challenges in Financial Capabilities

Policy Implications

Outline

Financial Capabilities Relevance to Mexico’s Financial Inclusion Measurement Efforts

Dim

ensi

onM

easu

rem

ent i

nstr

umen

ts

Regulatory reports (Supply-side data)

GIS for Financial Infraestructure

Demand-side surveys (ENIF2012)

Qualitative studies (focused & impact studies)

FE Program evaluationsFinancial Capabilities

Survey (WB) Financial Literacy

evaluations (OECD) FL school curricula

evaluations (PISA)

Regulatory Reports on complaints (Supply side data)

Impact evaluation of active supervision: Mystery shopper

assessments (CGAP)

Indi

cato

rs

• Access points by each 10,000 adults

• Percentage of municipalities with at least a financial access point

• Percentage of population that lives in a place w/one access point

• Percentage of adults with at least a deposit account in a formal institution

• Percentage of adults with at least one credit account or credit card in a formal institution

FINANCIAL INCLUSION

Access Usage Financial Literacy &Education

Consumer protection

New generation of “Quality” indicators

to be developed

Source: CNBV, 2012. 4

“Core Set of Indicators”: AFI

o Survey sponsored by the World Bank Russia Trust Fund for Financial Literacy and Education and the World Bank Latin America Region in conjunction with national counterpartso Mexico Counterparts: CNBV and CONDUSEF

o Phases of Survey Development o 2010: conceptual framework developed, qualitative research begins,

13 focus groups o 2011: qualitative research 48 in-depth interviews, pilot testing of

quantitative survey o 2012: Nationally representative survey rolled out in June-July to

2,026 respondents, 18 years and older making financial decisions for their household or themselves

o Mexico customized core Russia Trust Fund questionnaire (ex: OECD-INFE financial knowledge module, financial education, use of government programs)

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The 2012 Financial Capabilities Survey

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Policy Implications

Outline

1. Many Make Plans…. Far Fewer Adhere to Them

Only 29% of the population reports having money left over after paying for basic expenses such as food and other necessities.

70%of adults reported planning how they used the money they received.

34%reported always keeping to their plan.

63%Say they know how much is available at home for daily expenses…

18%know exactly how much they spent in the last week.

Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012

45% of survey respondents felt they could cover a major expected expense of one month’s income without borrowing

Just 34% felt they could cover a major unexpected expense

Major Expenses

Major Expenses

Children’s Future

Children’s Future

Less than 1/3 of the population under age 60 reports plans to cover old-age expenses

Over age 60, nearly 2/3 report insufficient or no provisions for living costs

Old AgeOld Age

Slightly more than half of the parents surveyed had plans to support their children’s education

Plans to save for children’s inheritance were less common (>20%)

2. Limited Funds Set Aside for Future Expenses


Ability to Cover Major Unexpected Expenses by Income

29%

High Income

Middle-High Income

Low-Middle Income

Low Income

18%

12%

14%

28%

38%

51%

55%

54%

43%

36%

31%

17%

Regularly Sometimes Never


Percent Reporting Shortfalls in Money For Necessities

Report borrowing from family or friends to make ends meet

3. Several Indications of Financial Strain, Particularly Among Low-Income Individuals

Family members—namely mothers and fathers are the most common source of guidance.

No one

Other

Other family member

A teacher

Father

Mother

0% 10% 20% 30% 40% 50% 60%

51%

5%

4%

7%

22%

26%

Percentage of Respondents

4. Half of the Mexicans Surveyed Were Never Taught to Manage Their Money

Teachers of Money Management


5. Many Financial Products Users Seem Optimisticin their Assessment of their Ability to Choose Products

…

…

All Products

Account at a financial institution

Personal Loans Tandas Pawn

Shops

Look for information from distinct sources 57% 71% 66% 53% 52%

Consider various alternatives before deciding 62% 76% 71% 60% 60%

Look to find the most appropriate product for needs 68% 76% 74% 68% 68%

Verify terms and conditions before contracting 68% 81% 76% 72% 64%

Verify terms and conditions in detail 62% 66% 51% 61% 60%

60% Of those borrowing from pawnshops and participating in tandas (informal rotating savings groups) say they verify terms and conditions in detail


Mexicans have weaker performance relating to interest rate calculations and the concept of risk and portfolio diversification.

Mexico’s level of correct responses to questions related to numeracy, the time value of money and the interest paid on a loan were in line with other countries surveyed.

Time value of money Calculation of principle and interest

Compound interest Risk and Return Diversification0

20

40

60

80

100

Mexico Armenia Ireland PeruSouth Africa UK

6. Relative Weaknesses in Financial Knowledge Also Suggest Challenges to Choosing Financial Products

Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012. Non-Mexico data are from Atkinson, A. and F. Messy (2012), “Measuring Financial Literacy: Results of the OECD / International Network on Financial Education (INFE) Pilot Study.

7. Cross-Country Data Suggest Relatively Short-Term Planning Horizon for Mexicans

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Budgeting

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Covering Unexpected Expenses

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Living Within Means

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Savings Orientation

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Monitoring spending

0

20

40

60

80

100 Orientation towards the future

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Not Impulsive

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Not Overspending

Mexico

Leban

on

Urugu

ay

Turke

y

Armen

ia

Colombia

Nigeria

0

20

40

60

80

100Achievement Orientation

Source: Kempson, Perotti and Scott, 2013

Over half the population falls into two clusters: unsophisticated money managers and short term money managers.

22%Unsophisticated money managers

33%Short-term money managers12%

Young impulsive spenders

9%Affluent but disorganized

25%Careful money

managers and planners

8. Distinct Challenges for Profiles in Financial Capabilities

Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012.

Over half the population falls into two clusters: unsophisticated money managers and short term money managers.

9. Diversity in Regional Weaknesses in Financial Capabilities

Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012.

Financial knowledge and financial capability are positively associated with use of formal financial products such as bank accounts

and credit cards.

Financial knowledge and financial capability negatively associated with use of informal financial products like pawn shop loans and informal loans from family.

8.1 7.69.4

26.1

15.4 14.1

5.7

17.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Bank account Credit card Pawnshop loan Loan from family or friends

%

Percentage of individuals with low/high financial capability using the financial products

Low financial capability High financial capability

World Bank Analysis of National Survey on Financial Capabilities, Mexico 2012 and Consejo Nacional de Inclusión Financiera 2012 financial infrastructure data

No statistically significant relationship between number of commercial branches in a municipality and number of individuals with formal products, suggesting that increased bank branch access is not enough

Banking correspondents increase access to formal financial products primarily for individuals with high financial capability or high financial knowledge

10. Not Enough to Provide Financial Inclusion Channels, Also Need Enhanced Financial Capabilities

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Policy Implications

Outline

Diverse challenges show that increasing financial capability requires multi-stakeholder efforts.

Increased activity of Mexican coordination mechanisms for public authorities, such as working groups on Financial Education and Financial Inclusion (CONAIF), established in 2011, will help to

address financial capabilities challenges and support effective implementation of programs.

Coordination with private sector stakeholder activities is also crucial.

National Survey of Financial Behaviors, Mexico 2012

Enhanced financial infrastructure is needed to expand financial inclusion—although it is not the only factor.

Allow deposit-taking “cajas de ahorros” to sign up banking correspondents on the same terms as banks.

More specific rules to promote the marketing of basic bank accounts to the financially excluded could be issued.

Policy Implications

Scale up promising programs that support rural adoption of mobile payments.

Technology that increases access to personal finance information can help improve planning behaviors and enhance decision-making.

Mobile phone and Internet based personal finance tools can help users better administer their spending, savings and investments.

The use of text messages and social media can be used to send simple sustained messages related to personal finance, such as

managing account balances, loan payment, and savings to promote desired behaviors.

Encouraging financial institutions to create labeled savings accounts for specific goals, commitment accounts and future dated mobile payments

are simple ways to make savings gains feel tangible and curb tendencies to overspend and view only the short-term

Modify policy to encourage recipients of social benefits to save rather than withdrawing their transfer (Oportunidades)

Remittance linked products aligned with the needs of migrant workers and their families offer the opportunity to move transfers

directly into saving products.


Improved product design elements incorporated into financial products can help people save.

Policy Implications

Ensure financial education interventions are well-timed and well-targeted.

Carefully designed school based programs coupled with programs incorporating learning modules that involve the household could be

implemented to support the critical role of the family in providing financial education.

Design interventions for a population that is not accustomed to learning in a classroom setting, such as entertainment education

(telenovelas, radio) to disseminate key messages in financial capabilities to the general population.


Support customer protection interventions that help mitigate effects of limited financial knowledge.

Could require the current Total Annual Costs (APR) that is in percentage form to be modified to Total Amount You Pay in peso

value.

Adapt regulations to reflect new channels such as mobile banking or new types of correspondents.

Policy Implications

Require regulated financial institutions to incorporate good practices for disclosure and pricing regimes

Project Team Institutions and Contact Information

CONDUSEF: Marco Carrera Santa Cruz, [email protected] CNBV: Luis Garza Trevino, [email protected] Bank, Rekha Reddy, [email protected]

THANK YOU!

mailto:[email protected]

Financial Capabilities in Mexico Results from the 2012 National Survey on Financial Behaviors,...

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