posted Jul 21, 2015, 9:51 AM by Ignacio Mas
[From CGAP blog, 21 July 2015]
When it comes to understanding the
needs and behaviors of low-income people, the financial inclusion literature is
full of contradictions. Experts celebrate poor people for their complex, active
financial lives, but then seek to educate them financially. Researchers
document how resilient and purposeful their informal practices are, but then
investigate ways to protect them against their own financial habits. Giving the
poor a wide range of financial choices is an admirable goal, but do we really
need to “nudge” them to change behaviors, as if the choice had already been
made for them?
Education is often identified as a
barrier preventing customers from using digital financial products. In reality,
however, teaching someone to use money in a new way - digitally - by starting
with education may be the toughest path. Change only comes with practice, and
people will see little reason to change without a compelling reason. It may be
easier to inspire the use of digital financial services if we flip the script around.
- Understand Current Behavior. The first step in the journey to greater use of digital financial
services is to understand what it is that people do today, specifically
how they make decisions on their money matters. In the paper Money Resolutions, A
Sketchbook, I characterize six common financial
decision-making practices that poor people often employ. These are
expressed creatively in this short animated video. People living on
precarious, unpredictable incomes cannot afford to live by hard- and-fast
rules. Instead they must make money decisions in the moment, every time
they touch money, because there is new information that gets revealed with
every dollar they make and with every unforeseen expenditure. They must
organize their financial life as it unfolds, not through infrequent,
idealistic budgeting moments. These six practices allow them to put their
financial decision-making on some kind of auto-pilot, creating
anxiety-reducing habits that work for them most of the time.
- Use New Tools in Old Ways. Once there is an understanding of people’s habits and
behaviors, new digital tools can allow them to replicate these behaviors
through a new medium. The key here is to enable customers to preserve
their current mindset and behaviors instead of forcing them to change just
to fit the digital tools. In this stage, the value of digital financial
services comes from letting people do what they have always done, just
with a greater sense of control, convenience, reliability, security and
perhaps privacy. Two of the six practices discussed in Money Resolutions, A
Sketchbook – animating money and liquidity
farming – are especially well-suited for digital replication because they
can be brought to life through gamification and leveraging social
networks. Asking people to adopt a new tool for dealing with money, while
simultaneously requiring that they learn new habits and approaches, is
simply too overwhelming and is likely to result in low levels of usage.
- Use New Tools in New Ways. Once people are comfortable replicating their old habits with
new tools, they are likely to begin using these tools in new ways,
although this is usually a slow process. The sheer availability of better
tools can, over time, shift how people interpret their problems and the
choices they consider. Just think about how you first used the Internet
when it was introduced: most likely you used it to do things you otherwise
have done some other way, such as conduct research or send messages to
friends. It was only later that you explored the uses specific to that
medium – like blogging, tweeting, or building a website. The same goes for
digital financial services. At first, customers may simply use them to
send money to friends or family. But with time, as they become more
comfortable with digital money, more advanced opportunities, such as using digital credit or
using digitally-powered pay-as-you-go
utilities, become accessible.
Most digital financial
services that are offered today on mobile or branchless banking channels are in
fact legacies of the non-digital age; they treat the digital platform merely as
a channel. But digital delivery can fundamentally alter the nature of the
services that are offered on them, especially in regards to how customers
perceive and use them. This is not necessarily a call to make financial
services more sophisticated. On the contrary: digital services are able to
replicate what people already do informally, in everyday life, much more
closely than standard bank products delivered over brick-and-mortar channels
can ever achieve.
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