A new report from the World Bank (“Who YouTrain Matters: Identifying Complementary Effects of FinancialEducation on Migrant Households”, 2012) has identified that byproviding financial literacy workshops in developing countriesprior to a migrant leaving, both the migrant and the household leftbehind were significantly more likely to be more familiar withfinancial terms, have opened a bank account and saved money thanmembers of a control group.
The World Bank, which collected its findings in Indonesia,partnered with local authorities who assist in educatingindividuals and families prior to a migrant’s departure. Thetraining sessions for migrant workers lasted two full days at ninehours per day, and sessions for families lasted two half days atfour hours each day. The training workshops were based on six coreprinciples: financial management, understanding banking services,debt management, sending remittances, and understanding exchangerisk and insurance programs. Utilizing an interactive andparticipative model, migrants and their families were educatedthrough a series of discussion modules, and group games.
When the World Bank returned to measure the success of the program,it discovered both the migrant and his or her family were nearly 20percent more likely to have a greater understanding of financialterms and knowledge, 10 percent more likely to have a savingsaccount, and they were more than 50 percent more likely to saveremittances received than before.
What is the significance of these findings? First, the World Bankestimates that $351 billion of remittances flowed to developingcountries through official channels in 2011, more than three timesas much as official development assistance from world governments.Thus, remittances are a major influence in developing countries andas payment technologies and infrastructure increase in emergingmarkets in the near future, expect to see remittance-basedtransactions to play a large part. Furthermore, the workshopshighlight that despite very poor financial literacy initially,populations in developing countries are very open to learning andshort training periods, as was the case for the World Bank, canhave significant results in the long run.
The emerging markets represent a golden opportunity for financialinstitutions to reach millions of new customers, however withoutsome instruction in financial literacy, it would appear that manywill avoid new banking services and prefer more traditional means,even if that means losing money. In order to avoid this scenario,the private and public sectors should collaborate on improvingfinancial literacy (particularly to rural populations) throughawareness campaigns and similar financial literacy workshops andthen emerging markets can reach their full financial potential inthe future.