Four Ways Financial Sector Policymakers Can Promote Financial Health
In a recent small group listening session, financial sector policymakers from around the world described their increasing interest in financial health. The session was part of the explorations by the Financial Health Working Group (FHWG) convened by Her Majesty Queen Máxima of the Netherlands in her capacity as the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA). Members of the FHWG were pleased to learn that financial health or similar concepts have already been incorporated as overarching goals in several national financial inclusion or financial education strategies. And multiple efforts are starting to measure financial health at a national level.
Despite this enthusiasm, we also heard an insistent, recurring question. What are the policy implications of financial health? If financial health is to be a useful and relevant concept, worth the effort required to measure it, this question must be answered thoroughly and thoughtfully.
The FHWG recently published a report that aims to address this question, examining the drivers of financial health and possible policy responses. In this blog post, I want to highlight four ways financial sector policymakers can move toward actions that promote better financial health among citizens. They intersect policies at many levels, ranging in scope from systemic change to financial sector oversight to direct services.
1. Make financial health a touchstone for setting financial sector priorities.At the broadest level, the financial sector policies that promote financial health are obvious: support savings, curb predatory lending, reduce exposure to risk or provide risk mitigations, and assist people with long-term asset building. Policymakers ought to judge the performance of the financial sector by how well it meets these needs. The point is to understand how these broad goals complement other financial sector goals, such as stability and safety/soundness of financial institutions, so that as major sectoral decisions are made, the welfare of citizens is always considered.
2. Use measurement insights to target gaps. For developing a full-bodied action agenda, measurement is essential, as it leads to diagnosis of specific problems. For many countries, financial health is seen as a next generation issue, becoming more relevant as more people become financially included. In these markets, measurement can reveal gaps and prompt action relating to specific population groups, such as people with seasonal incomes, or specific types of challenges. For example, health emergencies can be a major cause of poor financial health, prompting measures to enable health insurance or health savings. Diagnoses may also point to gaps in financial consumer protection, such as rising debt stress indicating that a new type of credit is drawing people into debt traps. Market conduct supervisors will want to fully understand the financial health of financial service users and monitor the market for trends.
3. Work across sectors on systemic change. Many of the contributors to poor financial health are beyond the direct scope of the financial sector. Employment policies, social protection programs and the health care system, among others, are all implicated in financial health. Policymakers in the financial sector can work with their colleagues in other areas. Examples might include working with social ministries on digital social protection payments or with major employers or labor ministries to give gig workers more stable incomes.
4. Promote products and programs to support healthy financial behaviors. Individuals often need assistance to maintain healthy financial habits, and this support can be provided both through the features of their financial services and through financial education or coaching. Behavioral scientists, working with financial service providers, have already developed many products that support financial health, from various forms of commitment savings to account alerts to planning and budgeting tools. Financial sector policymakers can encourage financial service providers, as well as other types of organizations, to innovate in this area. The agenda of the UK’s Money and Pensions Service and the Dutch Money-Wise platform are good examples of the kind of activities financial authorities can promote. In countries with many low-income people, policies that support grassroots savings groups can enable those with few resources to manage their financial ups and downs as well as possible.
This is still a young area, and we can expect much progress in the coming months and years.