MICROFINANCE PAPER WRAP-UP: “Financial Capability in Colombia: Results from a National Survey on Financial Behaviors, Attitudes, and Knowledge;” by Rekha Reddy, Miriam Bruhn and Congyan Tan; Published by The World Bank

“Financial Capability in Colombia: Results from a National Survey on Financial Behaviors, Attitudes, and Knowledge;” by Rekha Reddy, Miriam Bruhn and Congyan Tan; published by The World Bank; 2013; 87 pages; available at http://documents.worldbank.org/curated/en/2013/07/18054984/financial-capability-colombia-results-national-survey-financial-behaviors-attitudes-knowledge

This report, which was published by The World Bank, a US-based multilateral institution, analyzes a survey carried out in Colombia regarding “financial capabilities,” including behaviors, attitudes and knowledge regarding financial products. The survey sampled 1,526 Colombians aged 18 and over, collecting data related to daily money management practices, financial planning, financial product information access and choices, financial knowledge and attitudes, and sociodemographic characteristics.

Regarding daily money management, 92 percent of women said they played a leading role in such decisions, although men contributed to household income at a higher rate. The results also indicate a disconnect between “intended and actual financial behavior.” While 94 percent of respondents reported budgeting how they would spend their income, only 23 percent actually kept track of their expenses.

The authors conclude that, in general, Colombians have a “very short-term planning horizon.” “Eighteen percent of survey respondents did not report any financial plans, a quarter reported their planning time frame to be one week or shorter, and 21 percent reported a horizon of between one week and one month.” The authors argue that this short-term planning horizon affects the ability to cover unexpected expenses: only 23 percent of respondents said they would be able to cover an unplanned expenditure. This phenomenon also affected planning for old age, with only 41 percent of the population under age 60 having made provisions to take care of themselves in old age, despite 80 percent saying that this was a major concern. Additionally, 65 percent of survey respondents reported that they had experienced money shortages after paying for food and basic necessities, with over half of this group having to borrow money from friends and family members.

Regarding using and choosing financial products, 72 percent of respondents didn’t have any savings, and 45 percent didn’t use financial products at all. Of the people that did report using financial products, the most common of these were microinsurance and savings accounts. Although 69 percent of respondents said they were never taught how to manage their money, almost 60 percent could answer questions correctly on basic numeracy, time value of money and interest paid on a loan. However, of the people that reported using financial products, only one third could calculate a simple interest rate.

Results have shown that financial capability varies greatly depending on region and age. Compared to surveys carried out by the same authors using a similar methodology in six other countries (Armenia, Lebanon, Mexico, Nigeria, Turkey, and Uruguay), Colombians had stronger budgeting and achievement orientation but weaker performance in terms of monitoring expenses and saving for unexpected expenses.

Taking into account these results, the authors propose seven policy recommendations: (1) adopt a policy framework that engages a range of actors in boosting financial capability and develops a coordinating mechanism for these actors; (2) create and support new technologies that provide better access to personal finance products; (3) expand the range of financial products and interventions designed to help people save for future expected and unexpected expenses; (4) further develop financial infrastructure in order to facilitate reaching more of the Colombian population that has no access to financial products; (5) develop financial education interventions to address gaps in financial knowledge; (6) engage the existing consumer protection framework to help alleviate the effects of limited financial knowledge; and (7) regularly monitor and evaluate financial capability in the country.

By Juan Blanco, Research AssociateAbout

The World Bank Group

The World Bank Group (WBG) is a US-based development bank that consists of five institutions, all of which are owned by its member countries. The Group’s mission is to improve living standards for people in the developing world. The World Bank Group encompasses the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); the International Centre for Settlement of Investment Disputes (ICSID) and the World Bank, which consists of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). WBG has 120,000 employees, operations in approximately 120 countries and reported total assets of USD 324 billion as of 2013.

Sources and Additional Resources

The World Bank, “Financial capability in Mexico: results from a national survey on financial behaviors, attitudes, and knowledge,” http://documents.worldbank.org/curated/en/2013/11/18523527/financial-capability-mexico-results-national-survey-onbrfinancial-behaviors-attitudes-knowledge-financial-capability-mexico-results-national-survey-financial-behaviors-attitudes-knowledge

Microfinance Paper Wrap-up, May 6, 2013, ““Incentives for the Introduction of Agents in Colombia by Banca de las Oportunidades;” by Marulanda Consultores, published by CGAP (Consultative Group to Assist the Poor),” https://www.microcapital.org/microfinance-paper-wrap-up-incentives-for-the-introduction-of-agents-in-colombia-by-banca-de-las-oportunidades-by-marulanda-consultores-published-by-cgap-consultative-group-to-as/

MicroCapital Story, July 12, 2012, “Innovations for Poverty Action (IPA), Citi Foundation Issue Call for Financial Capability Research Funding Proposals,” https://www.microcapital.org/microcapital-brief-innovations-for-poverty-action-ipa-citi-foundation-issue-call-for-financial-capability-research-funding-proposals/

MicroCapital Universe Profile: World Bank (WB), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=The+World+Bank+Group

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