Financial Innumeracy: A Global Problem for Digital Finance?
Last month, while conducting field research on oral numeracy in India, I met an unschooled 29-year-old farmer named Anusha, whose story illustrates the impact financial numeracy can have on a person’s life. Though born and raised in a village, Anusha worked as a maid in Bangalore for several years, where she learned how to read numbers. Anusha’s comfort with numbers made it easier for her to become an early adopter of digital financial services (DFS), and she started saving in a bank account.
“Auntie wanted me to be [to work] on time, so she showed me how to read the digital clock on her mobile phone. . . . She paid my salary straight to my bank account, and my son taught me how to use an ATM,” she said.
Unfortunately, Anusha’s story is the exception, not the rule, in many places around the world. Financial inclusion experts often state that poor people have good numeracy skills. That’s true of basic verbal numeracy, but not of skills like reading or writing numbers that are also DFS pre-requisites. Recent evidence from two nationally randomized surveys in Cote d’Ivoire and Myanmar, funded by CGAP and designed by My Oral Village, support findings in several countries that underscore the barrier that poor financial numeracy presents to financial inclusion.
While piloting a financial numeracy indicator (FNI) in Cote d’Ivoire and Myanmar, we tested respondents to see if they could do three things: (1) read one-digit numbers, (2) multiply moderately large numbers ($1 to $10 in their own currency), and (3) read large numbers ($10 to $100 in their own currency).
The national FNI scores — shown overall and broken down by component in the chart below — reveal a large gap between basic numeracy (the first two measures) and financial numeracy (the final one).
Without financial numeracy, it is impossible to safely input a “send” amount in a mobile wallet, validate a payment entry in a store in real time, check in on a digital transaction history or use an ATM. It is difficult for customers to use DFS without relying on the help of a family member, friend or agent. Intermedia reported that financial numeracy is a strong indicator of DFS use.
“In Cote d’Ivoire, where 94 percent of financially included adults have mobile money accounts, being financially numerate increased the odds of financial inclusion by over 500 percent,” according to Dr. Sam Schueth, Intermedia’s director of research.
Financially innumerate customers who do use DFS are exposed to greater risk. In our test, we spoke the number “ten thousand, seven hundred and fifty” and asked respondents to select a matching written digit string from a list of five choices. Two choices were of different orders-of-magnitude: One was “1,750” and another was “107,500.” In Myanmar 26 percent of those sampled chose the wrong order of magnitude, and 30 percent made this type of error in Cote D’Ivoire. That is, over a quarter of the population in both countries is unable to distinguish a spoken five-digit number from a written four-digit or six-digit one. With this in mind, it is easy to see how an unscrupulous family member or agent could take advantage of a person who is financially innumerate, especially if this vulnerability is known to the other party.
Financial numeracy challenges may help to explain why so much digital finance is cash-in/cash-out and why customers shy away from deeper digital commitments, such as active savings account use.
It is not surprising that schooling has a huge impact on financial numeracy. Phone ownership is also very strongly correlated, as are age and sex.
What can be done to boost financial numeracy? I would like to suggest several next steps.
- Financial services providers should use existing oral information management tools, such as cash scrollbars and keyboards, cash-based place value guides in savings group passbooks and on loan contracts, and play money in mobile money offices. Learning financial numeracy skills is an uphill climb, but user-interface refinements in digital finance can ease and accelerate the process.
- Governments should focus on financial numeracy in schools. A test of basic financial numeracy should be conducted as a routine part of all financial inclusion surveys in the future and should be conducted at least once in every participating nation. Since the ability to read long numbers is vital to success in the formal economy, this skill should be mainstreamed into the school curriculum as early in primary school as possible.
- Development organizations should keep track of financial numeracy. Future surveys of financial inclusion, such as the Global Findex, Financial Inclusion Insights and others, should test other dimensions of financial numeracy: specifically, ability to understand calendar time/time stamps, arithmetic operators, tabular format and percentages.
The problem of financial numeracy goes well beyond Cote d’Ivoire and Myanmar. Researchers have also identified this challenge in India, Bangladesh, Tanzania, Cambodia, Timor Leste and the Solomon Islands. Understanding financial numeracy country by country, extending the indicator to track other key aspects like calculations and calendars, and continuously tracking numeracy in the future may be vital to making progress toward an era in which all adults can use digital financial services independently.
I agree with the author having experienced this first hand in the Solomon Islands while researching on Savings clubs with Brett. And most recently, last week, while interacting with Kava farmers in Vanuatu as part of our informal sector micro pension research. While it is important to include financial numeracy in the school curriculum (example Fiji) for adults who have missed out on formal school educations financial service providers and development partners have a responsibility of imparting numeracy skills as it applies to the deployment.
When otherwise unbanked people set up financial services for themselves they choose devices that suit their numeracy skills. For the innumerate, for example, ROSCAs and similar repetitive and paperless mechanisms remain very popular.
A similar preference may explain why, in a daily financial diary research project we are running in central Bangladesh (https://sites.google.com/site/hrishiparadailydiaries/), the respondents do virtually all their DFS transactions ‘over the counter’ (OTC) even though many of them have opened accounts with mobile money providers. By choosing ‘cash-in/cash-out’, customers get immediate proof that the transaction has been properly completed. A son in Singapore phones his mum to tell her to expect 10,000 taka, or a sister at school in another district is told that 4,000 taka is on its way. When these sums are duly handed over the counter by the mobile money agent we have an ‘action audit’ as powerful as the successful pay-out of a ROSCA prize or the annual pay-out of a savings group. It probably explains why so few of our diarists have expressed lack of trust in mobile money even though many of them admit that they don’t understand how it works.
So when Brett suggests that “Financial numeracy challenges may help to explain why so much digital finance is cash-in/cash-out”, I’m inclined to believe he’s right.
Great to see the growing appreciation of the importance of orality - these issues will only be further amplified with the growing digitisation of financial (and other) services. Indeed they will be a key driver of the rapidly emerging (read "emerged") digital divide. See http://bit.ly/2zsylSi.
MicroSave worked with Brett in India on this to look at the issues and design a wireframe for an oral-friendly interface - the resulting report has both a great detail on the problem as well as potential solutions. See "Digital Wallet Adoption for the Oral Segment in India: Concept Development for MoWo (Mobile Wallet for Oral)" http://bit.ly/2q5AwGa
Great work, Brett. I remember talking with a friend who worked in Mozambique. He had trouble whenever he sent a staff member to the market to buy things. The quantity he received was always quite different than the quantity he had requested. He sat down with the staff member to do over counting and numbers. What he learned was that the staff member's range of numbers went, "One, two, three, many."
Your work points out how this challenge affects the goal of digital financial inclusion. Getting people to connect with digital services must be accompanies with basic financial numeracy. Otherwise, as you say, we leave those adopting the new technology vulnerable to those who would take advantage of those with limited ability to put visual quantities into words and numbers.
Thanks for this Brett. The more I've been learning about DFS, the more financial innumeracy seems like a bottleneck for so many other services.
I'd love to see this topic get more attention in the development space - I'll be keeping an eye on it for sure!
Thank you Mathew for this excellent narration ... Thank you also for our earlier (e-mail) discussion on this.....This is a great note for those who rush to digitize financial services to the very poor, and illiterate..... This has come out in our assessment of saving mobilization challenges of 12 microfinance institutions ... This discussion has made it very clear that if we actually want to serve the poor and illiterate in rural contexts and digitize such a service, we need more (not less!!) field officers, who can support the target group on the use of such a devise, as well as work on other infrastructure issues as well. ... Hope to hear more on this .... Thanks and Regards