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Three Principles to Guide Financial Health Measurement

In a recent blog, we highlighted a new theory of change and conceptual framework for financial health and financial well-being – terms often used synonymously (including in this blog). Developed by the Global Partnership for Financial Inclusion (GPFI), under the leadership of the Central Bank of Brazil, this framework identifies four dimensions of financial well-being: managing needs and obligations, coping with negative shocks, pursuing aspirations and capturing opportunities, and feeling confident of one’s own financial situation. This marks a global shift toward conceptualizing and facilitating measurement of what truly matters in people’s financial lives. 

Across the globe, organizations and researchers have approached the measurement of financial health in different ways, depending on a variety of factors. For example:

  • The purpose of measurement: whether to measure the results of a specific financial health intervention or to track financial health in broad populations, independent of specific interventions.
  • The focus of measurement: whether to measure the concept as a whole or break it down into its individual components. 
  • The types and sources of data used: demand-side surveys are the most common method, though other data sources (transactions or other types of supply data) are sometimes explored.
  • The scope of measurement: this might be limited to a specific country, or designed for global relevance. 

This range of approaches reflects the need for widely applicable guidelines to make sure that financial health measurement provides relevant insights to inform decisions by financial authorities, policymakers, investors, and financial service providers. Furthermore, to be effective, financial health measurement guidelines must be actionable and adaptable for diverse stakeholders. Financial service providers can use them to refine products and services, investors can use the insights to guide their investment strategies, and policymakers can track trends, identify risks, and adjust policies. Standardized measurements could reveal global trends, but they often fail to capture the nuances of local contexts. 

With this in mind, we have identified three principles to help guide financial inclusion stakeholders in developing their measurement approaches for financial health.

1. Move beyond resilience towards a holistic measure of financial health 

Measuring financial health is complex due to its multidimensional nature, technical challenges, and data collection costs. As a result, most surveys focus on one or two dimensions, typically financial resilience and financial confidence. For example, since 2014, the Global Findex has assessed resilience by asking respondents about their ability to access emergency funds, while researchers developed and tested an “access to funds” measure to evaluate challenges in securing money for unexpected needs or opportunities, as a proxy for financial health. 

A broader, multidimensional approach integrates perceptions, behaviors, and concrete outcomes. Kenya’s Financial Health Index, first introduced in FinAccess 2019, revealed a decline in financial health from 2016 to 2021 despite rising access to and use of financial services, emphasizing the need to go beyond access metrics. This promoted collaboration between the Central Bank of Kenya, the Kenyan National Bureau of Statistics, FSD Kenya, and international experts to further interrogate and revise the index, which has resulted in a leaner 2024 index that can be tracked starting from FinAccess 2024. This survey combines questions such as whether individuals managed to make a certain set of expenses in the last month or would be able to cope with a financial emergency in the next 30 days – which are intended to constitute an outcome-based financial health measure – and perception-based questions, like worries about daily needs and confidence in achieving long-term goals.  

Other multidimensional examples include Nigeria’s Access to Finance 2024 index, which assesses saving, planning, spending, resilience, and access to emergency funds, and Rwanda’s FinScope 2024, which measures day-to-day financial management, the uptake of opportunities, shock resilience, and financial control. These efforts underline the importance of capturing financial health holistically and presenting the different dimensions separately to inform interventions. Changes in a single index that amalgamated the different dimensions would be very difficult to interpret in a meaningful way, as the direction of change of the single dimensions would not be evident.  

2. Combine multiple sources of data to measure financial health 

Financial health, with its multidimensional nature and mix of subjective and objective elements, has primarily been measured through demand-side surveys. This approach presents two key challenges: 

  1. Nationally representative demand-side surveys are costly, infrequent, and unfeasible in many countries. 
  2. These surveys capture clients’ self-reported data, providing insights into their knowledge, behaviors, and perceptions of their financial situation, but these can be subject to client recall and interpretation issues.

To address these limitations, stakeholders in the financial inclusion field are exploring ways to combine self-reported survey data with administrative data from sources like financial service providers (FSPs), credit bureaus, payment systems, and central banks. For example, the Central Bank of Brazil is leveraging this approach to assess the risk of over-indebtedness and how such information can inform policy interventions. Similarly, the Financial Health Network integrates survey and transactional data to deliver annual insights on Americans’ financial health. In Australia, researchers matched survey data with clients’ financial records, uncovering positive correlations between financial health measures and factors like income, financial knowledge, and good financial habits. These examples emphasize the utility of using both demand and supply-side data to provide comprehensive financial health information. 

3. Develop contextually relevant financial health measurements 

Research shows that the link between financial services usage and financial health is far from straightforward. Critics challenge the assumptions of a linear progression from access and usage of financial services to improved financial health. Literature shows that socio-demographic, household, and contextual factors – often beyond the financial sector’s control – also play a significant role. 

Understanding financial health requires examining all these contributing factors—both within and beyond the financial sector's control—in specific contexts. This includes assessing how income, financial behaviors, and psychological traits shape financial health, ensuring outcomes and measurements are meaningful and contextually relevant for individuals. This inevitably poses challenges in making cross-country comparisons, as the contextual specificity of financial health measurements and responses may differ, preventing standardized benchmarks. On the other hand, developing nationally appropriate measurements can better inform interventions.

To effectively measure financial health in the future, efforts should focus on the following priorities:

  • Adopt fit-for-purpose approaches, whether a multidimensional index, which allows different dimensions of financial health to be measured and analyzed separately, or targeted single-dimensional measures (e.g., only the ability to cope with negative shocks), based on the scope and intended use.
  • Engage stakeholders through an iterative process to develop and pilot contextually appropriate indicators.
  • Integrate diverse data sources, including demand- and transactional and other supply-side data.
  • Prioritize understanding context, exploring how people perceive and experience financial health while considering the roles of financial sector policies and other influencing factors.

There is a need for clearer financial health measurement guidance, aligned with these three principles, to help country actors—including financial sector authorities and FSPs —regularly measure financial health to inform policies and product offerings. CGAP and key partners, including the Office of the UNSGSA, will be exploring avenues to support the development of such guidance, aiming to promote the development of robust measurement and improved financial health around the world. 

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