1. Financial Capabilities in Mexico
Results from the 2012 National Survey on Financial Behaviors, Attitudes and Knowledge
G20-World Bank-OECD Conference on Financial Capabilities and Consumer Protection
Moscow, June 13, 2013
Rekha Reddy
Senior Economist
Finance and Private Sector Development Group, Latin America Region
The World Bank

2. Financial Capabilities Relevance to Mexico’s Financial Inclusion Strategy
The access and usage of a portfolio of financial products and services for the population, under an appropriate regulatory framework that protects the interests of users and promotes its financial capabilities.
Working definition of Financial Inclusion
Quality
Adequacy of financial inclusion
Usage
Better
Opportunities
Access
Higher number of people included in the financial system
Financial Inclusion
Curve
Increase in financial penetration
Appropriateness of
products & services
Consumer empowerment
Enabling environment
Financial
education
Savings, transactions,
credit, insurance, pensions, remittances.
Consumer
protection
Branches (Banks & MFIs)
ATMs
POS (debit & credit card)
Branchless banking
Financial inclusion / financial education measurements
(supply and demand-side data)

3. Key Challenges in Financial Capabilities Policy Implications
Outline
Context of 2012 Mexico Survey
Key Challenges in Financial Capabilities
Policy Implications

4. Measurement instruments “Core Set of Indicators”: AFI
Financial Capabilities Relevance to Mexico’s Financial Inclusion Measurement Efforts
FINANCIAL INCLUSION
Access
Usage
Financial Literacy &Education
Consumer protection
Dimension
Regulatory reports
(Supply-side data)
GIS for Financial Infraestructure
Demand-side surveys (ENIF2012)
Qualitative studies (focused & impact studies)
FE Program evaluations
Financial Capabilities Survey (WB)
Financial Literacy evaluations (OECD)
FL school curricula evaluations (PISA)
Regulatory Reports on complaints (Supply side data)
Impact evaluation of active supervision:
Mystery shopper assessments (CGAP)
Measurement instruments
Access points by each 10,000 adults
Percentage of municipalities with at least a financial access point
Percentage of population that lives in a place w/one access point
Percentage of adults with at least a deposit account in a formal institution
Percentage of adults with at least one credit account or credit card in a formal institution
Indicators
New generation of
“Quality” indicators
to be developed
“Core Set of Indicators”: AFI
Source: CNBV, 2012.

5. The 2012 Financial Capabilities Survey
Survey sponsored by the World Bank Russia Trust Fund for Financial Literacy and Education and the World Bank Latin America Region in conjunction with national counterparts
Mexico Counterparts: CNBV and CONDUSEF
Phases of Survey Development
2010: conceptual framework developed, qualitative research begins, 13 focus groups
2011: qualitative research 48 in-depth interviews, pilot testing of quantitative survey
2012: Nationally representative survey rolled out in June-July to 2,026 respondents, 18 years and older making financial decisions for their household or themselves
Mexico customized core Russia Trust Fund questionnaire (ex: OECD-INFE financial knowledge module, financial education, use of government programs)
The 2012 Financial Capabilities Survey

6. Key Challenges in Financial Capabilities Policy Implications
Outline
Context of 2012 Mexico Survey
Key Challenges in Financial Capabilities
Policy Implications

7. 70% 34% 63% 18% 1. Many Make Plans…. Far Fewer Adhere to Them
of adults reported planning how they used the money they received.
34%
Only 29% of the population reports having money left over after paying for basic expenses such as food and other necessities.
reported always keeping to their plan.
63%
Say they know how much is available at home for daily expenses…
18%
know exactly how much they spent in the last week.
Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012

8. 2. Limited Funds Set Aside for Future Expenses
Major Expenses
Children’s Future
Old Age
45% of survey respondents felt they could cover a major expected expense of one month’s income without borrowing
Just 34% felt they could cover a major unexpected expense
Slightly more than half of the parents surveyed had plans to support their children’s education
Plans to save for children’s inheritance were less common (>20%)
Less than 1/3 of the population under age 60 reports plans to cover old-age expenses
Over age 60, nearly 2/3 report insufficient or no provisions for living costs
Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012

9. 29% 3. Several Indications of Financial Strain, Particularly
Among Low-Income Individuals
Percent Reporting Shortfalls in Money For Necessities
Ability to Cover Major Unexpected Expenses by Income
29%
Report borrowing from family or friends to make ends meet

10. 4. Half of the Mexicans Surveyed Were Never Taught to
Manage Their Money
Teachers of Money Management
Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012
Family members—namely mothers and fathers are the most common source of guidance.

11. Account at a financial institution
5. Many Financial Products Users Seem Optimistic
in their Assessment of their Ability to Choose Products
All Products
Account at a financial institution
Personal Loans
Tandas
Pawn Shops
Look for information from distinct sources
57%
71%
66%
53%
52%
Consider various alternatives before deciding
62%
76%
60%
Look to find the most appropriate product for needs
68%
74%
Verify terms and conditions before contracting
81%
72%
64%
Verify terms and conditions in detail
51%
61% …
Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012 …
60%
Of those borrowing from pawnshops and participating in tandas (informal rotating savings groups) say they verify terms and conditions in detail

12. 6. Relative Weaknesses in Financial Knowledge Also Suggest Challenges to Choosing Financial Products
Source: World Bank analysis of Mexico Survey on Financial Capabilities, Non-Mexico data are from Atkinson, A. and F. Messy (2012), “Measuring Financial Literacy: Results of the OECD / International Network on Financial Education (INFE) Pilot Study.
Mexico’s level of correct responses to questions related to numeracy, the time value of money and the interest paid on a loan were in line with other countries surveyed.
Mexicans have weaker performance relating to interest rate calculations and the concept of risk and portfolio diversification.

13. 7. Cross-Country Data Suggest Relatively Short-Term Planning Horizon for Mexicans
Source: Kempson, Perotti and Scott, 2013 13

14. Over half the population falls into two clusters: unsophisticated money managers and short term money managers.
8. Distinct Challenges for Profiles in Financial Capabilities
25%
22%
Careful money
managers and
planners
Unsophisticated money managers 9%
Affluent but
disorganized
33%
12%
Short-term money managers
Young impulsive
spenders
Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012.

15. 9. Diversity in Regional Weaknesses in Financial Capabilities
Over half the population falls into two clusters: unsophisticated money managers and short term money managers.
9. Diversity in Regional Weaknesses in Financial
Capabilities
Source: World Bank analysis of Mexico Survey on Financial Capabilities, 2012.

16. 10. Not Enough to Provide Financial Inclusion Channels, Also Need Enhanced Financial Capabilities
Financial knowledge and financial capability are positively associated with use of formal financial products such as bank accounts and credit cards.
Financial knowledge and financial capability negatively associated with use of informal financial products like pawn shop loans and informal loans from family.
No statistically significant relationship
between number of commercial branches in a municipality and number of individuals with formal products, suggesting that increased bank branch access is not enough
Banking correspondents increase access to formal financial products primarily for individuals with high financial capability or high financial knowledge
World Bank Analysis of National Survey on Financial Capabilities, Mexico 2012 and
Consejo Nacional de Inclusión Financiera 2012 financial infrastructure data

17. Key Challenges in Financial Capabilities Policy Implications
Outline
Context of 2012 Mexico Survey
Key Challenges in Financial Capabilities
Policy Implications

18. Policy Implications
National Survey of Financial Behaviors, Mexico 2012
Diverse challenges show that increasing financial capability
requires multi-stakeholder efforts.
Increased activity of Mexican coordination mechanisms for public authorities, such as working groups on Financial Education and Financial Inclusion (CONAIF), established in 2011, will help to address financial capabilities challenges and support effective implementation of programs.
Coordination with private sector stakeholder activities is also crucial.
Enhanced financial infrastructure is needed to expand financial inclusion—although it is not the only factor.
Allow deposit-taking “cajas de ahorros” to sign up banking correspondents on the same terms as banks.
Scale up promising programs that support rural adoption of mobile payments.
More specific rules to promote the marketing of basic bank accounts to the financially excluded could be issued.

19. Policy Implications
National Survey of Financial Behaviors, Mexico 2012
Technology that increases access to personal finance information can help improve planning behaviors and enhance decision-making.
Mobile phone and Internet based personal finance tools can help users better administer their spending, savings and investments.
The use of text messages and social media can be used to send simple sustained messages related to personal finance, such as managing account balances, loan payment, and savings to promote desired behaviors.
Improved product design elements incorporated into financial products can help people save.
Encouraging financial institutions to create labeled savings accounts for specific goals, commitment accounts and future dated mobile payments are simple ways to make savings gains feel tangible and curb tendencies to overspend and view only the short-term
Modify policy to encourage recipients of social benefits to save rather than withdrawing their transfer (Oportunidades)
Remittance linked products aligned with the needs of migrant workers and their families offer the opportunity to move transfers directly into saving products.

20. Policy Implications
National Survey of Financial Behaviors, Mexico 2012
Ensure financial education interventions are well-timed and
well-targeted.
Carefully designed school based programs coupled with programs incorporating learning modules that involve the household could be implemented to support the critical role of the family in providing financial education.
Design interventions for a population that is not accustomed to learning in a classroom setting, such as entertainment education (telenovelas, radio) to disseminate key messages in financial capabilities to the general population.
Support customer protection interventions that help mitigate effects of limited financial knowledge.
Could require the current Total Annual Costs (APR) that is in percentage form to be modified to Total Amount You Pay in peso value.
Require regulated financial institutions to incorporate good practices for disclosure and pricing regimes
Adapt regulations to reflect new channels such as mobile banking or new types of correspondents.

21. Project Team Institutions and Contact Information CONDUSEF: Marco Carrera Santa Cruz, CNBV: Luis Garza Trevino, World Bank, Rekha Reddy, THANK YOU!