Cash transfer programs, in various forms, have been implemented
globally as a poverty reduction measure. Both conditional and unconditional
cash transfers have been tested and proved to have their own pros and cons.
Mechanisms have also been tried where these transfers are made through women in
the family to ensure that the money is not squandered and is used for the
welfare of the respective household. In 2013, the Indian government implemented
a direct cash transfer scheme whereby money is directly transferred to
beneficiaries’ bank accounts. All government subsidies, pension payments,
scholarships, employment guarantee scheme payments, and other welfare payments
are routed through this channel, called Electronic Benefits Transfers (EBT). In
a typical poor household, the beneficiaries of these EBTs could be a school-going
child for his scholarship, an elderly person for his or her pension, and a head
of the household for subsidies. All three receive bank accounts where they get
their transfers. We studied these three kinds of beneficiaries and the factors
that influence their financial behavior. How they utilize their respective
transfers and bank accounts (i.e. their financial behavior), depends on their financial awareness,
preferences, and experience with financial products.
First, the elderly have very strong beliefs in their experience
and often have a hard time changing their perceptions. It is difficult to make them
believe in technology and they are more likely to use transfers to contribute
to household expense.
Second, heads of household are more likely to adapt to the
financial environment but given that they are burdened with a high dependence
ratio in the family, they don’t experiment with money or invest in risky
ventures. Trust in an available financial service becomes a very important
factor that motivates them to save or make a financial investment with the EBT service.
Their preferences change frequently as they do for any poor household because they
are prone to high uncertainty and risk with employment and steady cash flow. Heads
of household consider the transfers as additional income and try to use it for
consumption smoothening; the bank accounts opened for the purpose of receiving
welfare payments essentially remain dormant.
Third, schoolchildren’s financial behavior is at a completely
different level as they are curious and often have a steep learning curve, have
no obligations towards family, are open to new thoughts, ideas and innovations,
and are fascinated by technology. School children are socially active and are influenced
by people around them, such as friends and teachers at school. They are at a
stage where independence excites them and they look forward to growing up as an
adult.
The project required us to visit some of the kiosks or centres
that provided technology facilitating cashless transactions and banking
services. During our visits and through our discussions with various
stakeholders we observed that the majority of foot traffic at these centres is
from school children. Long queues of school children dressed in uniforms was a
common sight across the thirty centres that were studied. Upon further
investigation, we found that this segment of customers came in to access their
bank accounts in which they receive their scholarships for education, uniforms
and books. To our surprise, these children were sophisticated enough to not
withdraw the entire amount in one go and use it as a channel to save by making
small deposits and withdrawing small sums. This is in complete contrast to the
behavior exhibited by adults. It is more of a fun activity for these children
and they feel ownership of their bank accounts. EBTs and accessibility to a
kiosk like terminal indicates a positive externality of this technology that is
providing a practical exposure to money management at a very early age. Given that
these children go to school where they are educated on numeracy and other money
and currency related aspects, they are more likely to understand the principles
of saving, borrowing, cash handling, investments, etc. using such platforms
that provide real time experience.
It has been globally realized that the major barrier towards
financial inclusion is lack of financial literacy[1].
Though the financial landscape for the poor is being increasingly diversified
and customized, it is too complex for many of them to understand and make use
of the varied financial services. Educating heads of poor households at this
age has proved to be difficult especially on subjects such as insurance and
pensions. Enabling households to weigh their debt and saving options also
becomes difficult in most rural settings. Here experts suggest using innovative
methods of financial literacy and advocate the importance of reaching out to
people with relevant concepts at the time when they need them the most or have
an ability to understand them the most. For instance, when children are 13-17
years of age and go to school, they can be taught about simple money management
tools and techniques. EBT and kiosk banking is making this happen
unintentionally. Additionally, when children visit kiosks to do transactions
they are also exposed to a lot of information about other financial products.
This entire package of EBT, financial education at school, and practical
exposure and financial awareness at kiosks might eventually make these children
more financially independent when they grow up. They are more likely to be
confident about their money related decisions as compared to their parents. These
outcomes, though important, are longer term in nature and difficult to measure
scientifically.
The other outcome of this package that has immediate and larger
implications for financial inclusion is the domino effect to the family’s
financial behavior. This is how a chain reaction happens or is expected to
happen. School-going teenagers are educated on basic numeracy and financial
management aspects. They also receive a bank account where they get scholarship
money. Because they are minors (i.e. under 18 years of age), the account must
be opened with an adult (i.e. one of their parents). Given this opportunity to
handle money at an early age, teenagers are exposed to a lot of information
about other financial services that they can share with their family and
friends. This information trickles down (or up) from child to parent and might make
parents more willing to try new products and services. Parents see their child
operating their bank account and observe and learn from their savings
activities. Women are seen to be using credit or cash in hand for activities
like education, consumption smoothing, saving instruments etc. that are beneficial
to the household as a whole[2].
Therefore, of the two parents, mothers are more likely to be influenced by the process
of information sharing and knowledge transfer and they can then try to educate the
rest of the family.
In all, EBT payments made to children influence and change the
financial behavior of the entire family. This domino effect is crucial to
understand as policymakers and practitioners are making efforts to make people
financially aware so that they can utilize the services available in the best
possible manner. But a nuanced understanding of the approach is still missing.
If this link between the child (a future decision maker) and the parents
(current decision makers) is strong and is proven to work then this could be an
answer to the ‘how’ of financial inclusion. Efforts need to be made at
educational institutions to make the entire process more formalized and
structured. Additionally, the kiosks could also be used as Financial Literacy
and Credit Counseling (FLCC) Centres[3]
with a more specified role. Apart from these immediate steps, a rigorous
research study requires to be done to provide evidence of these effects so that
stronger and more generalizable recommendations can be drawn. We are taking
steps in this regard by disseminating these ideas to the concerned institutions
in India and by furnishing the required proposal for further research.
Read more in Parul Agarwal and Amulya Krishna Champatiray's Final report titled Kiosk Banking: The Challenges to and Implications of Building an Inclusive Financial Infrastructure.
Read more in Parul Agarwal and Amulya Krishna Champatiray's Final report titled Kiosk Banking: The Challenges to and Implications of Building an Inclusive Financial Infrastructure.
[1] Tufano, P, T Flacke and NW
Maynard (2010), ‘Better
financial decision making among low-income and minority groups’, RAND Corporation
Cole, S, T Sampson and B Zia (2009), ‘Valuing
financial literacy training’, World
Bank
Cole, S, and GK Shastry (2009), ‘Smart money: The effect of
education, cognitive ability and financial literacy on financial market
participation’, Harvard Business
School
Umapathy, D, P Agarwal and S Sadhu (2012), ‘Evaluation
of financial literacy training programmes in India: A scoping study’, Centre for Microfinance, IFMR-LEAD
[2] Banerjee et.al (2009), ‘The
miracle of microfinance: evidence from a randomized evaluation’, Centre for Microfinance Working paper series
No. 31
[3] RBI (2012), ‘Financial
Literacy Centre guidelines’
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