20 Aug 2015
Financial capability, as defined by the World Bank and in this report, is the capacity to act in one’s best financial interest, given socioeconomic and environmental conditions. It encompasses knowledge (literacy), attitudes, skills and behavior of consumers with respect to understanding, selecting, and using financial services, and the ability to access financial services that fit their needs (World Bank 2013d).
Financial capability has become a policy priority for policy makers seeking to promote beneficial financial inclusion and to ensure financial stability and functioning financial markets. Today people are required to take increasing responsibility for managing a variety of risks over the life cycle. People who make sound financial decisions and who effectively interact with financial service providers are more likely to achieve their financial goals, hedge again financial and economic risks, improve their household’s welfare, and support economic growth. Boosting financial capability has therefore emerged as a policy objective that complements governments’ financial inclusion and consumer protection agendas. To this end, policy makers are increasingly using surveys as diagnostic tools to identify financial capability areas that need improvement and vulnerable segments of the population which could be targeted with specific interventions.
In response to a request of the Bangko Sentral ng Pilipinas (BSP) and as part of a broader engagement on enhancing financial consumer protection and education in the Philippines, the World Bank has implemented a financial capability survey. Financial inclusion, financial literacy and consumer protection are important priorities for the BSP and the Philippines government. Consumer protection and education are critical elements in building an inclusive financial system and BSP seeks to identify sustainable methods of delivering financial education through effective partnerships. As the BSP’s financial inclusion initiatives are expected to usher in more Filipinos, including the previously marginalized sectors, to access a wide range of financial services from a variety of financial institutions, they need to acquire knowledge and develop skills to enable them to make better financial decisions. The proposed survey constitutes a key diagnostic tool that aims to guide BSP on the models for delivering financial education and to set quantifiable and concrete targets. Moreover, it serves as a baseline against which the effectiveness of future financial capability enhancing programs can be assessed. So far, no financial capability surveys have been conducted in the Philippines and it is one of the very first such experiences in the East Asia and Pacific Region (EAPF).
The key findings and recommendations presented in this report cover three main areas:
1. Financial Inclusion,
2. Financial Capability, and
3. Financial Consumer Protection.
The remaining chapters are structured as follows. Chapter 1 explores the 2 financial inclusion landscape in the Philippines. Chapter 2 gives an overview of Filipinos’ levels of financial capability, in particular about their financial knowledge, attitudes and behaviors. The last chapter investigates if the products which financially included individuals use are effectively meeting their needs.