Queen Maxima teaser

Queen Máxima of the Netherlands talks to Silvia Pavoni about financial health and the need to research its implications for financial stability.

Is there a connection between people’s financial health — their ability to understand financial products, save and make good financial decisions — and the stability of the whole financial system? This is becoming an urgent question as the economic fallout of Covid-19 has exposed the financial vulnerability of those at the margin, in developing as well as developed countries. 

In the UK, for example, even before the pandemic, research published in 2018 suggested that more than eight million people were over-indebted and between a fifth and a quarter of adults had less than £100 in savings. A more recent survey commissioned for the Financial Times found shortcomings in financial understanding in 2021, too.

As UN secretary general’s special advocate for inclusive finance for development (UNSGSA), Queen Máxima of the Netherlands has led efforts to begin defining what constitutes financial health and offer guidance on the matter. Details are published in two recent reports. In an exclusive interview with Sustainable Views, Queen Máxima discusses the need to involve industry as well as policy-makers in the discussion around financial health, and what needs to come next to ensure finance is both inclusive and sustainable.

The interview has been edited for clarity and brevity.

Are financial firms and policy-makers paying enough attention to financial health?

It is a subject that has not been given enough attention — that is one of the reasons why we decided to bring expertise together to first come up with a set of definitions.

Financial health is probably not the same in Great Britain as it is, for example, in Argentina or in the Netherlands or in South Africa. It is very important to have a common agreement on what financial health is and how we measure it, and therefore best practice and advice for both the private and the public sectors.

We have defined financial health as the ability to afford day-to-day needs, but also to make long-term plans without suffering financial stress. This means being able to buy food, afford a bus ride or healthcare, plan for a child’s education or purchase of a house. It also relates to resilience — the ability to deal with unforeseen events that might affect income, such as a drought or a flood. Financial stress is a subjective point, but a very important one because it has a big impact on people’s productivity, quality of life and mental health.

What would you like to see financiers and policy-makers do next?

I think that there is an assumption that people have savings accounts and make informed financial decisions, but I think that has to be replaced by a notion that financial practitioners have to nudge people in that direction.

We had our first meeting about financial health with financial sector providers and it was amazing to see the interchange of ideas, questions about the best use of client data and what data is missing to tackle the problem. Engaging regulators and central banks will be very important too.

Has the relationship between financial health and financial stability been established?

Intuitively, large numbers of people within a community who are not financially stable add up to systemic instability, but we need to put a lot of effort in the research to establish that link. In the same way that over a decade ago, through the work of the UNSGSA office, we established that financial inclusion improves economic growth. That was established by research; now we have to do the same.

Despite progress, there are still 1.7 billion people struggling to access financial services, according to the latest figures. Will this number change in the future?

Since I started this work as UNSGSA, we have included more than 1.2 billion people in the financial services system, and things have accelerated over the past year. I am very sure that the numbers that are going to come out at the end of this year will be much lower than 1.7 billion. I am positive about this because of two reasons. Digitalisation has helped tremendously in the past years: through their mobile phones, thanks to fintechs, people have had more access to financial services than what was even imaginable few years ago, across developing and developed countries.

There has been progress also because of Covid-19. While conversations were good before the pandemic, and developing at a good tempo — there are now more than 50 countries with national financial inclusion strategies — progress was sometimes slow. The moment the pandemic started, our phones began to ring, with people asking, “How can we get a financial inclusion system in place so that we can send subsidies to women who cannot go to the market anymore, to sell their goods?”

It was incredible, but there is still a lot of work to do: value-chain financing, rural connectivity and the presence of local agents. We need to digitalise micro and small businesses. And there is one big issue in Africa: 63% of women do not have access to financial services — two-thirds of women in Africa do not have the financial tools to make ends meet. 

Is finance doing enough to help us transition to a just economy?

If finance is inclusive, we stand a chance. Financial inclusion plays a big role in seven of the UN Sustainable Development Goals. Finance is a big enabler, but it needs to look more into the underlying needs of the customer. Sometimes it is not just about offering a savings account. A financial service has to be frictionless, very easy to use and very affordable. And it also needs to nudge customers to save, at the right time, when they have some extra funds. This is something that we need to do together with the private sector and the public sector. We need to collaborate.


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