Her Majesty Queen Máxima: Financial inclusion must lead to good financial health

Over a decade ago, I started to advocate for inclusive finance for development for the UN secretary-general, and in that time financial inclusion has moved from the fringe to the mainstream. More than one quarter of the world’s adult population has gained access to financial services since 2011 — rising from 51% to 76%. And millions of women obtained a financial account to help reduce the gender gap for the first time, according to the latest World Bank Global Findex (2021).

This is a remarkable achievement, which has unlocked new opportunities for millions of people previously left behind — especially underserved groups, such as the poor, women, smallholder farmers and small business owners. Much of this growth has been empowered by digital financial services, which possess the potential to transform people’s lives, helping them thrive and weather the inevitable shock events along the way.

That transformation can take many shapes. For example, last year, while on mission in Tanzania for the UN, I spoke with mothers about how access to an innovative, digital finance model helped them receive healthcare during their pregnancies. In Senegal, I met with rural farmers now protected against weather-related crises due to new insurance products that utilise satellite-based weather data to quickly determine compensation payments. And, in Côte d’Ivoire, I listened to female entrepreneurs discuss their experiences enrolling in digital financial services to generate more income, keep better records for their businesses and personal finances, and build a credit history.

These are just a few examples that illustrate how digital financial services and products can improve lives and contribute to positive development — in this case, helping to ensure healthier mothers and babies, more prepared smallholder farmers and better enabled entrepreneurs.

It is important to remember, however, that financial inclusion on its own is not enough — rather it is a means to an end. It remains critical to be deliberate in targeting positive development outcomes that strengthen the resilience of people and small businesses, and contribute to their improved financial health.

Defining financial health

Financial health was many different things to many different groups. So, two years ago, I convened a financial health working group with various financial and development leaders. Together, we formally defined financial health as the extent a person or family can successfully manage their current financial obligations and have confidence in their financial future. This includes day-to-day finances, resilience (capacity to absorb and recover from financial shocks), being in position to pursue and achieve long-term goals, and feeling secure and in control of finances. We also determined which indicators should be measured.

Unfortunately, poor financial health remains a pervasive problem across both developed and emerging economies. Too many people cannot bend without breaking — often due to insufficient savings to safeguard them in a time of extended unemployment, no access to adequate credit or investments to keep their businesses afloat and solvent in difficult economic periods, and no insurance to protect them against costly medical bills if a family member falls ill or a climate event strikes.

Today, despite growth in account ownership, in high-income economies only 79% of adults said they could raise emergency money with no or only some difficulty in 30 days, while many said it would be very difficult to come up with when only given a week — and just 55% of adults in developing economies could access emergency money within 30 days without much difficulty (Global Findex, 2021).

One reason is that in times of financial stress, people often turn to family members and friends for help. But when everyone is under the same stress, such as during a pandemic or a drought, social networks can be unreliable.

Emphasising how financial inclusion can support financial health will be necessary to achieve true change for the underserved and vulnerable. Moving beyond payments and supporting a broad range of services, particularly savings and insurance, can help us get there.

Top of the policy agenda

It is time to elevate the issue of financial health to a much higher level — to provide clarity on the way forward for different stakeholders, and especially to ensure policy-makers and the private sector start to genuinely place financial health at the top of their agendas.

A more explicit recognition of financial health as a goal can help policy-makers establish a financial inclusion agenda clearly focused on positive outcomes for individuals, households and small businesses. For instance, an explicit recognition of financial health as a goal in national financial inclusion strategies serves as a reminder that the purpose of inclusion is to improve lives.

Additionally, financial health links to other policy objectives, including fiscal and financial stability, consumer protection and financial education, as well as broader policies such as labour, social protection and healthcare. For example, a build-up of financially unhealthy customers can signal significant risks in portfolios. Or financially unhealthy households could be costly for government social programmes. These intersections suggest a need to collaborate across government.

A business case for financial health

There is a strong business case for the private sector to deepen a commitment to and invest in the financial health of their customers and employees.

CEOs should start with their own employees, not least because ensuring their financial health is an investment in a company’s most valuable resource. Financial stress heavily taxes productivity. It hampers cognitive capacity — some studies approximate its impact to losing 13 IQ points. And it impairs decision making, with one-in-three employees reporting that financial issues distract them at work.

There is also a strong correlation between financial health and physical health. Employees with high financial stress are twice as likely to report poor health overall, and over four times as likely to suffer from fatigue, headache, depression, or other ailments. Simply put, financially healthy employees lead better lives, and that can dramatically boost a company’s productivity and profits.

Financially healthy customers, meanwhile, cost less to serve and provide more opportunities to offer other products — making financial health just good business.

Companies that embrace this concept can therefore increase profitability, boost client and employee retention, foster more productive employees and enhance brand perception among external stakeholders, including regulators and policy-makers.

Measurement is key

Without understanding the state of financial health today, the world cannot expect to successfully reach its goals for tomorrow. So, measurement of the population’s financial health is an essential step toward developing policies and programmes that support this area at both the public- and private-sector levels.

Doing so can help businesses learn how their products and services contribute to, or detract from, customers’ financial health. Understanding this information and these insights about customers can also help businesses design products that influence better financial behaviours. One example could be a bank that considers the financial health and needs of their customers to develop a savings goal tracker to encourage people to save more regularly. More of these product innovations could take place to give people the resources they need to invest in improved education, health and nutrition for their families.

In countries where financial health is well-established, measurement has been instrumental in raising awareness and enabling policy-makers, financial service providers and civil society to gain insights. For example, in Kenya, there was a decrease in the level of financial health from 2016 to 2019, despite increases in financial inclusion — so policy-makers are taking a closer look at the consumer protection issues surrounding fast-growing new digital credit products.

Positively, more and more countries are including financial health measurement in their national demand-side surveys. This is important to learn the state of financial health among their populations and, more importantly, to identify policy action. Toward this end, the establishment of better indicators for financial health is also required to establish benchmarks and compare across countries.

Looking ahead

The creation of a global learning platform on financial health is needed. Building a body of financial health knowledge and creating opportunities to share resources can help guide companies to integrate financial health into their businesses, as well as help public- and private-sector leaders make financial health a strategic priority. These resources should be developed with regional, national and sub-national factors considered.

Finally, policy-makers and the private sector should collaborate more frequently. There is an intersection between what regulators have in mind when they approve certain products by the financial sector and what those products need to improve people’s financial lives.

If this is done right, digital innovation holds tremendous promise for financial inclusion and financial health. Together, policy-makers and the private sector can harness their power to create more inclusive, resilient and prosperous societies.

Her Majesty Queen Máxima of the Netherlands is the UN secretary-general’s special advocate for inclusive finance for development.