Economic experts have recognized financial education as the key to financial inclusion and freedom. Financial freedom and security will boost consumer spending, accelerating industrial production and creating jobs. The requirement for financial education has become the core component of multiple countries’ economic policies and shall continue to be to bring the equitable distribution of wealth and income.
It has been proven time after time that equal distribution of wealth and income brings about economic participation, reduces corruption, and enables democratic prevalence in society.
Among the OECD nations, economic education has been a priority for a long time. Many of the world’s developed nations have developed strategies to bring about financial education among their citizens.
Presently, there are 59 nations implementing frameworks for financial education and financial inclusion in more ways than one. Financial education enables financial literacy, which allows individuals to build generational wealth and assets. This action promotes consumer confidence and stabilizes the investment market. At the G20 summit, the member countries recognized the importance of financial literacy by recognizing the principle adopted in 2012 by the OECD International Network for Financial Education (OECD/INFE) for implementing the framework and infrastructure to expand banking services and digital banking services.
What Are Financial Capabilities?
Today’s youth face a world of increasingly becoming financially complex and insecure. Financial capabilities are the capacity of a single individual or multiple groups of people to manage, save and spend money. This skill is indispensable to survive in a world becoming financially complex by the day. Financial capabilities are also considered to measure how financially resilient you are during desperate and challenging times.
Financial capabilities also signify how secure a person feels about his or her finances and income to start spending and investing. However, many economists also believe that financial capabilities are something you can quantify by stating some pre-defined notions and parameters. On the contrary, some believe that financial capability is an attitude.
Behaviors of Financial Capabilities
Here are a few tips to become more financially capable:
- Keeping track of day-to-day spending.
- Planning for the future.
- Preparing for unexpected emergencies.
- Using credit wisely so that it can become manageable.
Financial Literacy in Latin America
Financial education has become a massive focal point for many lawmakers and policymakers in both the developing as well as the developed world. Governments worldwide have acknowledged that financial education is paramount for economic growth and social justice within a country’s economic and financial stability.
Financial education is understanding how financial consumers or investors should handle financial services and products, market conceptualization, asset creation, risk management, and the financial mechanism to make informed choices to increase income and improve living standards and economic welfare. Low levels of financial literacy among the working class lead to income inequality and financial vulnerability.
Financial illiteracy also reduces the financial capabilities of a working-class person, making it difficult to weather financial stress, particularly during a recession and economic depression. The entire world, on average, is ignorant regarding financial education and product innovation at the base of the pyramid, surprisingly including developed countries as well. What is not surprising is the rate of financial literacy is even lower in the developing world, where banking penetration is already low.
Recent surveys reveal that over 50% of the population of respective countries does not understand the concept of inflation. Others need an understanding of basic economic terminologies, banking services, and investment terminologies. Almost no one has a basic understanding of the operations and mechanisms of the stock market. Then there’s also a lack of understanding of wealth or asset building, asset creation, and management. All in all, there is no established foundation of financial knowledge at all. Latin American countries started promoting financial literacy in the late nineteen nineties.
Among all the institutions promoting and advocating for financial literacy, the central bank has been the most vocal about the importance of financial education, even before the financial crisis of 2008 hit.
Now, the Deutsche Bank and the Bank of England have also started to promote financial literacy as a part of their public communication programs. But the scope of these educational programs is rudimentary at best and insufficient at worst. After the 2008’s financial crisis, the scope of financial literacy expands to form an in-depth curriculum for ordinary people to gain financial knowledge.
According to a new survey, 94% of responders said Central Bank is leading the financial education among ordinary people. The main objective is to develop sound financial knowledge to gain essential financial inclusion and economic stability.
Financial Literacy of Mexico
The financial literacy programs for Mexico began as a method for migrants to gain access to financial inclusion. As part of the Inter-American Dialogues’ commitment to facilitating financial access and remittance for migrants and refugees and their development and uplifting living standards, the committee members have realized the importance of financial education for financial inclusion.
Over the past 15 years, Mexico has improved its financial inclusion through its infrastructure, progressive policies, and expansion of banking services. The Mexican Government has enacted multiple policies to regulate banking institutions, including investment banks, retail banks, deposit banks, and other niche banks. New laws and policies to target expanding electronic payments and banking.
They have also made it easier for people to open low-value bank accounts, strengthen consumer protection policies, create new ones, and, most importantly, data protection and encryption. Mexico was a leader and pioneer in financial inclusion in the international community. Mexico is officially a member of the Global Alliance for Financial Inclusion and Global Partnership for Financial Inclusion.
In 2009, Mexico adopted financial inclusion as a part of its economic policy. The agenda was adopted and put forth by the Ministry of Finance and the National Banking and Security Commission. After two years, the president declared a proclamation establishing the National Council for Financial Inclusion. The establishment was pioneering as the world’s first governmental body to establish financial equity and equality among its citizens.
Ever since the council has been implementing the government’s financial policies on the people. Transforming the payment system was one such reform.
Transitioning people to government and vice-versa to electronic and digital means has been central and the cornerstone achievement of the National Council for Financial Inclusion. Mexico’s state bank BANSEFI and other private banks have made fund transfers between people more accessible. Telecommunication reforms enabled consumers to use digital mediums without paying fees or penalties.
This enabled the financial market to be more competitive with the rest of the world. Mexico has significantly expanded its financial services, primarily focusing on urban and semi-urban areas. The rural areas have not benefited from these policies as much as they should. Financial policies have also targeted credit usage, considering it a part of economic growth. Private sector and public sector banks have welcomed this move.
According to the data collected by the World Bank, only 35% of people above the age of 15 years have held a bank account in any financial institution. Moreover, why people aren’t saving money in Mexico and other still-developing countries, accounting for reasons like poor financial inclusion and fiscal regulations? The rate is even lower for the economically marginalized.
For instance, only 39% of the poorest have bank accounts, with only 40% having formal savings accounts in any bank, though the numbers are higher and expected to grow over the years. Savings and credit growth remain low, though data analysts and economists are cautiously optimistic that the numbers are going to improve if the following conditions are met:
- Lack of agents and connectivity. There’s also a significant lack of physical online branches and digital infrastructure.
- Limited financial knowledge of the already economically marginalized. Better investment needs a better understanding of the financial market.
- Good market strategies are dedicated to people experiencing poverty.
- Proper incentives for the agents and banking officials.
- Sufficient trust in traditional banking institutions allows the country to move on to more innovative banking measures.
Financial Education and Effort Building for Mexico
Financial education efforts have been rising alongside financial inclusion efforts by Mexico. The initiatives for financial education went up from 13 initiatives in 2007 to 53 in 2009. After that, the numbers increased gradually. Most educational experience doesn’t come from the real-life experience of rudimentary ideas of financial ideas and tools.
Financial education can only blossom with robust policy and framework to promote financial literacy among the economically marginalized or financially excluded. The curriculum will teach financial management, asset creation, access channels, and formal financial services. In 2011, the economic ministry established the Financial Education Committee to manage public sector officials to coordinate every institution responsible for imparting financial education.
National Council for Financial Education defines it as the aggregate of knowledge regarding the financial markets that enable ordinary laypeople to operate, manage and build wealth over time to make informed choices for their financial welfare. This curriculum also enables people to participate in the economy and gain benefits with financial inclusions. When we talk about operating and managing, we talk about financial capability.
So, what is financial capability? Financial capabilities are the capacity of a single individual or multiple groups of people to manage, save and spend money. This skill is indispensable to survive in a world becoming financially complex by the day.
Financial capabilities are also considered to measure how financially resilient you are during desperate and challenging times. Today’s youth face a world of increasingly becoming financially complex and insecure. Financial capabilities also signify how secure a person feels about his or her’s finances and income to start spending and investing.
The financial inclusion definition also includes the strength of your income and stability. Despite low demand among commoners for such programs, the national council for financial education outreach has been encouraging, and more people are participating daily and increasing.
Key Players in Mexico That Work to Advance Financial Capability
Bank and MFI
Mexico has been the bastion of financial inclusion and boasts of the stablest banking system not only among Latin American countries but also among all developing countries. CONDUSEF, Mexico’s consumer protection agency, is leading the charge to promote financial education in the nation. They have effectively used direct media marketing tools to reach their target audience, especially the financially marginalized.
The education platform has tutorials, courses, games, tips, fliers, courses, videos, guides, and other simulations to help gain the required education. CONDUSEF has organized numerous forums to gather donations and publicity. NGOs, banks, MFI, cooperatives, and other banking and financial institutions were invited. They encouraged financial institutions to offer a comprehensive formal financial education on non-formal marketing subjects.
Financial Services Providers
Mexico incentivizes banks, investment corporations, microfinance institutions, and other financial service providers to promote financial education and literacy. The private financial sector conducts forums, workshops, and other events to attract interested audiences to educate themselves. In 2009, Mexico adopted financial inclusion as a part of its economic policy. The agenda was adopted and put forth by the Ministry of Finance and the National Banking and Security Commission.
The president declared a proclamation establishing the National Council for Financial Inclusion. The establishment was pioneering as the world’s first governmental body to establish financial equity and equality among its citizens. Ever since the council has been implementing the government’s financial policies on the people. Transforming the payment system was one such reform.
Transitioning people to government and vice-versa to electronic and digital means has been central and the cornerstone achievement of the National Council for Financial Inclusion. These institutions usually keep track of such events and keep tabs on the audiences that attend the events. These records are used as data to be analyzed.
State Bank: BANSEFI
Mexico’s state bank BANSEFI and other private banks have made fund transfers between people more accessible. Telecommunication reforms enabled consumers to use digital mediums without paying fees or penalties. This enabled the financial market to be more competitive with the rest of the world. Mexico has significantly expanded its financial services, primarily focusing on urban and semi-urban areas.
The rural areas have not benefited from these policies as much as they should. Financial policies have also targeted credit usage, considering it a part of economic growth. Private sector and public sector banks have welcomed this move. BANSEFI is a government-run bank funded by taxpayer money.
Technically, they are mandated and liable to promote financial education to increase financial capability. Its prime motto is “Finance For All.” The training curriculum includes online and offline training sessions for savings, investments, bank interests, credit cards, loans, and other financial topics that laypeople need to learn before they head out to handle their financial needs.
So far, the curriculum has received an encouraging number of enrollments over the last couple of years, and the number is expected to grow. BANSEFI enables Prospera recipients to be financially prudent and invest wisely in low-risk investments and better return on investment. Prospera is a social program by the Mexican government to dole out farmers’ benefits and social security and an agricultural investment program. BANSEFI curriculum teaches and educates farmers on better agricultural investment and budgeting with the help of ad hoc tools.
In another curriculum under “Prosper more with BANSEFI,” volunteers of 60-100 people explain the technical knowhows of credit cards, interest rates, investment plans, money withdrawals from ATMs, and debit card usage with POS. While fundamental financial education is essential, it is also necessary to identify behavioral flaws in the spending habits of working-class people so that they can save more and build assets.
With that in mind, BANSEFI is incorporating behavioral education to improve spending habits. Fundación Capital has recently collaborated with Prospera to improve the usage of a particular financial product and also to improve upon its design and structure.
Fundación Capital also collaborated with The College of Mexico (El Colegio de México) to change the financial capability definition. This collaboration aims to improve behavioral patterns by implementing behavioral science in their curriculum. The success of these initiatives would benefit the low-income earners of Mexico.
Private Banks: BBVA BANCOMER, BANAMEX & BANCO AZTECA
Three of the largest banks in Mexico have collaborated to provide financial growth in the country. BBVA Bancomer is the largest bank and financial institution in Mexico, which controls 20% of the financial market share of the country. The company was founded with the name Bancomer but was later acquired by a Spanish investment firm BBVA. Since then, from 2000 to 2019, the bank has rebranded itself as BBVA Bancomer.
Bancomer was founded in 1932 in Mexico City by a group of investors managing the company on behalf of some private equity or investment firms. Some notable company owners included Salvador Ugarte, Liberto Senderos, and Raul Bailleres. Ugarte held two-thirds of the stock ownership and the majority stakeholder of the bank’s control.
Bancomer, throughout its existence, went through multiple changes of ownership, beginning with the bank nationalization of 1982 when President José López Portillo nationalized the entire banking system of the country, to return to the privatization of the banking system again in 1991, during the presidency of Carlos Salinas de Gortari.
During that time, a private equity firm owned by Eugenio Garza Laguara gained ownership of the bank. On July 2000, A Spanish Investment firm, the largest of its kind in the world, Banco Bilbao Vizcaya Argentaria, abbreviated as BBVA, acquired the company with a majority stake. The deal was finalized with the assistance of a Canadian financial group. In 2004, the Spanish investment firm bought all the bank shares to gain complete control. The acquisition was considered a pseudo-merger. Hence the name was included in the branding.
Founded in 1884, Banamex Bank is the second-largest bank In Mexico which operates as an extension of the American banking Conglomerate Citi Group after its acquisition. After multiple tumultuous periods of world war I, Banamex introduced numerous innovations concerning banking and finance. The bank invested heavily in creating an ecosystem of ATMs and debit card infrastructure. During the late nineteen seventies, Banamex went through a series of mergers and acquired a lot of small-scale banks.
During the nationalization era of 1982, the bank acts as the government’s credit facility for the masses to get credit with low interest. During the1990s, the bank was re-privatized and aggressively expanded to include over 700 branches and over four million customers. However, this caused a significant liquidity crisis and led to a deficit in the balance sheet. The bank’s assets worth 26 billion dollars had to be liquidated to compensate for the crisis. The bank and its subsidiaries were later absorbed into the American Citi Group in 2000.
MFI and Credit Unions
Microfinance institutions are umbrella terms used for financial associations that provide loans to the lower end of socioeconomic strata and assist the economically marginalized and financially excluded, for instance, by designing financial services for China’s marginalized. The fundamental objective of these institutions is to increase the individual’s financial capability to promote financial health. There have been multiple suggestions for increasing poverty outreach and increasing financial inclusion.
The main beneficiaries of these practical economic solutions were the Latin American countries. Latin American countries have become the hotspot for microfinancing. Latin America has experienced massive economic growth over the past two decades. Some countries continued that high growth streak after the 2008 financial crash.
So naturally, microfinance would be the next step toward reducing poverty and ushering in economic equality among its citizens. Microfinance in these areas began as microcredit facilities that doled out minimal loans to consumers or small-sized businesses without income stability, who could not afford the collateral deposit, or who had no credit history.
A Bangladeshi social entrepreneur first developed this lending model when he opened the Grameen Bank in this country to loan out money in small amounts with almost no interest. Microfinance institutions are also beneficial in promoting and spreading financial education in the case of social investment in microcredit reviews.
On the other hand, a credit union is a non-profit financial organization owned by union members that dole out loans with low-interest and flexible conditions. Credit unions don’t usually require a credit history or a security deposit to get loan approval. However, you must be a union member to get the loan.
Globally, the membership of credit unions has significantly risen to 270 million people, with over 40 million added in 2016. Credit unions’ importance emerged during the financial crisis when the banks and mortgage companies started failing. During the crisis, sub-prime mortgages were 2 and a half times likely to fail, making credit union loans more popular. In the crisis, credit union loans doubled from 30 to 60 billion dollars.
Multiple credit unions and microfinance institutions conduct forums to promote specific topics related to financing, such as loans, credit cards, and interest rates. It sometimes becomes categorically related to real-life issues like why people aren’t saving money in Mexico. Organizations like the World Council of Credit Unions (WOCCU) and the Germans Saving Banks Foundation are all complicit in undertaking massive events worldwide to shed light on financial literacy.
Digital payment platforms or cash advance apps have helped promote financial education for the economically marginalized, increasing the impact of digital field applications. Kubo. Financiero is a peer-to-peer multi-product financial platform that offers financial services like savings, investments, fund transfers, and personal loans. The platform was created to fulfill the market gap for people to transfer money from one place to another digitally.
The unique feature of Kubo is that it puts its customer through a test lens, makes them diagnose their finances, and offers advice and suggestions accordingly. All the data that Kubo uses are derived from credit bureaus, enabling customers to visualize their debt load and suggest steps to consolidate their debts. Zave app is another cash advance app that provides advice on savings.
Zave app provides and sets saving goals for consumers to reduce impulsive spending. Zave mainly focuses on short-term savings and rewards systems for the amount of money it saves.
Frequently Asked Question (FAQs)
Q1. What is the role of financial education in achieving financial well-being?
Financial education helps people to make informed decisions about their savings, investment, loans, credit card spending, and so on. Financial freedom enables financial freedom and boosts economic growth. Financial education helps in boosting consumer confidence and stabilizes the investment market.
Q2. What is the financial structure in Mexico?
Mexico has the most robust and extensive banking systems among Latin American countries. The country has a few of the largest banks among Latin American countries, from private banks to credit unions.
Q3. How do you create financial education?
Multiple policy changes and the establishment of government agencies bring financial education to conduct forums and events to attract the common masses. This enables education and communication.
The World Bank and a few other local research centers surveyed the Mexicans regarding their financial knowledge, financial health, investment ideas, and other aspects of financial literacy. The study found that Mexico needs even more robust banking systems, complete innovations, and an overhaul of the banking structure. However, comprehensive reports have been encouraging, and the penetration of the banking system has been efficient in uplifting people from poverty. Investment in digital infrastructure has been encouraging, and startups like Kubo and Zave have helped spread financial awareness and increase financial capacity.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.
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