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views or policies of the Asian Development Bank Institute (ADBI), the Asian
Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no
responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.

Building financial resilience

through financial and digital literacy
in South Asia and Sub-Saharan Africa
Dr. Angela Lyons
University of Illinois at Urbana-Champaign
with
Dr. Josephine Kass-Hanna, Saint Joseph University of Beirut

Dr. Fan Liu, Xi’an Jiaotong Liverpool University

Dr. Andrew Greenlee, University of Illinois at Urbana-Champaign

Lianyun Zeng, Renmin University of China

Overview

Motivation and contributions

Data and variables
Methodology
Descriptive findings
Results
Summary and implications
Motivation:
The “new narrative” for financial inclusion
 Globally, financial inclusion has become a powerful framework for
building financial resilience by reducing vulnerabilities and providing
a buffer against adversities.
 According to the World Bank, about 1.7 billion adults still lack access
to formal financial services.
 Policy makers argue that more inclusive financial systems empower
individuals – especially the most vulnerable – to save, borrow,
develop assets, protect against risk and consequently build resilience.
 “Financial resilience and vulnerability are two sides of the same coin.”
 In shocks, access to resources such as well-designed and affordable
financial services is believed to provide the means to build resilience
in the face of economic vulnerabilities.
What does it mean to build financial
resilience?
4 channels using financial inclusion
(via financial services solutions):
1. Making productive investments in the face of risk
2. Participating in risk-mitigating activities
3. Facilitating risk preparedness
4. Responding to shocks/adverse events when they occur
Motivation (continued)
 Financial literacy is widely recognized as an essential instrument to
enhancing financial inclusion.
 Rapid growth in digital financial services (DFS) increases the need for
more progressive financial literacy initiatives that can adapt to the
rapidly changing digital economy.
 For individuals to effectively participate in the digital economy, this
includes the knowledge and skills needed to perform digital financial
transactions and the knowledge and skills required to operate digital
devices.
 We use data from the InterMedia Financial Inclusion Insights (FII)
surveys to investigate the impact of multi-dimensional measures of
financial and digital literacy on resilience-building financial behaviors
in seven South Asian and Sub-Saharan African countries.
Contributions
 We use micro-level data from the 2017 InterMedia Financial Inclusion Insights
(FII) survey for seven South Asian and Sub-Saharan African countries.

 We are among the first to examine the impact of digital literacy on

financial behaviors – in conjunction with financial literacy.

 We construct multi-dimensional indices for financial and digital literacy,

and a composite index for both

 We go beyond traditional focus on savings via banks to examine

the drivers of multiple resilience-building financial behaviors – including
saving, borrowing and risk management behaviors, provided
by formal and informal institutions.

 We draw meaningful implications and policy recommendations for different

regions of the world, and for the most economically vulnerable populations.
Data: 2017 InterMedia Financial
Inclusion Insights (FII) surveys
 Fifth wave conducted by InterMedia.

 Developed in consultation with the Financial Services for the Poor

program at the Bill & Melinda Gates Foundation.

 Objective: Track the adoption and usage of digital financial

services among various target populations in the developing world
(especially the poor, rural & unbanked).

 Nationally-representative random samples of adults aged

15 or older residing in :
 South Asian countries (Bangladesh, India, and Pakistan )
 Sub-Saharan African countries (Kenya, Nigeria, Tanzania,
and Uganda).
FII Data (continued)

 Modules covered in the 2017 questionnaire include:

(1) financial institutions/banks, (2) NBFIs, (3) mobile money
and other DFS, (4) financial and digital capabilities, (5)
financial behaviors, (6) readiness to adopt digital financial
services, (7) psychometrics, and (8) socio-demographics.

 Survey data were collected from 74,364 respondents in 2017

(59,132 for the South Asian countries and 15,232 for the Sub-
Saharan African countries).

 Our sample: N=72,858 individuals, representative of a global

population of over 2 billion adults across the seven countries.
Empirical models

 Probit models estimated for financial behaviors (FBijk) – 4 groups :

 Savings : currently saving, formal savings, informal savings
 Borrowing : currently borrowing, formal borrowing, informal borrowing
 Insurance : has life or health insurance, life insurance, health insurance
 Emergency funds : ability to come up with an emergency fund equal to
one year of income, availability of an emergency fund for unplanned
expenses

 Explanatory variables: Financial literacy (FinLitijk) and Digital literacy (DigLitijk)

Measuring financial literacy

 Financial literacy index – Two-part measure :

1. Objective - Five test-based questions assessing knowledge of:
Interest rates and compound interest
Inflation
risk diversification
numeracy

2. Subjective - Self-reported financial ability

Respondents agree they “have the skills and knowledge to manage their
finances well”

 Scores range from 0 to 6

 Valid & reliable according to factor analysis and Cronbach’s alpha test
Measuring digital literacy

 Digital literacy index – Three-dimensional measure :

1. Mobile technology access
Ownership of mobile phone and smart phone
2. Mobile phone proficiency
7 tasks ranging from sending and receiving calls and messages
to using the internet and conducting financial transactions
3. Mobile money proficiency
6 tasks ranging from navigating mobile money applications
to making and adjusting transactions

 Scores range from 0 to 15

 Valid & reliable according to factor analysis and Cronbach’s alpha test
Other control variables
 Psychometrics
• Financial satisfaction
• Confidence in growing income
• Confidence in financial security

 Demographics
• Poverty
• Rural/urban
• Gender
• Age
• Education
• Family structure
• Employment status
• Income sources
• Negative shocks (illness or death of family member)
Empirical models (continued)
 Probit models are first estimated for all respondents (11 regressions)

 Then estimated separately for the most economically vulnerable, least

likely to be able to build resilience and their counterparts (66 regressions)
 the poor (below $2.50/day) versus non-poor (above $2.50/day)
 rural versus urban households
 women versus men

 Robustness check for potential endogeneity

 Two-stage least squares (2SLS) approach to estimate a series of linear
probability models with an instrumental variable (IV LPM)
 IVs included in the first-stage equation for financial or digital literacy:
• Numeracy (basic skills in addition and division)
• Literacy (ability to read and understand)
Descriptives
Country-level overview
Key descriptive findings
 Macro overview highlights disparities among countries in demand for
and access to financial services; Provides context for examining
relationship between financial and digital literacy and financial
behaviors at the micro level.

 Stark differences in financial behaviors exist across sampled countries,

with interesting trends for South Asia and Sub-Saharan Africa:
• South Asian respondents are more likely to save with a bank, while African
respondents rely more on informal channels to save and borrow.
• South Asian respondents show lower levels of financial and digital literacy
compared to their African counterparts.

 Higher levels of financial and digital literacy are observed

among respondents using financial resilience-building behaviors.

 Next step: Determine if empirical results support descriptive findings.

Results
Summary of key findings

 Significant and positive associations are found

between financial and digital literacy indices and
the savings, borrowing and risk management
behaviors:
• Digital literacy is more influential for savings and
borrowing behaviors.
• Financial literacy is more significant for risk management
behaviors.
Summary of key findings (continued)
 On average, increases in financial and digital
literacy lead to increases in most financial
behaviors, among both vulnerable and non-
vulnerable groups.
• Marginal effects are smaller for the poor (below
$2.50/day), underscoring the persistence of income
barriers to building financial resilience.
• The effects of financial literacy are larger for rural
respondents and the effects of digital literacy are higher
for urban respondents, suggesting better access to digital
infrastructure in urban areas.
• We observe a gender gap, especially in terms of
borrowing and insurance.
Implications
 Need to redefine traditional financial literacy to include
digital literacy.
 Effective national financial inclusion policies require that
goals be matched with financial literacy programs and
targets that encompass digital literacy as a core
component.
 More evidence-based assessments of the goals and
outcomes of national financial and digital literacy
strategies are needed to insure they are targeting at-risk
populations in a meaningful and effective way.
Implications
 Topics should range from basic usage of mobile phone
and internet, to usage of mobile money and other DFS.
 Programs raising awareness of the importance of savings
and insurance and trainings on financial planning, debt
management, consumers’ rights should be given
particular importance.
 Building financial and digital empowers individuals and
pushes them in the direction of adopting the financial
behaviors necessary for building financial resilience.
Limitations
 Definitional issues related to what is meant by “resilience-building
behaviors” and “financial and digital literacy.”
 Unable to control for “unobservables” related to financial and
digital literacy that are hard to measure and not included in the
data.
 Cannot control for variations across countries in institutional,
technological, political, social, and economic factors that can
affect the uptake of certain behaviors.
 Shifts over time can affect financial and digital literacy that, in turn,
impact resilience-building behaviors. This time-variant household
heterogeneity may be correlated with certain financial services,
creating selection and endogeneity issues.
 Lack of longitudinal data and reliance on cross-sectional analysis.
Regardless of these potential limitations….
 Our study is among the first to take comprehensive
approach and provides starting point for other
researchers to build upon.
 Important implications for fields of inclusive finance and
financial literacy.
 The “New Narrative” moving forward will be to:
• Rethink current definitions of financial literacy
• What does it mean to be “digitally financially literate?”
• What does it mean to be “financially resilient?”
 Contact information
Dr. Angela Lyons
Associate Professor
Director, Center for Economic and Financial Education
University of Illinois at Urbana-Champaign
Email: anglyons@illinois.edu
Mobile (WhatsApp): +1 (217) 418-6086
WeChat: anglyons