Financial health is a new term in the arena of financial inclusion. It means being in possession of a daily financial system that can provide resilience in the face of economic shocks so that individuals are better able to reach their economic goals.
Individuals in all social and economic groups strive to improve their financial lives; speding, saving, borrowing and working to grow their assets and protect their resources. Financial health is a model for measuring the resiliance from shock and the capability of an individual to take advantage of opportunity to improve their financial position.
The Accion Center for Financial Inclusion (CFI) has released a new report exploring the validity of financial health as a viable framework to use when addressing the challenges of inclusion on an international scale. Collaborating with the Center for Financial Services Innovation (CFSI) and Dalberg’s Design Impact Group (DIG), the study presents data gleaned from field research, the meeting of throught-leaders and the testing of assumptions to reach beyond the parameters of inclusion and use financial health as a new metric of personal economic stability.
Questions that arose in the research were designed to probe whether a global version of a financial health framework could advance the understanding of consumer behavior and improve the understanding of the impact of finance on well-being among the poor. Rather than focusing on the particulars of financial product utilization, attention was paid to how financial aspirations can shape the lives and behavior of poor people in the day-to-day lives.
Throughout the world financial health has relevance as a means to determine an individual’s stability. In the developing world, however, several indicators are uniquely important to financial health. The report concludes that a consumer in the developing world is financially healthy when he or she:
- Balances income and expenses
- Builds and maintains reserves
- Manages debts and has access to resources
- plans and prioritized
- is able to manage and recover from financial shocks
- uses a range of financial tools
And the same consumers financial health is significantly influenced by:
- Absolute income level
- Income and expense volatility
- social network
- Financial role.
The utility of this new model is evident in helping shape policy, directing resources from donor and government sources, and the design of appropriate and high-quality financial services products. The conclusions of this preliminary research program suggests a parallel between the financial health of individuals across all border in the developed and the developing worlds.