Impact evaluations in the financial inclusion sector often attempt to measure the financial health of their participants. However, there is little consensus about what financial health consists of and how it should be measured, making it difficult to compare findings about financial health across studies. IPA is developing a standardized set of metrics for measuring financial health that can be used in a variety of contexts. Following initial development, researchers will pilot a questionnaire with these metrics, and then refine a final set of metrics based on the results. The resulting questionnaire will be disseminated broadly for use by practitioners, policymakers, and researchers working to measure financial health across the world.

The Challenge

More people than ever before have access to the formal financial sector, and their numbers are increasing rapidly: 1.2 billion adults opened a bank account between 2011 and 2017 according to the latest Global Findex report. However, simply measuring access to formal financial services tells us little about the impact of financial access on their households. Researchers studying the effects of formal financial services have used a variety of concepts to assess household economic stability, but without a standardized framework for what should be measured and how, it remains difficult to compare outcomes and conclusions from one study to the next. Even seemingly straightforward indicators, like income, are complex to measure in the field—and methodologies to measure them vary from study to study. As a result, there is a need to develop a method of measuring these outcomes in a simple, cost-effective, accurate, and standardized way that would allow for comparison across settings.
 

Context

Starting in 2016, the Bill & Melinda Gates Foundation and the Center for Financial Services Innovation collaborated with project leads from the Center for Financial Inclusion, and Dalberg’s Design Impact Group to validate a conceptual framework for understanding financial health in the developing world. According to this framework, an individual is financially healthy if they do the following:
  1. Balance income and expenses
  2. Build and maintain reserves
  3. Manage existing debts and have access to potential resources
  4. Plan and prioritize
  5. Manage and recover from financial shocks
  6. Use an effective range of financial tools
While this framework has been widely used by researchers and practitioners, there is still a lack of sector-wide consensus on how these indicators can be effectively and consistently measured in practice.
 
As a second phase of this project, IPA will work with these institutions and other advisors to develop and field test a quantitative index which will reflect these metrics. By leveraging its Financial Inclusion Program and a range of ongoing fieldwork, this project will identify a minimum set of indicators which are able to accurately and efficiently measure each financial health concept. This project builds upon previous work by creating a proven set of quantitative metrics which allow users to measure financial health in a simple, consistent, and comparable way.
 

Activities

In order to create a standardized framework for measuring financial health, researchers will undertake a three-step process.
 
First, academics will develop an initial set of quantitative metrics with the input of an Advisory Committee, made of up research and policy experts with experience studying financial wellbeing and financial inclusion. This questionnaire will also include questions to measure subjective well-being poverty using multiple scales.
 
Second, IPA will pilot these metrics as part of several ongoing IPA studies in the field. IPA will test iterations of its questionnaire in at least three IPA projects in one of its Sub-Saharan Africa program countries, the Philippines, Bangladesh, or Myanmar. The pilots will involve information collected from approximately 9,000 households.
 
Finally, the Advisory Committee will reconvene and validate a final set of metrics for the measurement of financial health based on lessons learned from the pilot.
 

Global Financial Health Indicators Advisory Committee

IPA thanks the following experts for serving on our project Advisory Committee:
 
Genevieve Melford, Aspen Institute Financial Security Program
Dave Kim, Bill & Melinda Gates Foundation
Jeremy Gray, Cenfri
Elisabeth Rhyne, Center for Financial Inclusion
Sarah Parker, Center for Financial Services Innovation
Hector Ortiz, Consumer Financial Protection Bureau (U.S.)
Paul Gubbins, Financial Sector Deepening - FSD Kenya
Samuel Schueth, Intermedia
Rebecca Rouse, Innovations for Poverty Action
Imran Matin, Innovations for Poverty Action
Dean Karlan, Northwestern University
Lasse Brune, Northwestern University
Julie Peachey, Poverty Probability Index (PPI)
Leora Klapper, World Bank