Financial know-how without access to banks and basic financial products is of limited value, and a new study out of Makerere University in Kampala, Uganda suggests individuals are most likely to enjoy both when a role model or trusted source shows them the way. This jibes with studies in Brazil and elsewhere showing the critical nature of parents’ involvement with their kids’ financial education.
Drawing from a survey of 200 poor Ugandan households, researchers found that when people have high levels of financial literacy and financial access they often also report high levels of trust, honesty, information sharing, and charity in their household and community. Such social capital helps individuals bond, and these bonds clear the path from financial literacy to financial access, the authors found.
The researchers—George Okello Candiya Bongomin, Joseph Mpeera Ntayi, John C. Munene and Isaac Nkote Nabeta—explain why this might be the case, pointing out that people learn from one another through observation, imitation and “modeling in social interaction.” Having knowledge is powerful. Having people you trust around you to re-inforce behavior and share new knowledge is even more so.
One take-away for policymakers and educators, the researchers write, is that attempts to promote financial literacy and access may be most effective when they take place in a real-world environment. That could mean at a school, company, church, college or community center. Financial literacy programs should integrate friends, family members and colleagues because those connections may later prove vital in turning knowledge into action. In fact, absent social capital, attempts to boost financial access through knowledge alone may fall totally flat.
The study also suggests that where social capital is evident financial access is strongest. Financial access is a two-way street, and though the researchers don’t speculate, it’s not unreasonable to think that social capital may also help consumers better articulate their needs and preferences to the firms providing financial products.
The researchers are careful to say that their findings may not apply in all situations. Poor Ugandan villages represent a particular sort of financial environment, with only 20% of Ugandans overall using formal financial services. Social capital may have an especially important role to play when other sorts of knowledge and support are lacking. Still, taken with other study’s, this builds the case for financial education in a family or social setting.