Financial health

As efforts to expand financial access and inclusion have met with substantial success in developing countries, it has become increasingly important to understand the impact of using new financial products and services on people’s financial health and well-being. To provide better measurement of the outcomes of financial inclusion, in 2017 FII adopted the global framework for measuring financial health developed by the Center for Financial Inclusion at Accion. FII's implementation of the framework uses a set of survey questions on financial planning and prioritization, balancing income and expenses, building and maintaining reserves, securing the future, and practical financial management.

Measuring financial health

The financial health survey includes eight questions designed to capture different dimensions of health:

  • I have enough money to pay for my living expenses (FL6.1)
  • I spend less money than I make each month (FL6.2)
  • I pay my bills on time and in full (FL6.3)
  • I have an emergency fund that is large enough to cover unplanned expenses (FL6.4)
  • I am confident that my income will grow in the future (FL6.5)
  • I earn enough money to pay back debt and also pay for my living expenses (FL6.6)
  • Friends and family rely on me to help with their finances (FL6.7)
  • I have the skills and knowledge to manage my finances well (FL6.9)

Respondents are asked to rate how much they agree or disagree with these statements, and their responses are mapped to a scale that ranges from 1 (low financial health) to 5 (high financial health).

Financial health: Relationships and prevalence

Financial health: Modeled effects

Modeling financial health

The previous plots illustrate the relationship between single factors, such as education and financial health. These plots are useful tools to highlight trends in the data, but should be interpreted carefully.

For example, the more educated respondents are the more financially healthy they are. More educated respondents also tend to have higher incomes, smaller household sizes, and greater savings with formal institutions. What are the impacts of education alone, as opposed to higher income or savings?

Mathematical models such as linear regression can weigh the impact of all factors at once, adjusting for confounding variables. Such techniques can result in a better understanding of which factors are important to financial health.

We consider the effect of a wide range of variables in addition to those already discussed. These include variables related to savings, internet and mobile phone proficiency, marriage status, the occurrence and strength of shocks (e.g., family illness, death, or natural disaster), and others. Note that income is included in the model separately (through the PPI score), so that the effects of each factor are shown when holding all else equal, including income level.