Life Changing Chats
Good Shepherd Microfinance has long held the view that the financial conversation, undertaken between a microfinance worker and a loan applicant as part of a microfinance loan interview, assists in increasing the financial literacy and capability of applicants.
To test the hypothesis, GSM conducted this research with its StepUP loan applicants to identify if the financial conversation did indeed have an impact, and if so, to what extent did it contribute to building their financial literacy and capability? If the applicant did not receive a loan, did the financial conversation have an impact?
An initiative of Good Shepherd Microfinance in partnership with National Australia Bank, StepUP provides low interest loans to people on low incomes through community providers across many parts of Australia.
To quantitatively measure financial literacy and capability the researchers adopted three indicators: skills, knowledge, and behaviour, and used a number of associated actions previously validated in an earlier pilot study. The researchers were in touch with clients across Australia three times: pre-financial conversation, post-financial conversation and at a three-month follow-up. By comparing questions across the three time intervals they could identify any changes.
The increased financial knowledge and skill borne out in the results indicates that a supportive financial conversation in a trusted environment improves financial literacy for those previously financially excluded.
The findings indicate the financial conversation had a positive impact on financial literacy, capability and confidence. The impact was often greater for clients who received a loan, but was still evident in those who didn’t.
Microfinance applicants are often intimidated by traditional financial institutions and struggling to cope with low incomes. The support and information provided by microfinance workers contributes to improved confidence, financial skills and a sense of inclusion for the applicants; key elements for boosting financial capability.
The research reinforces the fundamental importance of raising financial awareness through financial conversations. The financial conversation is an appropriate and effective platform for communicating financial literacy information and consequently making effective progress towards boosting the financial capability of the most financially excluded.