With funding from Citi Foundation, Yale economist Dean Karlan and the New Haven-based Innovations for Poverty Action (IPA), of which he is president and founder, will conduct rigorous research on strategies to improve the financial capability of low- and moderate-income individuals across the world.
The new $3.4 million program, known as the Citi IPA Financial Capability Research Fund, builds on a previous grant from the Bill and Melinda Gates Foundation to Karlan to study innovations in savings products and payment channels for poor households worldwide. The Financial Capability Research Fund will extend that work by incubating, developing, and rigorously evaluating a range of new products and product-linked innovations— from regular savings accounts and investment services to annuities and mortgages — that can help households and an emerging class of entrepreneurs manage their finances effectively.
“This fund represents an important contribution to the development of rigorous research on financial capability. We look forward to seeing innovations in product design and evaluations of cost-effective interventions that will change behavior and improve the way clients manage their money,” commented Karlan.
“The Citi Foundation has long supported financial capability programs around the world because we know that positive financial behaviors are a key factor in achieving economic stability,” said Pam Flaherty, president and CEO of the Citi Foundation. “We are pleased to partner with IPA to launch this fund that will identify innovative approaches to building consumer financial capabilities and, most importantly, measure their impact.”
The fund is soliciting practitioners and researchers worldwide to submit ideas for improving consumer behavior that can be evaluated using rigorous research methodologies applied by Karlan and other researchers. Those wishing to apply can find more details online. The deadline for the fund’s first Call for Expressions of Interest is Oct. 19, 2012.
While access to financial services is improving globally, thanks to technological innovations and the expansion of microfinance services, the ability to make informed decisions about the use and management of one’s money has not kept pace with these advances, notes Karlan.
This financial capability gap threatens the progress of financial inclusion for low- and moderate-income individuals across the world, he says. Limited financial literacy can hinder people from choosing suitable products that meet their specific needs, and more advanced research is needed to assess which products and interventions work most effectively to improve the decision-making skills of existing and new participants in the formal financial sector, he adds.
Under Karlan’s academic leadership, the Citi Foundation and Innovations for Poverty Action designed the fund to expand the sparse evidence in this field. With a focus on cost-effective, client-based interventions, the fund will initiate and implement 10 research projects on this topic worldwide over the next three years, and use the results to influence industry and policy on financial inclusion.