The success or failure of financial reforms, the development of the financial sector, and a range of other outcomes in Armenia are all directly linked to the level of financial literacy of the population. We spoke to Armenuhi Mkrtchyan, Head of the Consumer Empowerment Center of the Central Bank of Armenia, about the state of financial education in the country and what it will take to build on a decade of genuine progress.
Interview : Nazareth Seferian Photo : Center of the Central Bank of Armenia
Let’s start by setting the context. Why does financial literacy matter for any country’s development, and how would you describe where Armenia stands today?
— It’s fair to say that finances have a direct impact on people, from the very beginning of their lives, even if it is a child’s parents who are paying at that stage, till the very end. It is a factor that determines the quality of your life.
Financial health cannot be considered in isolation from physical and mental health; they impact each other. An economy needs people who can function, have new ideas, and create new things.
People who can manage their finances are financially healthy, and are thus more productive in any economy. In terms of where Armenia stands, the latest Financial Capability Index for our adult population stands at 56.5%. Imagine a classroom of 100 students taking an exam on financial literacy. The Financial Capability Index can be compared to the average score that class achieves. So 56.5% is not a bad result and, in fact, it surpasses the targets we had initially set ourselves for 2031. As a comparison, Scandinavian countries are at around 70%. France is better off than us in terms of economic development, but we score higher than them on this index. We have gone up by 12 percentage points in the last ten years, which shows quite good progress.
Please tell us more about this index and the Financial Capability Barometer. What are the nuances behind the result of 56.5%?
— The Financial Capability Barometer is the methodology we use for measuring the Financial Capability Index in Armenia. The approach we use is localized to our context, but it is aligned with international methodology. The Central Bank looked at over 200 indicators to measure financial literacy, but there was a political demand for one clear figure as a benchmark. So we use a competency matrix with eight topics.
Through the Alliance for Financial Inclusion, some countries have even adapted our version to their needs. In terms of different demographic groups, there is not much variance. The index is comparable for men and women, and it is slightly higher for the 18 to 34 age group, at 59.1%, compared to 56.9% for those aged 35 to 62, and 53.0% for those above 63. There are some differences when it comes to the level of education and the incomes of respondents. Those with a higher education, or monthly incomes above 300,000 AMD, score above the Armenian average, at just over 60%.
The index consists of four key financial capability components: knowledge, skills, attitude, and behavior. We are doing quite well now on the attitude and behavior components, but there is still a lot of work to be done in terms of knowledge, and some ground to cover when it comes to skills. We intentionally started with a focus on attitude, and this is important. When we talked to the Ministry of Education back in 2012 about the importance of introducing financial literacy in schools, we were told that this was a “bourgeois” approach and it would corrupt our children. This kind of thinking about money was still prevalent more than twenty years after independence from the Soviet Union. So we knew that we had to do a lot of work on attitude and then on behavior. And we have seen the results: Armenia has scored 76.4% and 61.8% on the index for attitude and behavior respectively. But when we look at the safe use of financial tools, knowledge and skill scores stand at only 9.8% and 17.8% respectively.
This means that most of our population has a healthy attitude when it comes to safely using financial tools. They believe it is important and they take action to ensure security. But they are not always doing the right things, because they don’t know enough about what they must do.
So the efforts invested into financial education have borne fruit when it comes to attitudes and behavior, and the focus is now on knowledge and skills?
— Yes, but the approach to education cannot be the same across the population. With children, financial education has been integrated into various subjects at school, starting with mathematics in primary school and a subject called “Me and My World”. In middle and high school, financial education continues through mathematics and algebra, and is also part of social sciences.
The integrated approach is not perfect, but it emphasizes that financial literacy is a skill with implications in various aspects of life. And, in general, children are receptive to new knowledge in a school setting.
But adults are not always receptive to new knowledge in the same way; you can be more effective if you choose the right moment. For example, someone planning to settle down and start a new family might be particularly receptive to knowledge related to mortgages. The moment when someone learns the most about security is, unfortunately, often when they have already fallen victim to fraud. So we have embedded an important piece of education into the regulatory field. When someone goes to a bank, there are specific rules about the information that a bank must provide, and this helps educate the customer. The same is true for people in different kinds of activities. Farmers who want to expand their agricultural businesses are very receptive to new information on loans and managing credit. So we embed this kind of knowledge into entrepreneurship and business development programs run by various ministries and other organizations which target these groups. We have now reached a tipping point in financial education where there are many private initiatives, and I consider this one of the biggest successes of the Central Bank.
The Financial Education Program Steering Committee, led by the Central Bank, brings together representatives from partner ministries, financial sector organizations, and NGOs. What was the rationale behind establishing this multi-stakeholder body, and how does having such a broad coalition change the way financial education is planned and delivered in Armenia?
— When we originally started to work on financial education back in 2007 or 2008, we were doing it on our own, and we realized that our efforts were fragmented. There were no synergies because the various sides interested in this topic were not coming together.
For financial education to have any real impact, it has to be a national effort. It cannot consist of small initiatives here and there. So we realized that everyone working on this topic must come together and be aware of each other’s work,
coordinating for greater impact. This is also very important in terms of sustainability and consistency. The Committee makes our efforts institutional and strategic, decreasing dependence on specific individuals.
One distinctive effort you have made in financial education is using a “handholding” approach. Tell us more about how it works.
— Yes, this is something we have tested in four rural areas near the border and the results are encouraging. Given their distance from urban centers, mobile banking services would make life much more convenient for people living here. The principle on which the “handholding” approach is designed is quite simple. Knowledge delivered during a seminar without practice is lost after some time unless there is someone available to guide the recipients of that knowledge at the right moment, when they seek to apply what they have learned. Another important principle is that people are prone to trust advice that comes from a real person, rather than a website or similar tools.
So the “handholding” approach makes a mentor available to them in real time, through instant messaging apps and phone calls. When they have to take some kind of action, like paying their utilities, they can contact the financial mentor for support, ask questions, and so on. This helps them overcome their unease with digital tools and reinforces behaviors that can then become habits. For example, the mentor helps them understand that their money cannot simply disappear when they use mobile banking, and they can monitor it constantly.
At the same time, we aim to nudge them into healthy financial practices, like saving before spending. It is remarkable how much people can improve their lives through the simple practice of saving 10% of their income as soon as they receive it, rather than trying to save whatever is left at the end of the month, which is usually nothing. In order for this to work, the process also needs to be frictionless, and mobile banking provides such a solution. With the “handholding” approach, we have what we need to turn this into a habit. The availability of this mentor in real time has a lot of impact. The consumers ask a question through instant messaging at their teachable moments when they are most receptive to new knowledge, and they receive a response quickly. These are usually quite simple questions, which is evidenced by the fact that “handholding” constitutes only about 75 minutes of workload per adviser over six months. But this approach is operationally feasible and has the potential to be transformative.
The 2021 to 2025 National Financial Education Strategy is coming to an end. What were the key takeaways from this cycle, and how are they shaping the strategy going forward?
— We are still developing the next strategy, but it seems that we might shift from a focus on general knowledge to a more problem-based approach. For example, we see the problem of over-indebtedness and there is a lot of knowledge out there to tackle this issue. But the problem still persists. This suggests that there needs to be a more tailored approach targeting the specific problem, and the “handholding” approach could be a part of the solution combined with knowledge and other components. Fraud is another important problem, and savings constitute a key issue. Finally, mobile banking is growing in importance, given that hundreds of thousands of pensioners are now receiving their pensions electronically. We are considering a holistic approach to each of these as part of the next strategy.
As a last question, what would you change about how financial education was approached in Armenia, if you could turn back the clock by a decade?
— I would make financial literacy a separate subject, at least in high school. The problem with the integrated approach we currently have is that many stakeholders, including parents, don’t understand how much financial literacy is actually being delivered in schools. And this approach also makes it difficult to monitor and measure impact or conduct teacher training on the topic. Nevertheless, I am happy to see how much the situation has improved in Armenia and continues to do so.