So, are you really saving for your retirement? Don’t worry, you don’t have to answer. Nonetheless, today across the globe there is a significant (more like worrisome) percentage of the population NOT saving for their retirement. It is estimated that in a developed nation like the United States, more than 36% of the population has no savings for retirement.
Now, let’s put this into the context of developing countries across Latin America and the Caribbean – because the landscape is more severe. According to the Inter-American Development Bank’s book Better Pensions, Better Jobs, six out of ten people in the region are not currently saving for their retirement. Specifically, in Brazil, a nation of over 200 million people, a research study revealed that 64% of the population has never saved for retirement.
In a world that is aging at increasingly rapid levels, the issue of retirement savings - or their lack thereof - threatens to bring about a serious economic, social, and political crisis. I recently had the opportunity to conduct a field visit to Brazil, where I was able to delve more deeply into the issue of financial capabilities among low-income segments, specifically among women recipients of “Bolsa Familia” government subsidies and over-indebted seniors.
Bolsa Familia is Brazil’s largest conditional cash transfer program, providing cash subsidies that are delivered electronically into a bank account to 14.1 million low-income beneficiaries - 92.5% of whom are women, and 42% of whom are single mothers and their household’s sole breadwinners. Research has revealed that very few beneficiaries understand the benefits of account-based transfers (including debit and savings functions ) and often confuse this type of instrument with their government-issued Social Cards. Other studies also point to the challenges this segment faces in managing and planning their personal finances; recipients have limited cash savings in their homes, make extensive use of credit (particularly for emergencies), and struggle to match cash inflows and outflows.
Meanwhile, financial vulnerability has increasingly become a cause for concern among the elderly. According to a survey by Instituto Data Popular, 39% of Brazilian retirees between the ages of 60 and 69 continue working to complement their pension income, because their expenses exceed the value of their pensions. Furthermore, in many cases the elderly remain the primary source of financial income for the entire household; between 1991 and 2000 the percentage of elderly heads of household increased from 60.4% to 62.4%. While over-indebtedness has become increasingly common among Brazilians in general, it is particularly prevalent among people aged 65 and older, which exhibits the highest percentage (25%) of delinquency. According to the Ministry of Social Security, out of 21 million social security beneficiaries, 16 million hold at least one crédito consignado—a special loan leveraged against income made available to workers, retirees and National Social Security (INSS) pensioners. During my visit I was particularly surprised to learn the role that bank agents’ aggressive selling tactics for crédito consignado have played in increasing the debt levels of this particular segment (stay tuned for a future entry on this topic).
At the Multilateral Investment Fund the promotion of financial inclusion is at the forefront of many of our initiatives, but as we become exposed to different scenarios and challenges in this field, I can’t help but stop to wonder what others are thinking about the particular scenario I have just described:
- What is your take on the cause of over-indebtedness and poor financial planning among these vulnerable segments?
- Do you believe financial education is capable of playing a role in solving these issues?
- Is financial education the answer or part of the solution?
- What do you believe financial education consists or should consist of?
- Considering working with the elderly, is financial education the way to go? Or are efforts on financial education better served when focused around prevention and capacity building among adult segments instead?
I hereby open the floor to discussion.