This report examines the link between financial inclusion and financial health, stressing that access to financial services alone doesn’t ensure financial health. Financial health refers to the ability to manage daily expenses, recover from financial shocks, achieve long-term goals, and feel secure about the future.

Introduction

Financial inclusion provides access to affordable financial services, but poor service quality or low financial literacy can hinder financial health. Inclusion allows individuals to manage finances, but financial health depends on the quality of service use, avoiding scams, and understanding financial concepts.

Trends in financial inclusion and financial health

Account ownership has risen globally from 51% in 2011 to 76% in 2021, with notable progress in emerging markets. However, actual use of financial services, like digital payments, lags behind access. Advanced economies tend to have better financial health, with a significant portion of emerging market populations still struggling, particularly around medical expenses and savings.

Challenges to bolstering financial health

Low utilisation of financial services, due to high costs or unfamiliarity, particularly in digital formats, is a challenge. Older and less-educated individuals are most affected. Unethical practices, like predatory lending and rising fraudulent financial apps, also damage financial health. Financial literacy is crucial, but fewer than one-third of adults understand basic financial concepts, leading to issues like overindebtedness.

Policy

The report recommends enhancing financial consumer protection frameworks and promoting financial literacy. Many governments, especially in emerging markets, are developing education strategies, but evidence on their effectiveness is mixed. Foundational policies, like open finance, can improve service quality, competition, and consumer control over financial choices.