Framework

The theoretical framework used in this project sees individual financial agency – knowledge and behaviour – substantially influenced by institutions such as rules, norms, expectations, and regulations. This theoretical approach is interdisciplinary, embracing insights from development studies, economics, education, law, sociology, and social work. It also draws on insights from consumer literacy (related to the financial literacy literature), consumer behaviour (related to the behavioural finance literature), and state and corporate rules and regulations behaviour (related to institutional analyses literature).

Core theories that inform this study include narrowly focused theories such as asset-building and financial exclusion, and more broadly based theories of behavioural economics, capability theory and institutional theory. Asset-building theory finds that household resilience and improvement is dependent on its stock of assets, including financial, physical, and human ones (Sherraden 2005). The asset-building literature is rooted in the theory and the practice of matched savings programs. The theory of financial exclusion explores the reasons behind people’s non-participation in formal financial institutions (Caskey 1994; Buckland 2012; Leyshon and Thrift 1997; Leyshon et al. 2008; Dymski 2005). Caskey identifies a series of demand (e.g., declining income among poor Americans) and supply (e.g., bank branch closures in poor neighbourhoods) factors that explain financial exclusion and the growing reliance on fringe banks in the 1980s and 1990s in the United States. A US study found that financial exclusion may be reduced if people open a bank account in their youth (Friedline and Rauktis 2014). Dymski (2010) argues that racial/ethnic inequality and non-functioning markets are both important in explaining the sub-prime mortgage crisis and recession. An interesting study of Asian-Americans found that the risk of economic hardship was negatively correlated with bank access and financial functioning, but not significantly correlated with financial literacy (Huang et al. 2015).

More broadly based theories such as behavioural economics address a more universal set of relationships. Behavioural economics, which seeks to understand the nuanced behaviours of people, is premised on the idea that humans do not act in the rational fashion assumed by orthodox economics. For this project we are particularly interested in those behavioural economics studies that examine consumer behaviour (Thaler and Sunstein 2008), consumer financial behaviour, and more recently macroeconomics (Akerlof and Shiller 2009). This work has found that in relation to their finances, people may highly discount future earnings, be overconfident about their financial abilities, and misunderstand actual fees charged for certain credit products. Capability theory, a second broadly focused theory, concentrates on the relationship between individual agency and human well-being (Sen 1999; Nussbaum 2006). This theory effectively links with financial empowerment because it theorizes that human well-being is linked to what we value and what we can access. Sen’s version highlights the role of the individual, while Nussbaum’s version seeks to address some of the limitations of the liberal individual focus. The final broad-based theory informing this project is institutional theory (e.g., North 1990). Institutional theories reject the assumption of a frictionless market and rather embrace a world in which rules, norms, networks, and organizations construct parameters within which the human economy operates. For instance, Sherraden and Barr (2005) constructed an institutional theory of savings which finds that people behave in bounded rational ways and interact with institutions that may discourage them from saving. These institutions include bank access, information available about savings, incentives to save, external facilitation of savings, expectations about savings, restrictions of banking, and banking security.