The global pandemic and resulting economic recession have highlighted the need for better indicators to assess how people are doing financially. Gross domestic product (GDP) and existing poverty measures are insufficient to capture the more nuanced financial challenges facing billions of people around the world. There is a growing global consensus that using financial health as a metric can track progress around the world more effectively in both developing and high-income countries. To support this, the Financial Health Network is currently participating in a financial health working group recently launched by the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development to discuss how financial health and measurement can be applied globally in policy and the private sector.
The Challenge of Global Measurement
A lack of consistent or comparable datasets and metrics across hundreds of different countries and economies is a key challenge in measuring financial health. In order to develop global approaches, we must first identify global needs and trends. The Financial Health Network is working toward that through new analysis of the World Values Survey (WVS) Wave 7, which is the “largest non-commercial cross-national empirical time-series investigation of human beliefs and values ever executed.” We examined over 67,000 responses from nationally representative samples across 48 countries fielded between January 2017 and April 2020 to better understand saving and spending around the globe – two critical aspects of financial health.
Global Spending and Saving Trends
One theme became very clear when we disaggregated responses by developing and high-income economies: the majority of people around the world are financially struggling. And while most of the surveys occurred before the COVID-19 crisis began, we are confident that this is still true since the challenges identified were likely only exacerbated by a pandemic that has devastated economies across the globe.
In addition to this top-line understanding, three specific takeaways emerged from our analysis:
- While most households were unable to save, even fewer in developing economies did so. Only 23% of households in developing economies were able to save money over the past year, compared with 39% of households in high-income economies. These findings also show that the majority of households were unable to save. Although lower savings rates in developing economies might be expected, it’s striking that 61% of households are unable to save money in developed economies. This shows there is a significant gap for high-income economies in financial health, demonstrating that national wealth does not necessarily signal widespread financial health among individual households.
- More households are just getting by in developing economies. Over half (52%) of households in developing economies are just getting by, compared with 39% of households in high-income economies. This difference appears to be largely due to the differences in savings between households within these economies.
- The percentage of households that are financially overextended is similar in both developing and high-income economies. Nearly one in four households in both developing economies and high-income economies are “financially overextended” (25% and 22%, respectively). This similarity demonstrates that simply living in a high-income country is not enough for a household to financially thrive.
This analysis shows how global stakeholders can use financial health measurement to guide strategic decisions. Understanding financial health needs can help governments shape policy, direct philanthropic dollars to solutions that directly impact the financial health of families, and encourage the private sector to design and offer high-quality solutions.
To explore how the Financial Health Network can be your partner in global financial health measurement, email Stephen Arves (firstname.lastname@example.org) and Alejandra Ruales (email@example.com).
We analyzed over 67,000 responses from 48 countries for Q286 from the WVS Wave 7 (2017-2020), which asked if a family “saved money,” “just got by,” “spent some savings,” or “spent savings and borrowed money.” We combined the “spent some savings” and “spent savings and borrowed money” responses into one category named “financially overextended.” To classify country-level income, we created a dichotomous measure of economies based on the World Bank Country and Lending Groups classifications and the The Global Findex Database (2017) and matched the World Bank classification to the year in which the WVS survey was administered in each country.