I am very pleased to attend the 2022 International Forum for China Financial Inclusion. I would like to take this opportunity to make a speech on how to enhance financial health and financial resilience for the high-quality development of inclusive finance.
I. The international community has become increasingly concerned about financial health in recent years, as the pandemic has further exacerbated the vulnerability of financial consumers.
The international community believes that one of the main causes of the subprime mortgage crisis in the United States in 2008 is the lack of oversight and the resulting inadequate protection of financial consumers. Traditional prudential regulation is no more adequate, so financial behavioral regulation and financial consumer protection must be strengthened to build a solid micro foundation for macro-financial stability. In 2013, the Federal Reserve Bank of Chicagoreleased the report Measuring Small Business Financial Health, the first to pay attention to the financial health of small businesses. In 2015, Center for Financial Services Innovation (CFSI) in the U.S. put forward the concept of personal financial health, which has attracted international attention.
The vulnerability of financial consumers has become more prominent since the outbreak of COVID-19 in 2019, and financial health has thus received wider attention and discussion globally. According to some studies, financially less well-off families, especially low-income families, may find the pandemic even more financially challenging. In January 2021, UN Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA) established theWorking Group on Financial Health to promote financial health under the framework of financial inclusion. In September 2021, the working group released the report Financial Health: An Introduction for Financial Sector Policymaker.
In June 2022, the World Bank released Global Findex Report: Global Financial Inclusion Database 2021, and for the first time, the report devoted a special chapter to discuss financial health indicators, which shows that financial health is a global issue, and it is important for financial inclusion.
At present, the international community and some countries have conducted research on financial health and carried out relevant practices. A popular view is that financial health integrates financial consumer protection, financial literacy, and financial inclusion. Therefore, financial health is a broad concept, which incorporates the concepts of financial wellbeing and financial resilience too.
II. Financial health is an advanced form of financial inclusion and is essential for the high-quality development of financial inclusion.
Since the CPC Central Committee adopted the Plan for Promoting the Development of Inclusive Finance (2016-2020), the coverage, availability, and satisfaction of financial services have been continuously improved and played a positive role in coordinating an epidemic response with economic and social development, in poverty alleviation, and in improving people’s wellbeing. On February 28, 2022, President Xi presided over the 24th meeting of Central Comprehensively Deepening Reforms Commission and reviewed and adopted the “Guideline on Advancing High-quality Development of Inclusive Finance.” The conference emphasized that we should adhere to the people-centered development and promote high-quality development of inclusive finance by building a sound financial system, which is highly adaptable, competitive, and inclusive, to better meet diversified financial needs of the people and the real economy, said Xi. This puts forward higher requirements for China’s financial inclusion in the next stage.
At present, China has built a moderately prosperous society in all respects, and its economy has transitioned from a stage of high-speed growth to a stage of high-quality development. In the new historical stage, we should pay attention not only to the scale but also to the quality of economic growth, not only to the coverage and availability of financial services on the supply side, but also to the sense of fulfillment, happiness, and security of each financial consumer on the demand side, that is, to pay attention to the financial health of each individual.
III. Chinese residents are generally healthy financially, but there is still much room for improvement.
To better study and analyze the financial health of Chinese residents, we have set up a research group. Based on international experience, we have established the financial health matrix system of Chinese residents for the first time and conducted a survey on financial health, and then prepared a personal financial health index. The research group calculated 8990 samples and found that the average score of the surveyed financial health index was 69.38.
In general, the interviewees are generally healthy financially: more than 70% of the surveyed score above 60 points. In terms of the day-to-day management of income and expenditure, nearly 80% of the surveyed have a stable income, the annual household income of over 80% of the surveyed exceeds their expenses, and most of the households can manage their surplus or deficit with savings or loans. In terms of risk response and protection, most households are resilient, with over 60% of households being able to immediately use or quickly liquidate their own funds to support daily living expenses for more than six months, and about 80% holding insurance products and services. In terms of financial literacy and behavioral rationality, nearly 70% have no obstacles in digital payment, and most of them have rational investment and financial behavior. In terms of financial planning, about 70% make plans in advance for specific purposes or major expenses, and about 80% can raise funds for major expenses through various means.
The survey shows that there is still much room for improvement in the financial health of the surveyed. Only less than 40% of them score above 80 on the financial health index. Some have yet to use financial instruments to manage their surplus or deficit, with over 20% of the households having almost no funds that can be used immediately or liquidated quickly in the absence of any source of income. About 20% don’t know or care about their credit status; 20% barely have a big spending plan; 40% have a plan but do not have good execution; about 30% don’t recognize their financial capacity.
It should be noted that some groups perform poorly on multiple indicators of financial health, which interact with each other and have a major impact on financial health on multiple levels. For example, low-income groups tend to have unstable incomes and poor credit. This group is usually overburdened with debt, so they have great difficulty in financing when they need money and are more likely to be concerned about their future financial status, and have low recognition of their financial capacity. These factors may interact with each other to put them in a financial predicament, affecting their production and life.
IV. We need to focus on financial health for the high-quality development of financial inclusion.
Based on a comprehensive analysis of the above-mentioned financial health survey and other information, we can see that China’s residents are generally healthy financially, but there is still much room for improvement. On the macro level, we still face an uphill journey to achieve financial health. We suggest focusing on the following aspects:
First, we need to improve the level of the development of financial inclusion and explore an overall planning and policy framework for financial health. It is recommended that on the basis of the existing broad coverage of financial inclusion, a policy framework at macro, meso, and micro levels should be studied to promote financial health in a multi-pronged manner. We need to consolidate the results of poverty eradication by enhancing the financial resilience of rural residents, help stimulate the innovation and entrepreneurship drive and potential of residents by optimizing the financial status of urban and rural residents, and narrow regional and urban-rural gaps and income gaps by addressing the problems of unbalanced and insufficient development of financial inclusion.
Second, financial institutions should play an anchor role to provide more targeted financial products and services. Financial institutions should continuously enhance their financial health capacity building, take improving the financial health of consumers as their mission, and integrate it with their risk management. The ultimate goal is to achieve sound operation for financial institutions and their customers' financial health and find a better path for high-quality development of inclusive finance featuring affordability and viability.
Third, we need to enhance the financial literacy and financial health awareness of consumers and better protect their financial rights and interests. Financial literacy, financial consumer protection, and financial health should be advanced in a coordinated manner. By improving the financial literacy of consumers, we will help them develop the ability to make informed financial decisions and choose financial products appropriately. This way we can, from the demand side, empower consumers to improve their financial health. At the same time, we should better protect the rights and interests of financial consumers by combating violations of their legitimate rights and interests to protect the financial health of our people.
Fourth, we need to strengthen the benign interaction between regulators and micro entities to establish a good monetary policy and stable environment for financial health. We should give full play to the leading role of monetary policy to guide financial institutions and micro entities to behave in the interest of financial health. What’s more, the financial health of the relevant groups should be fully considered so that we can prevent financial risks due to the accumulation of financial unhealthiness of a large number of individuals and a major impact on a large number of individuals due to financial risk spillovers.
Fifth, we should improve relevant infrastructure and laws and regulations to provide institutional protection for financial health. We may incorporate the concept of financial health into the framework of relevant laws and regulations, and give financial health its due attention in promoting legislation on financial stability, protection of financial consumers' rights and interests, and personal bankruptcy. We need to establish and improve a regulatory system that is compatible with the requirements of financial health, strengthen behavioral regulation, and create a good financial ecology conducive to financial health.
Sixth, we need to establish a sound assessment index system and diagnostic tools to provide scientific measurement and standards for financial health. We suggest that the financial health evaluation criteria should be improved based on the existing financial inclusion indicator system and filling system. Micro survey methods such as those adopted in the financial diary surveys can be used together with traditional financial inclusion surveys, and we should research and develop innovative financial health diagnostic tools to explore more replicable models.
Finally, I would like to make clear that my speech, especially the analysis of the financial health of our residents, is only my personal or my research group’s preliminary views and does not represent the opinions of my organization. We welcome your suggestions and comments. Thank you!
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