Financial literacy: When, what and how The need for financial literacy and its importance for

financial inclusion
have been widely recognised. Based on various research studies on financial literacy initiatives, this column outlines
financial services needs of a poor household at various stages of its life cycle. It contends that customising financial
literacy programmes according to the stage of life of targeted individuals is crucial for their effectiveness.
The need for financial literacy and its importance for financial inclusion have been acknowledged by all possible
stakeholders - policymakers, bankers, practitioners, researchers and academics across the globe. Various financial
literacy programmes have thus been implemented by concerned institutions, with a lot of them being unique in their
approach and delivery mechanisms. For instance, programmes have been customised to suit the requirements of
students, microfinance clients, slum dwellers, bank clients etc. Some programmes have a particular focus such as a
specific financial product, developing saving habit among target group, customer protection, business management,
and so on, while others are more general and deal with money management skills, advocating healthy financial
practices etc. Varied techniques such as videos, stories, activities, comic books etc. are used, along with traditional
methods of classroom training. Banks like Punjab National Bank and State Bank of India have also begun setting up
financial literacy and credit counselling centres that people can go to for gathering requisite information. While a lot
of experimentation has been done in the realm of financial literacy, it is difficult to point to one standardised method or
approach that works best in all scenarios with all kinds of target populations. Although this could be attributed to the
lack of a standard definition or measurement tool, it is also a result of Indias diversity in terms of language, caste,
culture etc. Hence, it is challenging to design a product that fits all sections of the population equally well.
Financial services needs at different stages of a poor households life cycle
Going back to the drawing board, it is important to work with the premise that financial services needs of an
individual vary primarily by age. While these also depend on financial status, social status and other factors, let us
keep that constant and consider the life cycle of a poor household (primary target beneficiaries of financial literacy
programmes). Children initially stay with parents and go to school. Following studies, they may move out of the
parents house and begin to live on their own (or with friends/ housemates) and earn their own living. They then get
married, form a couple and start their own family. By this stage, the parents are old, with reduced income levels
because of lower physical capacity to work. They seek support from their children who have just been endowed with
new responsibilities of a family, with children of their own to raise. The cycle continues with these children getting
educated, moving out to find a job and then eventually raising their own families, while assisting their parents.
Figure 1. Life cycle of an individual/ household

This simple story of the household involves an exchange of dependency and responsibilities at each stage. Considering
just the financial services needs of the household over its life cycle, we see that they are very specific to the stage that
the household or individual is in at a given point of time. For instance, as a school going kid (in his/ her teenage), an
individual might require know-how of savings so that he/ she can save pocket money or scholarship and utilise it
effectively. A young person who has just started working and receiving a salary, would require a banking service,
complex investment products (given that youth are more inclined to risk-taking and are open to experimentation) and
remittance services that would enable him/ her to send a portion of earnings to parents who are not able to do as much
physical labour as they could earlier. As time progresses and the individual gets married and starts a family, he/ she is
required to think about safer financial products and longer term investments. His/ her dependency ratio is highest at
this point both children and parents are dependent on the individual. As the individual becomes older, simple
banking services are required to access remittances transferred by children, and welfare transfers from the
government. Considering all of these specific financial services requirements at various junctures in life, four
teachable moments can be identified: school-going child (grown up enough to understand money and saving), youth

(stepping into employment), middle-aged (married, and starting a family), and old age. These are the specific stages of
transition, when the need for financial products/ services takes a leap and it is crucial to make the right financial
decisions. Thus, these moments are best suited for receiving and benefitting from customised money management
advice.
Customising financial literacy modules based on stages of life After establishing the what and when of financial
literacy, it is important to understand the how of it. As an individual ages, a lot of psychological and behavioural
attributes change, as per the social, political or economic environment. The three prime attributes that notably differ
with each of the four stages of life and should be thought through well while designing any education module, but
especially a financial literacy module, are: attention span, cognitive ability, and general points of attraction. Table 1
maps the four teachable moments with the associated attributes, along with the work that has been done so far in terms
of implementation of financial literacy initiatives and assessment of the impact of the initiatives. Analysing each of the
stages independently would throw light on the way forward in designing financial literacy modules. A cross analysis of
these, however, highlights the fact that there is little or no commonality among them and each is required to be taught
with different instruments varying in content, delivery mechanism and need for innovation.
Table 1. Mapping teachable moments with attributes and financial literacy methods
Stages
Attributes
Methods
Attention
Cognitive ability
School-going
kids

span/ General
points
attraction

Starts evolving at age six Games

Take time to solveSocial networking
problems
requiringLearning by doing
abstract thinking
Are immature
Dont fully understand
emotions and concept of
time

ofTried methods Evidence of impact

Comics
Piggy banks

No research has been done

Youth (stepping Ambitious

Need for independence,Soap Operas Some studies show positive
into
Good sensory abilities
self-reliance,
andMoney games financial behaviour like better
employment)
Memory skills at peak
freedom from authority Simulation
money management skills
Logical
thinking
andPeer acceptance
games
reasoning abilities
Adults/ middle- Intellectually sharp
Real life situationsVideos
Changes
in awareness and
aged
Slow reaction time
related to family, job,Indoor sessions knowledge
Time for new learningadversities etc.
Stories
No evidence of behavioural change
decreases but ability does
Activities
Incentives to attend the training
not change vis--vis youth
Productsessions and then to implement the
Memory starts shrinking
specific
learning should help
Charts/ posters Delivering financial literacy along
with a product (credit/ insurance)
may facilitate adoption of practices
as beneficiaries can link it with
their livelihood
Old

Low visual and auditoryParenting experience Adult

No research has been done
acuity
Religious events
Education
Slower response to sensory
Programme
stimulation
Common
Loss of recent memory
gatherings
Divided attention
Perceived meaninglessness
of task
To elaborate, the cognitive ability of a person starts developing when he/she starts going to school. At this stage, an
individual is immature with low or no understanding of emotions and concept of time. They take time to solve
problems that require abstract thinking. They are usually attracted to things that are colourful, and are significantly
influenced by games. Learning by doing is the mantra that drives childhood. Kids these days are also involved in
social networking. Although no research has been done to study the impact of any kind of financial literacy training on
school-going kids, instruments like comic books and concept of saving in a piggy bank seem promising, given the

attributes of their age. Similarly, a youngster just stepping into employment is characterised by good sensory abilities
and memory skills. Reasoning and logical thinking are fully developed. At this stage, an individual is highly ambitious
and feels a need for independence, self-reliance and freedom from authority. Acceptance among peers is equally
essential. Keeping these in mind, some teaching mechanisms like money games, simulation games and soap operas
have been designed and adopted globally, yielding positive results on financial behaviour of the youth (Tufano et al
2010). Skipping to the last teachable moment, no financial literacy programme focuses on the elderly, and the research
on developing a module for this age group has also been nil. There have, however, been government initiatives such as
the Adult Literacy Programme that could be used to impart financial education. For such a financial literacy
programme to be designed, attributes like divided attention, loss of recent memory and slower response to sensory
stimulation need to be considered. Also, their parental experience and affinity to religious events and activities could
be leveraged upon. Occasions of interest to this age group should be used to bring them together and learning should
be derived from discussions of their experiences in life. In contrast to the work in the sphere of financial literacy that
has been done with school-going kids, youth and elderly, various interventions have been developed and implemented
for middle-aged people. This segment of the population is intellectually sharp but with a relatively slower reaction
time as compared to youngsters. People in this bracket take time to learn new things but their ability to do so does not
change. They mostly understand things that they can relate to their lives, families, jobs, adversities etc. A lot of
innovative methods have been adopted to teach them best financial practices, some aligning with their attributes and
others ignoring them. Most of the studies that have been conducted so far with this particular group illustrate an impact
on financial awareness and knowledge of the participants but limited effect on their financial behaviour, which in fact,
is the key intended outcome of any financial literacy programme (Cole et al. 2009, Cole and Shastry 2009). Some
implementers believe that incentives, like bundling financial literacy training with a financial product (for instance,
credit to start a small business) that help the participants to practice what is preached (fund management, book
keeping, inventory management, etc.) and to visualise the impact of the training for themselves (increased revenue and
profits), are more likely to be received well and to create an impact. Scientific evidence for the above is, however,
lacking.
One size does not fit all Even though there is no blueprint to a successful financial literacy programme as yet, taking a
cue from the above mentioned aspects is essential to come closer to designing one. The efforts that are being put in by
stakeholders to empower people while making them financially literate are commendable but need to be more focused
and customised as the rule of one size fits all doesnt seem to apply in this sphere. Providing the right advice at
the right time and with the right approach is the key and this indicates vast scope for work and innovation in this field.
Mirror, mirror on the wall, which is the most dynamic state of them all?
This column analyses the economic performance of 16 major Indian states over the last three decades. It finds that
Bihar has improved the most during the 2000s, Kerala has always been a star performer in terms of HDI, Rajasthan
has achieved the maximum decline in inequality, Tamil Nadu tops in poverty reduction, and the levels and growth rates
of per capita income of Maharashtra and Gujarat have consistently been the highest. However, no one state can be
singled out as the top performer in the 2000s. Moreover, while Gujarats overall record is undoubtedly very good all
through the last three decades, its performance in the 2000s does not seem to justify the wild euphoria and exuberant
optimism about Modis economic leadership. In particular, there is no evidence of any significant growth acceleration
in Gujarat in the 2000s.The forthcoming election, it seems, will be fought mainly on issues of governance and
economic performance. To the extent there is a focus on the personalities involved, such as Narendra Modi or Rahul
Gandhi or Arvind Kejriwal or potential Third Front candidates, such as Nitish Kumar or Mamata Banerjee, most of
the discussion is about their economic track record or lack thereof. This is a welcome development. However, in the
grand theatre of Indian politics, facts often take a back seat to slogans, and opinions get sharply polarised. For
example, we either hear that Gujarats economic performance has been nothing short of miraculous due to the magic
touch of Modi or that Gujarats so-called growth story is all hype and a Public Relations campaign aimed at covering
up a dark underbelly of poverty, inequality, and low levels of human development indicators.
A lot of this debate reflects disagreements about two sets of issues. First, there are many dimensions of economic
performance level of per capita income1, growth rate of per capita income, Human Development Index (HDI) that
put weight on not only income but also on non-income measures (for example, education and health), level of
inequality, percentage of people below the poverty line, and many others. Which index we choose to emphasise
reflects either our preferences as to the aspect of economic performance we value the most, or our views as to which
dimension has to be improved (say, per capita income) for bettering the dimension we care about (say, poverty
alleviation). Secondly, even if we focus on one particular dimension of economic performance, how do we attribute
changes in this dimension to the role of a specific leader? For example, how do we isolate the contribution of Narendra
Modi and Nitish Kumar to the growth of Gujarat and Bihar, respectively, in the 2000s, especially as the country as a
whole experienced a growth spurt in this period?
Attributing states economic performance to specific leaders Therefore the first issue is how to separate the leaders
contribution from other factors driving his/ her states performance, for example, a general improvement in the
economic environment of the country that benefits all states. The solution to this problem is to calculate the difference

between the growth rate of the state for the years this leader was in power and the average growth rate of the rest of the
states during the same period of time. If this difference is positive, then it is safe to say that under this leader the state
grew faster than the rest of the country. However, this is not enough. What if the state in question was always growing
faster than the rest of the country? How can we then isolate the specific role of this leader? Returning to the example
of Modi, in order to claim that Modis leadership had a significant impact on Gujarats economic performance, it is not
enough to show that Gujarat did better than the rest of India after he came to power in 2001. We have to demonstrate
that the gap between Gujarats performance and that of the rest of India actually increased under his rule. This is the
crux of the statistical method called differences in differences 2, which is the standard approach used in modern
economics to evaluate the performance of policies, organisations or individuals. Turning to evidence, we look at key
indices of economic performance - level of per capita income, its growth rate, HDI, inequality, and the percentage of
population below the poverty line for sixteen major Indian states (in terms of population)3.
Per capita income In terms of average per capita income ranking of states over the 1980s, 1990s and 2000s, the top
three states are Haryana, Punjab and Maharashtra (Table 1). Gujarats average rank is 4. On the other hand, Bihar,
which has been in the news lately due to its spectacular turnaround over the recent years under the leadership of Nitish
Kumar, has been consistently at the bottom of this league with a rank of 16, below Uttar Pradesh (UP), which too has
remained steady at number 15.
Table 1. Rank of states in terms of per capita income, three-year averages

In terms of improving their relative ranking over the span of three decades, the top performers are Maharashtra,
Gujarat, Kerala and Tamil Nadu. Interestingly, the rise in the ranks of these four states has been accompanied by the
relative decline of one state, namely Punjab, which went from being the very top state in the 1980s and 1990s, to
number 7 in 2010. This suggests that, as in athletic races, the relative rank of a state may go up or down due either to a
change in its own performance or to a change in the performance of a rival. Thus, to obtain a fuller picture of the
economic performance of these states, we also need to consider their relative growth performances. Is the rise in the
rankings of states like Maharashtra and Gujarat also matched by a faster growth rate on their part? Also, are there
states that are lower down in the ranking but are growing faster than average and so can hope to improve their ranking
in the future?
Annual average growth rates In Table 2, we present the annual average growth rates of the major states for each of
the past three decades. The highlighted boxes show states that are performing better than the national average in each
decade. Only three states have had above average growth performance in all three decades Gujarat, Tamil Nadu and
Maharashtra. In the 2000s, the other top performers were Andhra Pradesh (AP), Bihar, Haryana and Kerala.
Table 2. Average annual growth rate of per capita income, by decade

Interestingly, the growth rate of Punjab, initially one of the top ranked states in terms of per capita income level, has
been below the national average in the last two decades. Thus, it is not surprising that Punjab is slipping down in rank

below other faster-growing states. Bihar, on the other hand, is poised to rise up the ranks with a higher than average
growth rate of per capita income in the 2000s.
Economic performance of states in 2000s Now we come to one of the key questions. Which are the states that
improved their performance in the 2000s both with respect to their past performance in the earlier two decades, and
with respect to the performance of other states in the 2000s? In Figure 1, we plot the average annual growth rates of
some selected states against the national average over time. This graph shows an interesting trend while Gujarat,
Tamil Nadu and Maharashtra have been going neck to neck (along with Haryana, which is not shown in the figure),
and as already mentioned, have consistently performed above the national average, none of them have experienced a
huge acceleration in growth rate in the 2000s. In contrast, Bihar, which was consistently doing worse than the national
average in both the 1980s and the 1990s, shot up above the national average in the 2000s, converging to rates achieved
by established leaders like Gujarat, Maharashtra and Tamil Nadu.
Figure 1. Average annual growth rate of per capita income of selected states, by decade

Note: For the sake of visual clarity, not all states are depicted in this and the subsequent figures.
The rapid rise in Bihars growth rate is also evident from Figure 2, in which we compare the deviations of growth rates
achieved by each of these selected states from the national average, for the 1990s and the 2000s. We can see that Bihar
seems to have made the maximum gain in this dimension. While in the 1990s, Bihars average growth rate was 2.7
percentage points lower than the national average, in the 2000s it was 1.3 percentage points higher. This means that
Bihar improved its growth performance by an additional 4 percentage points over the national average in the 2000s,
relative to what it achieved in the 1990s. In contrast, leaders like Gujarat appear to have improved by a much smaller
margin (0.2 percentage points) over the national average in the 2000s, relative to the 1990s. Maharashtra, too, gained
only 0.3 percentage points over the national average during the same time.
Figure 2. Deviations from national average for 1990s and 2000s for selected states

To sum up, if awards must be given, Bihar deserves the prize for the most dramatic turnaround in the 2000s. Gujarat
gets credit for having steadily been on top of the league in terms of both the level of per capita income and growth rate,
but has to share the honours with Maharashtra and Haryana in that category. Punjab dropped out of the top 5 in levels
rankings in 2000s while Kerala broke into this select group. However, the key point is that there is no evidence of any
significant growth acceleration in Gujarat in the 2000s.One could argue that it is easier to turn around a state that was
at the bottom of the league like Bihar than to maintain, or to marginally improve, the performance of a state already at
the top of the league, like Maharashtra, Haryana or Gujarat. After all, there is greater scope for improvement in the
former case. Conversely, one could also argue that it is more challenging to turn around a backward state, because if it
were easy, someone would have done it already. This is reinforced by the argument that Bihar is the third largest state,
whereas Gujarats rank is 10th in terms of population and it is difficult to achieve sharp improvements in a larger than
a smaller state.
Human Development Index (HDI) Many would argue that per capita income and its growth are only partial
measures of economic development. Among other things, these indices ignore aspects of development that are not
captured in income, such as life expectancy or education. Nor do these take into account income inequality, or the
extent of poverty. Therefore, we now turn our attention to the performance of the states in terms of HDI, level of
inequality and the percentage of people below the poverty line. In Table 3, we present the HDI performance of all the

major states for selected years over the last three decades. The highlighted boxes indicate states with HDI scores above
the national average for each of these years. Kerala, Punjab, Maharashtra, Haryana, Tamil Nadu, Gujarat, and
Karnataka are consistently in this group.
Table 3. State-wise HDI scores, by decade

In Figure 3, we plot the performance of some selected states with respect to the all-India average in terms of HDI. As
expected, Keralas performance is literally off the charts. On the other hand, Maharashtra, Tamil Nadu and Gujarat
appear to have been going head to head. Their trends tell an interesting story. While Gujarats HDI performance was
above the national average in the 1980s and 1990s, it decelerated in the 2000s and came down to the national average.
In contrast, Tamil Nadu and Maharashtra, which started off at a similar level of HDI as Gujarat in the 1980s, have
continued to perform better than the national average in the 2000s. Bihar, on the other hand, has consistently been
below the national average, but has made significant improvements over the last decade and shows signs of catching
up to the national average. Figure 3. HDI scores of selected states, by decade

Thus, the HDI rankings of states present a different story than their rankings of per capita income levels or growth
rates, with one exception. The only state that is in the top 3 in all the rankings so far is Maharashtra. Otherwise, the top
prize for HDI goes to Kerala, and the most improved in the 2000s prize goes to Bihar.
Inequality Next, we look at ranking of the states in terms of level of inequality (Table 4) based on consumption
expenditure. Assam and Bihar have consistently had the lowest levels of inequality according to this index. However,
the state that really stands out, both in terms of relative ranking and absolute decline in inequality is Rajasthan.
Between early 1980s and late 2000s, Rajasthans relative ranking improved from 15th to third, while its inequality
measure fell by 14%, the largest decline for any state. On the contrary, states that are leaders on the growth dimension
are found to perform worse on inequality. For example, Figure 4 shows that while inequality in Gujarat was lower than
the national average in the 1980s and 1990s, it actually rose to levels above the national average in the 2000s.
Maharashtra, Tamil Nadu and Kerala, too, have consistently recorded higher levels of inequality than rest of India,
with Kerala recording a sharp spike in the 2000s. Table 4. Rank of states in terms of inequality (measured by Gini
Coefficient4), by year

Figure 4. Inequality in selected states, by year

Poverty Lastly, we consider the percentage of population below the poverty line (Table 5). We find that Himachal
Pradesh, Punjab, Kerala, Gujarat, Haryana, AP and Karnataka have consistently had lower levels of poverty than the
all India average. Gujarats performance in poverty reduction over the years has been similar to that of AP and Kerala.
However, if we look at improvements in performance over the last decade, then Tamil Nadu is one of the top
performers. Starting from a level of poverty that was higher than the national average in 1983, it ended up at a much
lower level, similar to that of Gujarat, AP and Kerala, in 2009 (Figure 5). Bihar, although well above the national
average in terms of poverty levels all through the three decades, has shown a sharp improvement over the last decade.
Table 5. State-wise Poverty Head Count Ratio, by year

Figure 5. Poverty Head Count Ratio of selected states, by year

Did Gujarat truly outshine other states in the 2000s in terms of economic development?
If we simply look at the figures, four facts will jump out: first, Bihar has improved the most in the 2000s, even though
it has been at the bottom of the list for all indicators and still has a fair distance to go before it can climb above the
national average; second, Kerala has far outpaced other states in terms of the HDI all through; third, Rajasthan was the
star-performer in terms of reducing inequality; and fourth, Maharashtra and Gujarat have consistently been top
performers in terms of per capita income and its growth, with Haryana and Tamil Nadu deserving mention on this
count as well. All these achievements are noteworthy but it is hard to single out any state as the top performer in the
2000s. To the extent this assessment goes against the view held by many people, independent of their political
leanings, that Gujarat has done spectacularly well under Mr. Modi, the explanation lies in the method that we have
used to examine available data, namely, the difference in difference approach. In particular, this is what we tried to
figure out: did a state that has for a long time been one of the most developed states in terms of per capita income, and
was already improving at a rate higher than the rest of the country, accelerate further and significantly increase its lead
under Mr. Narendra Modis stewardship? Our analysis shows that this did not happen. Both Maharashtra and Gujarat
improved upon an already impressive growth trajectory in the 2000s, but the margin of improvement was too small to
be statistically meaningful. So while Gujarats overall record is undoubtedly very good all through the last three
decades, its performance in the 2000s does not seem to justify the wild euphoria and exuberant optimism about Modis
economic leadership. Of course, it is possible that there are trends that this evidence cannot capture. Maybe with a
longer time horizon, the effects of some of Mr. Modis policies will show up in the evidence, although given that Mr.
Modi is now in his fourth consecutive term of power, this argument is not very strong. It is also possible that if Mr.
Modi comes to power at the centre, he may well achieve a turnaround of the Indian economy due to his governance
style. All that is possible in theory, but the existing evidence is insufficient to support these views.
Concluding thoughts As Keynes had famously said in the context of stock market bubbles, often our decisions to do
something, the full consequences of which will be drawn out over many days to come, can only be taken as the result
of animal spirits a spontaneous urge to action rather than inaction or rational calculation. In politics, too, maybe it is
animal spirits that rule, not rational calculations based on statistical evidence. However, while election campaigns are
run on slogans and sentiments, good governance depends on facts and figures. Bubbles eventually burst, and waves of
euphoria recede. At some point the numbers need to add up.
A slighted different version of this essay was published by the Outlook magazine in their March 22, 2014 issue. We
would like to thank, without implicating in any way Sanjay Banerji, Pranab Bardhan, Francesco Caselli, Parikshit
Ghosh, Reetika Khera, Ashok Kotwal, Milind Murugkar, and Sudha Narayanan for helpful feedback. We thank Ishan
Bakshi for sharing data on inequality with us. Editorial help from Manishita Dass is gratefully acknowledged.
Notes: 1. Per capita income of a state implies Net State Domestic Product (NSDP) per capita.
2. In the simplest set-up, difference in differences compares the outcomes of two groups for two time periods. One of
the groups is exposed to a treatment (for example, a policy change) in the second period but not the first. The second
group is not exposed to the treatment in either period. To provide a clean measure of the impact of the treatment, the
difference in differences technique subtracts the average gain of the second (control) group over the two periods from
that of the first (treatment) group. This removes biases arising from permanent differences between the two groups as
well as biases arising due to general (trend) changes in the treatment group over time.
3. The larger a state, the harder it is to achieve improvements in per capita average economic indicators. Therefore,
comparing a large state like Uttar Pradesh (UP) and a small state like Nagaland can be misleading and it is better to
compare like with like. However, we have to keep in mind that even among the major states, turning around a state
with a larger population is a harder task.
4. Gini coefficient is the most commonly used measure of inequality. It captures the extent to which the distribution of
income among individuals in a country deviates from a perfectly equal distribution. Thus, a Gini coefficient of 0
represents perfect equality while a coefficient of 1 represents perfect inequality.
Data Sources: Per capita income: State level per capita income implies real net state domestic product (at constant
prices) per capita. These data were downloaded from the Reserve Bank of India (RBI) website, available
athttp://www.rbi.org.in/scripts/AnnualPublications.aspxhead=Handbook%20of%20Statistics%20on%20Indian

%20Economy. Growth rate of state per capita income was calculated on a year-on-year basis using the formula y t - yt1/ yt-1 and these yearly figures were averaged to get the decadal figures.
Human development index (HDI):State level HDI data were downloaded from www.indiastat.com for years 1981,
1991 and 2001 and from the UNDP India report Inequality-adjusted Human Development Index for Indias States
2011 by M.H. Suryanarayana, Ankush Agrawal and K. Seeta Prabhu for 2011, available Inequality:State level
inequality data is obtained from calculations of Gini coefficients based on National Sample Survey (NSS) estimates of
monthly per capita consumption expenditure at uniform recall period (URP). We thank Ishan Bakshi for sharing this
data with us.
Poverty:State level data on percentage of people below poverty line for years 1983, 1987, 1993, 2004 and 2007 are
obtained from Mukim and Panagariya (2013) A Comprehensive Analysis of Poverty in India, available
athttp://academiccommons.columbia.edu/catalog/ac:166686. These data were calculated using the 1973-1974
Lakhdawala poverty lines. Data for 1999 is obtained from P.K. Nayak, S. K. Chattopadhyay, A. V. Kumar and V.
Dhanya (2010) Inclusive Growth and Its Regional Dimesions RBI Occasional Papers, Vol 31, No. 3. The data were
originally collated from Planning Commission of India.
What can the private sector offer Indian education? Do private schools in India really produce more learning, or
do they deepen social and economic divides without adding much in terms of actual skills and education? Based on a
review of the existing literature, this column sheds light on these questions, and discusses avenues for future research
that may help understand how private players may be leveraged to address the learning crisis in the country. Few
things in education policy in developing countries are more contentious than what the role of the private sector should
be. Much of the dispute comes from contrasting opinions about the nature of private schools as they exist today:
should we think of them as offering a substantial route for actually delivering quality education for many millions of
children, especially in the face of severely underperforming government schools? Or should we think of them as
essentially thriving on cream-skimming students from more privileged backgrounds, deepening social and economic
divides but adding little in terms of actual skills and education. These are empirical questions. Here, I present some
evidence, both from my own research and that of others, which speaks to these issues directly in the Indian context.
More importantly, I discuss the avenues which current research hasnt focused on but which are critical for
understanding how the private sector may best be leveraged in India.
Do private schools really produce more learning?It is undisputed that private school students perform better on a
range of tests than government school students. It is also undisputed that probably a substantial portion of this
difference is accounted for not by the schools but by the type of households these children come from and their greater
socioeconomic advantage in short, if the private schools had to teach the students currently in government schools,
they might not be able to do better either! This has been the key question on which quantitative research on private
schools has focused on in India and it seemed that similar children in private schools scored better than their peers in
government schools even accounting for those of the background characteristics that were observed in the data (Desai
et al. 2009, French and Kingdon 2010). And yet consensus was difficult who could say whether the data
observedeverything that differed between private and government school students?
This impasse changed this year with two studies which significantly advance the robustness of our knowledge in this
area. In recent research, I used panel data on two cohorts of children in Andhra Pradesh (AP) and Telangana to study
whether the amount children learnt in private schools (the value added of private schools) differed from that in
government schools (Singh 2015, journal version here). The basic idea is simple: to the extent that unobserved factors
are already reflected not only in a childs test scores now but also his test scores from earlier years, we can get much
more robust answers to this question by studying the amount children learn over time in government vs. private
schools rather than what they know at any one point. In a nutshell, I find that in the core academic subjects
Mathematics and Telugu private school students in primary grades were not learning any more than government
school students. But they were learning a lot more English and that is why parents said they were sending children to
private schools in the first place (James and Woodhead 2008). In Telugu-medium schools, these extra English skills
were gained without anyloss in core math or Telugu skills. At secondary school ages, theres somewhat more evidence
of greater learning in math and Telugu but the gains are modest, and certainly far from where any absolute
expectation of what children should know at the end of secondary schooling. I also dont find any evidence that private
schools increase students psychosocial skills, specifically the extent to which they believe they can shape their future
outcomes through their own efforts (agency) or their belief in their own abilities (self-efficacy). These results agree
very closely with results of Muralidharan and Sundararaman (2015) also coincidentally in AP at the same time
and also published this year, thus boosting the confidence in the results from both studies even more; see here
for Karthiks summary of his work. So the basic message seems quite clear: private schools do seem to produce more
learning than government schools but, with the exception of English, these differences are not very large.
What about the effect of private schooling on the inequalities in learning? Concerns about whether private schools
cause higher achievement are only a part of the story - the bigger concern for many scholars is about whether they
entrench socioeconomic advantage by providing greater opportunities to those from more advantaged backgrounds
(see for example, Woodhead, Frost and James 2013). It is clear that students in private schools tend to be from richer

backgrounds, urban and upper castes. The differences are, though, perhaps less muted than most observers assume:
while 30% of students in government schools are first-generation learners, so are 20% of private school students
(Muralidharan and Kremer 2008). In thinking of Indian private schools, as with other aspects of the education system,
we seem to think disproportionately of only the top end. In some dimensions, most notably gender, the gap in private
school attendance seems to have widened over time while in others, such as the rural-urban gap, it may have narrowed
in recent years (Maitra, Pal and Sharma 2011, Azam and Kingdon 2013). Still, it remains very much the case that
access to private schools is far from equitable. Does this matter for the outcomes of children? A leading argument
against segregation of students by socioeconomic status or other markers such as race and caste has been that being
seated in the same classrooms and studying together has independent learning value and teaches the students valuable
social skills. In a particularly important contribution, Gautam Rao at Harvard University looked at the effect of
bringing in students from poorer backgrounds (Economically Weaker Sections) in Delhi to elite private schools, on
both the rich and the poor students. He finds that having poor classmates makes wealthy students more social and
generous, more likely to volunteer for charities in schools, and less likely to discriminate against poor children. For
any educational system, these are important outcomes. And this comes without an increase in classroom disruption, or
lower test scores in math or Hindi: the only sign of a trade-off at all is a modest (and only marginally significant)
decline in English scores (Rao 2013).
So, in sum, the empirical evidence thus far on stratification does seem to indicate that there are good reasons to be
concerned: the social and economic inequalities in access exist, in some dimensions they may be increasing, and they
have important effects on the non-academic (but crucially important) outcomes of children. The unexplored (and
unevaluated) potential of the private sectorThe findings summarised above do not, however, mean that the private
sector has little to offer by way of improving the dire learning crisis in Indian schools. What are the ways in which it
might do so? One mechanism, previously written about by Karthik Muralidharan, looks at how Clause 12 of the Right
to Education (RTE) Act may be much better designed to maximise the chances of improving both test scores and
equity within the current system and the current legal framework 3. This is, of course, an important (and feasible)
reform that deserves close attention.
But the private sector in education, including all non-State providers of education, might well be able to offer much
more. The most unrecognised role of the private sector, but perhaps the most important, is as an engine of innovation.
Thinking of the sources of knowledge about learning levels in India in the past decade, and how to improve them at
scale, two of the most significant advances have been (a) the documenting, year-after-year, of the immense and
stubbornly persistent learning deficits by the ASER reports and (b) the potential for unqualified volunteer teachers to
increase learning significantly for children lagging behind the curriculum. The initial impetus on both these fronts
came from civil society and non-State actors, especially the Public Report on Basic Education (PROBE) and the
extensive work done by the Non-governmental Organisation (NGO) Pratham. Nor are NGOs and civil society groups
the only possible source for such innovation. Various outlets have written about the intriguing example of the Bridge
academies in Kenya, which with a heavily-scripted curriculum aims to standardise pedagogy and provide the teaching
methods support that most teachers have not received whether because they never did get teaching qualifications or,
as likely, the teaching qualifications just did not prepare them for the practical aspects of classroom management,
lesson planning and day-to-day pedagogical practice. Several organisations in India are also experimenting with
pedagogical reform (see, for example, this article on XSEED Education) and better practices in this dimension could
be substantially rewarding. How can these innovations from the private sector help transform Indian education, given
that non-State organisations themselves are unlikely to reach the scale of the public education system and, in the case
of the commercial private sector, suffer from the same selection on ability to pay as the private school sector itself? At
least three models spring to mind.
The first is the model of Private Public Partnerships (PPP), akin to Charter Schools in the US, where the
government pays for the students at the rate in government schools (no top-up fees are collected) and ensures
admissions are non-selective but private operators decide how the money is spent and how teaching and classrooms
are organised. Although often controversial, this model is already being considered or experimented upon by various
state governments (see for example, this school in Delhi operated by Ark Indiaor the draft policy in Rajasthan).
Experimenting with this model can help answer two key questions that we do not yet have the answers to: first, we
know that the private sector can produce similar gains in learning to private schools at a third the total cost (see Singh
2015, Pritchett and Aiyar 2014) but can it translate higher funding into much better results? And second, what is the
effect of inserting a high-quality education provider into the market for education - does it lead to an improvement also
in other schools through competition? The second is the model where innovations are developed in the private sector,
enabled by much greater decentralisation, but then adopted by the public sector. An example here is Prathams
Teaching at the Right Level (TaRL) approach developed through their extensive work on remedial education but
now also extended to government schools. Whether all such knowledge transfers will work in government schools
remains, of course, an empirical (and evaluable!) question since it may be that the binding constraint of weak
governance is too strong. The third is a model where private providers supplement existing government schools.
Across the country, a very large number of students go to after-school private tuition so there clearly is a demand for

this sort of instruction which is currently met by a large number of unorganised small-scale tutors with little causal
evidence of impact. It is in this space of supplementary and remedial instruction that larger-scale private providers
could significantly raise quality by promoting suitable pedagogical approaches for instance, the Balsakhi programme
promoted by Pratham or computer adaptive learning tools such as the Mindspark centres in Delhi run by Educational
Initiatives.
Where does all of this leave us? The existence and the rapid proliferation of low-cost private schooling provide a
stark indictment of the current state of schooling. As Karthik Muralidharan memorably summarised, What does it say
about the quality of your product that you cant even give it away for free? That said, at least on the basis of the
evidence we now have, we certainly should not expect the private sector alone to provide a substantive solution to the
learning crisis in our schools in terms of the basic abilities to read, write and do simple math: while private sector
schools are certainly more productive, by producing the same learning gains at a fraction of the total cost spent per
student in the state sector, the absolute increment in these fundamental skills is very small compared to the enormous
gap between students actual achievement and any objective standards of quality we expect a functioning school
system to deliver. And it isprudent, even when documenting the greater productivity or the modest absolute gains in
the private sector, to worry about the effects of a stratified schooling system. Vouchers and other means to enable
poorer students to access private schools may help keep inequality of access in check but a lot depends on the precise
design of policies (and whether they can be manipulated): past experience on voucher schemes havent always been
successful in this regard (as the Chilean example shows; Hsieh and Urquiola 2006). The private sector, through greater
innovation and greater nimbleness than the government schooling system, might well provide the pedagogical
innovations needed to address the incredibly low productivity of Indian schools. Perhaps through PPP models and
voucher schemes, it can also demonstrate the true potential of learning levels that current per-student spending in the
state sector could produce. And through supplementary and remedial education, it might mitigate the effects of a
failing school system. Eventually, however, solving the learning crisis comprehensively will require substantive reform
in the government schooling system much as we might wish to ignore the elephant in the room of weak governance
in government schools, that probably still is where the most promising reforms lie.
Notes:Data was collected between 2002 and 2011.
These models, called value-added models, have been shown to replicate the same results as experiments and quasiexperiments in several recent projects (see for example, Chetty et al. 2014, Deming 2014, Kane et al. 2013 and
Andrabi et al. 2013).
Clause 12 of the RTE reserves a proportion of seats in private schools for children from poorer households.
- See Building an outcome-focused approach to elementary education financing in India
Government expenditure on elementary education in India is designed to promote a system that is accountable for
schooling rather than learning. In this article, Yamini Aiyar, Director of the Accountability Initiative at the Centre for
Policy Research, proposes a novel approach to governing public financing of elementary education that would give
more flexibility to states over planning and budgeting, and incentivise them to work towards learning goals. It is a
well-recognised truth that the current institutional framework for delivering elementary education in India is designed,
incentivised and thus accountable for the provision of schooling inputs rather than improving learning outcomes (see,
for instance, Prichett 2014, Aiyar 2013,Muralidharan 2013, Walton and Mukherji 2013). Yet, even as discussions
around the New Education Policy consider the different approaches needed to improve learning outcomes in Indias
elementary schools, the issue of institutional reforms has received scant attention.The approach to financing
elementary education programmes is of particular relevance here. Financing gains significance not so much from the
perspective of adequacy (although public debate has largely been preoccupied with the issue of how little India spends
on elementary education), but rather due to the role that financing mechanisms play in shaping the incentive structure
that governs administrative behaviour. As Accountability Initiatives PAISA (Planning, Allocations and Expenditures,
Institutions: Studies in Accountability) surveys 1 highlight the current financing architecture of elementary education
clearly favours a rigid, one-size-fit-all system that is aligned to achieving the goal of school inputs provision rather
than being responsive to learning needs.
Understanding the current financing architecture of elementary education Let us first understand the problem.
Elementary education programmes in India are financed both by the Centre and state governments. The bulk of the
share of state government expenditure on elementary education is on payment of teacher wages. For example, in states
like Rajasthan, teacher wages account for over 90% of the state budget (Aiyar et al. 2015). Consequently, the central
government - through its flagship programme for achieving universalisation of elementary education, the Sarva
Shiksha Abhiyan (SSA) - finances the bulk of non-wage related expenditure. In recent years, central government
financing has increased by over nine-fold, making it an important player in shaping state-specific education policy. In
poorer states like Rajasthan, Madhya Pradesh and Bihar, SSA accounts for between 40-50% of the total state budget
(Aiyar et al. 2015). In principle, SSA is supposed to be a bottom-up scheme, responsive to school needs. States are
expected to plan, based on a process that begins at the school level through the creation of school development plans.
These plans are then aggregated at the district level, which in turn provide the foundation for state plans. Annual
budgets are approved through a process of negotiation between the state and central government. The financing

structure however, promotes just the opposite. School committees charged with planning have expenditure discretion
over less than 1% of the elementary education budget. This is one important reason why school development plans are
almost never made. The same pattern is repeated at the state level. State governments are rarely given a budget
envelope and the final approved budget bears little resemblance to what states had initially demanded in their annual
plans submitted to the Ministry of Human Resource Development (MHRD). In some years the gap between proposed
and approved budgets can be as large as 50%. Further, in the process of negotiating budget cuts, central government
priorities inevitably take precedence. This is evident in a close reading of the Annual Planning and Budget Meeting
minutes, which document many instances where state-specific proposals are often rejected if they do not fit within the
central governments prescribed framework. This pattern is repeated at the district level. As a consequence, states,
districts and schools have no incentive to measure, assess and articulate their learning needs and to link budget
requirements to these needs. Planning is thus a mechanical exercise and budget allocations often have little relevance
to school needs. It should be no surprise then that precious resources allocated to elementary education are often spent
whitewashing school walls rather than on improving teaching-learning processes!
Any effort to incentivise learning is further compromised by the fact that all plans and budgets are made using DISE
(District Information System for Education) data. While data-based planning is critical to ensuring that plans are linked
to needs, DISE does not have a single indicator on learning. This coupled with the fact that states and districts have
few, if any, incentives to make need-focused plans, ensure that annual plans and associated budgets are no more than a
mechanical calculation of costs linked to school infrastructure needs as recorded in the DISE database. As many
district officers interviewed during the PAISA surveys have often described, the annual plan process is no more than an
exercise in creating an excel sheet, photocopying pages and finally, spiral-binding them!
A novel outcome-based approach to financing The good news is that two, seemingly unrelated recent policy
changes, afford the government a unique opportunity to address these failings. The first is the effort to undo the
current, central government-led, one-size-fit-all model of financing by shifting the locus of social sector spending to
state governments as proposed in the 14th Finance Commission. The second is the countrywide effort initiated by the
MHRD to measure learning progress by financing state-level learning achievement surveys (SLA). For the moment,
the governments attempts to implement these two policy changes lack imagination. The debate around the 14th
Finance Commission recommendations remains limited to a few tweaks to centrally-sponsored schemes to induce
some degree of flexibility and Centre-state negotiations over the quantum of financial contribution 2. And the SLAs are
being implemented poorly as state governments grapple with constraints of low capacity, limited technical knowhow
and little understanding of how to use the data collected through the SLAs.However, if the government choses to use
these two policy shifts imaginatively, there is room to significantly alter the institutional architecture for elementary
education. Accountability Initiatives research proposes an alternative financing mechanism that leverages these two
opportunities replace the SSA financing model with a three-window financing model that incentivises states to build
long-term, learning focused plans on the one hand and rewards performance on the other.
The first window would be an annual grant for states to meet their basic infrastructure needs. Much of this has been
prescribed by the RTE and most states in the country are still struggling to meet these requirements. For the moment,
financing for the RTE is based on annual plans made by state line departments and approved by MHRD. Rather than
spending energy on the same exercise every year (the entire state education department spends at least 2-3 months a
year making, at times faking, annual plans and budget estimates) state governments should come up with a three-year
budget estimation which can be funded annually by the centre. This will introduce some level of predictability in the
current planning system as states will have a ballpark amount of money that they can expect from the centre. Based on
Accountability Initiatives estimations of current expenditure, this window should account for no more than 50% of the
current annual SSA budget. This funding window will address commonly expressed concerns of equity in financing
among states and ensure that poorer states are compensated. In keeping with the 14th Finance Commissions principles
of greater state flexibility over planning and budgeting, the second window should be an untied learning grant given to
the states for a 3-5 year period, based on a long-term leaning strategy which should be linked to clearly defined
learning targets. Since this is an untied grant, the Centre will no longer need to spend time playing headmaster
determining line-item wise expenditure for state governments. Rather, it can focus on providing technical support and
guidance to states by undertaking assessments and facilitating knowledge sharing across state governments.
Finally, the third window could link the MHRDs effort to undertake learning assessments with state plans and budgets
by offering a performance-based, financial reward to states against set targets. Not only will this give much needed
teeth to the SLA process, it also has the potential of creating competition amongst states, and over time building
greater transparency and public debate on learning levels in Indias schools.
Of course, there are limitations to such an approach. Decentralisation of funds to the state government is only one in a
long marathon of steps that need to be taken to enable a learning-focused approach to delivering elementary education.
Moreover, there is a risk of state governments gaming the system as they compete with each other to race to the top.
But given the extent to which the input-focused accountability is entrenched in the everyday practices of the education
system in India, inducing performance-based accountability through financing may well result in much needed longterm changes in the culture of accountability and institutional organisation. At any rate, it will serve to bring the issue

of financing, incentives and institutional reforms to the centre of the debate on education. This is critical to building an
appropriate education policy for India and must become part of the debate on the New Education Policy.
Notes:PAISA is the countrys largest expenditure tracking survey for elementary education undertaken by
Accountability Initiative. The PAISA surveys track plans, budgets and fund flows from the Government of India down
to schools through a national survey implemented in partnership with ASER (Annual Status of Education Report)
Centre as well as a series of in-depth district focus studies. Survey reports are available at www.accountabilityindia.in.
The major change proposed by the 14th Finance Commission in SSA is a shift in the state-center fund share from
75:35 to 60:40.
Financial Literacy: Need of the hour
Financial Inclusion is the buzz word today. There are several ways in which power centre in Delhi and the regulators
are trying to achieve this goal. Industry is also playing its role in achieving the mission. While there are regulatory and
business issues in attaining this objective, financial awareness is a critical element in meeting this goal, that needs
serious attention. When we talk of inclusion, we are talking of those who are currently not even included in the system
but what about the small percentage which does have a pie in financial savings. Do they also sufficiently understand
the appropriate ways to save, invest, insure and financially secure their future? From what we observe around us and
the number of issues that keep arising, the answer is a clear 'No'.
While some of us may be aware of the need to invest, it is "what and where", which becomes a road block. Awareness
on need to save and insure should start early in Life. How do we do this? Most importantly financial literacy should
begin at school stage so that kids are aware of this important concept at an early age which can help them influence
their families on importance of savings and insurance as also enable them to start saving and insuring at a much
younger age. Just as we learn about basic concepts of science, math, history, language et al. at school, similarly
financial awareness and education should be made a part of school curriculum.
It is important to understand the concept of financial literacy and its appropriate components. Financial literacy as
defined by Wikipedia refers to the knowledge required for managing personal finance. It encompasses an
understanding of how to use credit responsibly, manage money, minimize financial risks and derive long-term benefits
of savings. The methodology of imparting this message should be effective and interesting enough to draw the
attention of the child to this complex but important aspect of life. It should be taught in a manner that it becomes a part
of our culture. They should be encouraged to have piggy bank for small savings and be also able to appreciate the
miracle of compounding. The child in school must also learn that his parents need to save to maintain a certain
standard of living in their old age and provide for appropriate level of education for their kids, have to be appropriately
insured to protect their lives from any uncertainty, have health insurance cover to meet the medical expenses in case of
contingency, and need to stay debt free. The elements of the curriculum should therefore be such that help educate on
following issues; The importance of safeguarding the money. Planning for retirement. To understand complex financial
products, which may offer high rewards, but may be associated with high risks. To invest wisely, so as to maximize
earnings and minimize risk exposure. How does financial literacy help?
Indian women bridging gender gap in financial literacy: MasterCard MUMBAI: Whilepeople in mature markets
may prove to be better financial planners overall, it is women in emerging markets who remain dominant when it
comes to basic money management, a MasterCard survey has found. In terms of overall financial literacy, Taiwan and
New Zealand tied for first place with a score of 73 index points each. On the other hand, China and India were ranked
the lowest in the basic money managementindex scoring 55 index points each. Women registered slightly better scores
than men in Asia/Pacific's emerging markets, noted the third edition of the financial literacy survey.
"It is encouraging to see that women are at par with men when it comes to financial literacy, but there is still a lot of
work to be done to improve levels of financial literacy across the board," said TV Seshadri, division president, South
Asia, MasterCard.The respondents were asked questions on three aspects of financial literacy - basic money
management skills, investment knowledge and financial planning. The level of basic money management skills were
sought to be determined in terms of budgeting, savings, and responsibility of credit usage. The study, conducted
between April 24 and June 10, 2012, posed questions to 6,904 respondents, aged between 18 to 64 years across 14
Asia/Pacific countries.
India lags behind China in financial literacy; ranks 20th in Asia Pacific Middle Eastern region
(India with a score of 60 points) NEW DELHI: India ranks 20th in financial literacy, four spots behind China, in the
Asia Pacific Middle Eastern region, says a survey. India with a score of 60 points occupies the 20th slot in
theMasterCard Worldwide Financial Literacy Index for the first half of 2012, it said.
However, China was ranked 16th with a score of 64 points on the index.
Interestingly, Indian women are closing the gender gap on financial literacy as both males and females in the country
scored 60 points each on this front. "The index has provided fresh insights into the aptitude and knowledge of
managing finances for women in India. It is encouraging to see that women are at par with men when it comes to
financial literacy, but there is still a lot of work to be done to improve levels of financial literacy across the board,"
MasterCard Division President (South Asia) TV Seshadri said.The survey considered three aspects of financial literacy,

including the basic money management skills, investment knowledge and financial planning to determine in terms of
budgeting, savings, and responsibility of credit usage.
The survey was conducted among nearly 700 people from 25 countries in Asia Pacific and Middle East region between
April and June 2012. India got 55 points each in investment skill and basic money management and scored well 72
points when it comes to financial planning. In terms of overall financial literacy, Taiwan and New Zealand tied for first
place with a score of 73 index points each. It was closely followed by Hong Kong, Australia and Singapore, with a
score of 71 index points. However, women outperformed men in terms of financial literacy in countries such as the
Philippines, Vietnam and Malaysia.
India ranked lowest in basic money management skills: MasterCard NEW DELHI: India has been ranked lowest
in basic money management skills among Asia-Pacific countries, according to MasterCard's latest Index of Financial
Literacy. India with 59 index points was ranked at the 15th place among the 16 countries surveyed ahead of Japan
which was at the bottom with 57 index points.In overall financial literacy, New Zealand continued to rank number one
with a score of 74 index points, ahead of Singapore (72 index points) and Taiwan (71 index points).
"Even though India's overall index is low, it is heartening that the country has showed improvement on the parameter
of financial planning," Ari Sarker, MasterCard South Asia Division President, said.
Sarkar further said: "Overall, however, the index highlights clear gaps in the financial literacy space and the need to
inculcate better budgeting, savings and responsible credit habits."
The survey was conducted between April 2013 and May 2013 with 7,756 respondents aged between 18 and 64 in 16
Asia- Pacific countries. The survey was conducted on three aspects of financial literacy, including consumers' basic
money management skills, investment knowledge and financial planning.
In terms of basic money management, India has slipped five index points lower as compared to last year. India scored
50 index points, down from 55 index points in the 2012 H1 survey. New Zealand retained its top ranking in basic
money management with the index at 77 points.
Myanmar ranked top in terms of financial planning with the highest index score of 88 index points, up 2 index points
from 2012 H2, which involves savings and planning for the unexpected and retirement.
India also showed notable improvements from 72 index points in 2012 H1 to 76 index points in the current wave of the
survey. However, it is still among the bottom 5 in the Asia-Pacific region.
In terms of investment knowledge, Asia-Pacific's overall index score dropped marginally from 59 index points in the
previous survey to 58 index points.
China topped the ranking with a score of 68 index points, up three points from the previous survey. India showed a
slight improvement with a score of 57 index points compared to 55 index points in the previous survey.
Project: Financial Literacy Tools for Low-Income Americans with Limited English Proficiency
Background Poor Americans live on such razor-thin margins that they need to avoid a $39 credit card late fee that
effectively raids their savings budget. In collaboration with the nonprofit organization Doorways to Dreams Fund
(D2D), the research team is developing and evaluating "financial entertainment" designed to improve the financial
literacy of the working poor. Casual video games that teach a discrete lessonand forgo the the long-term
commitment and special skills required by traditional video gameshave great potential because they facilitate
repetitive engagement with lessons, create a "performative" learning environment, and and are very popular among
women. These engaging new products can be played on everything from mobile phones to personal computers, and are
more likely to encourage saving among younger, lower-income, and new workers than traditional financial education.
Overview As part of the new Financial Literacy Center established in 2009 with support from the Social Security
Administration, D2D developed two games, described above, which were released in November 2010. In the next
phase of this project, with support from the Financial Literacy Center, D2D will leverage these two games to reach
minority adults with limited English proficiency.
This project is focused on meeting the cultural and linguistic needs of Spanish-speaking Hispanic audiences through
the use of financial literacy video games. Such games hold tremendous promise as a way to attract financially
vulnerable Americans to the financial education they need, and are generally well suited to adaptation for more
specific audiences, such as a Spanish-speaking Hispanics.
Building on Year 1 work and leveraging the two games it created, this project is testing its theory that a tailored
approach to financial education content and delivery can generate higher take up (and, potentially, impact) for a lowincome Spanish-speaking, Hispanic audience. We will count how many people visit and use the game sites to learn
about the game players themselves and track players progress over time. We capture anonymous player data through
voluntary site registration, voluntary surveys, thoughtfully designed in-game questions that do not interrupt game play,
and an array of web site metrics. We will also conduct six small sample formal testing sessions to assess pre- and postplay levels of knowledge and self-confidence.
Using Video Games to Teach Financial Literacy Taking a Bite Out of Debt and Spending For low-income adults,
building retirement savings can seem completely out of reach, given pressing needs to pay down debt and manage
daily expenses. InBite Clubwhich was inspired by Diner Dash, one of the most popular casual games of all time
players manage a "day club" for vampires. In the course of the game, players experience the familiar tension between

servicing debt, spending money, and saving for the future. By featuring vampires, who live forever, the game
highlights the impact of long-term savings over a 45-year span in a 15-round game.
The game aims to instill three learning objectives:
Save for retirement. Players' characters long to move back to the No-Sun Belt for retirement, but because vampires
are immortal, they must save a substantial amount of money to finance their retirement dreams.
Pay down debt. Players start with credit card debt from the Werewolf Bank, which was used to start the club. Before
they retire, they must pay off student loans from their university business classes at low annual percentage rates.
Manage current consumption. The club must be managed effectively to continue to satisfy consumers. Players can
purchase various upgrades, some of which are valuable (needs) and some of which are merely aesthetic (desires).
Rooting Out the Killer Bunnies
For low-income adults, many poor financial decisions result from a failure to appreciate how quickly debt can
accumulate, how important it is to build a habit of saving, and how the misuse of debt will sabotage efforts to build
savings. Farm Blitz, which was inspired by two extremely popular casual video gamesBejeweled and FarmVille
has players take on the role of farmers. As the game unfolds, players experience firsthand how quickly compounding
debtfrom high-interest credit cards and pay-day loans, for examplecan make it impossible for saving habits to
take root. By lining up a row of three identical crops, players cause the crops to be "harvested," at which point earnings
from the harvest are placed in a cash account. But just as farmers have to wait until the end of the growing season to
get paid, players do not have access to their cash accounts until the end of a round of play. If they want to spend money
during a harvest, they must borrow it. Like Bite Club, Farm Blitz is designed to instill several lessons, particularly the
lesson that high-interest debt undermines saving:
Minimize high-interest, short-term debt. Rabbits, with their reputation for rapid reproduction, represent forms of
high-interest debt. Like short-term debt products for low-income adults, rabbit debt grows as a result of a cascade of
events that mirror real life. Because the interest rate for the rabbits is high, the more rabbits the players introduce to
their farms, the more quickly they reproduce. Just as high-interest debt destroys financial reserves, rabbits consume the
farm's crops before they can be harvested.
Maximize low-interest, long-term savings. At the end of a round, players can take some of the cash they've earned
through harvesting crops and save it by purchasing a tree for their farm. Like a savings account, trees grow in value
through compound interest with a relatively low rate. Like a certificate of deposit (CD) or a U.S. savings bond, trees
are purchased in dollar denominations and redeemed at their value plus the interest earned.
Understand compounding interest. Both rabbits and trees grow at compounded rates. Just like credit cards and
savings accounts, rabbit debt grows at a much higher rate than tree savings.
Testing Effectiveness Both games were developed for and with low-income adults. At three key development
milestones (first playable, alpha, and beta) for each game, D2D convened testing groups, with participants recruited
through a local community-based human service agency in Boston. The six groups consisted of low-income, minority
females, 18 to 35 years old, with diverse ethnic backgrounds. The testing groups were asked to play the current version
of the game, provide feedback throughout play, and contribute to small focus groups after play concluded. At the first
stage, the qualitative feedback helped refine the learning objectives of the games to ensure that the approach and
material engaged the intended audience. At the alpha and beta testing sessions, it was difficult to get the testers to stop
playingsome even returned to play the game after the testing session was over. When they took an informal survey
of their knowledge and skills, preliminary results showed promise. In the future, the games will undergo more rigorous
evaluation as funding allows.

Financial literacy programs help low-income families

At first, John Taylor, education coordinator for Chicago Commons Employment Training Center, had
doubts about the idea of partnering with a local bank for a financial education program. The Center's
students are primarily women who are transitioning from welfare to the work force most of them have
not had previous relationships with financial institutions. Once the program with LaSalle Bank was
underway, however, he witnessed some exciting transformations.

"This program proved to be a very valuable experience for the students and for me. There is a whole
population of people out there who have never interfaced with banks and who have no experience with
saving or creating a budget. This program helped the students, whose connection to money was based on
spending or making sure not to accumulate too much to avoid welfare penalties, to get money to work for
them," Taylor recalls. Eighty-eight percent of the graduates of Chicago Commons and LaSalle's
partnership opened savings accounts.

A Complex Financial World

Chicago Commons and LaSalle's partnership was initiated by the Chicago CRA Coalition, a group
convened by Woodstock Institute, a 27-year-old nonprofit that does research and advocacy on community
reinvestment. In a recent study of financial literacy, Woodstock found that the financial life of the typical
American family has become increasingly complex. New products and technologies are fundamentally
changing the ways we relate to money. The avalanche of credit card and home equity solicitations that
families receive through the mail is just one example of the significant increase in the marketing of
financial products. At the same time, the financial world around us is consolidating and restructuring at a
breathtaking pace. Financial modernization legislation recently passed by Congress allows banks,
insurance companies, and securities firms to merge with and acquire one another for the first time since
the Great Depression, dramatically altering most people's experience of financial services.
For every basic need food, shelter, medical care, education, and retirement financial planning has
become not just a convenience but an essential survival tool. At the same time, responsibility for financial
well-being is increasingly being placed on the shoulders of individuals. Welfare reform has moved
millions from government assistance to the ranks of the working poor or permanent job-seekers.
Employment-based contribution plans have begun to replace defined benefit programs as the basis for
retirement savings, while the future of Social Security has become unclear.
Conservative estimates put the number of "unbanked" households at 10 percent of the U.S. population, or
over 12 million people. The poor, young people, seniors, immigrants and minorities are
disproportionately represented in the ranks of the unbanked. Families that are unbanked usually pay more
for basic financial services, do not have the security of an insured deposit account, and have trouble
building a credit history that would enable them to rent an apartment, get a job, or buy a car.
"Financial illiteracy" can compound these problems. Without an appreciation of money concepts and an
understanding of financial options, people are likely to pay more than they have to for financial services,
fall into debt, damage their credit records, over-invest in life insurance, or declare bankruptcy. Poor
financial choices harm both individuals and communities. Families become more vulnerable to sudden
economic shocks such as health emergencies or unexpected job loss. Decreased family stability, increased
foreclosure risks, and disinvestment in homes and local businesses challenge already disadvantaged
lower-income communities. These problems are exacerbated in certain communities by the absence of
any truly affordable financial options to choose from.
Financial Education Helps
The good news is there is evidence that financial education can improve financial literacy and, even more
importantly, change financial behavior for the better. Financial literacy programs can help families save
and build assets and, if done properly and in partnership with financial institutions, can be a direct path to
helping families become banked. In fact, financial education is a necessary though not sufficient
condition for reducing poverty.
Although many major institutions teach personal finance, there is an enormous gap between the amount
of training needed and the amount provided. Many states do not have consumer education mandates for
schools, and there is a growing trend to "de-mandate" existing requirements. The Cooperative Extension
Service and nonprofit consumer credit counseling agencies provide financial literacy training, but their
resources and audiences are limited. Employer-based programs are very limited in scope. Finally, large
financial institutions provide little financial literacy training, especially for low- and moderate-income
people. In fact, institutions with the least resources, such as community development credit unions, often
far outshine large, multi-state banks in this area.

This is where the experience of the Chicago CRA Coalition and the role of community groups comes in.
Woodstock staff and members of the Coalition have partnered several major local banks with community
groups with the goal of seeing more families using traditional financial institutions such as banks and
credit unions rather than relying on high-cost check cashers.
Banks have an obligation under the Community Reinvestment Act (CRA) to provide loans, investments
and services in all parts of their service areas, including low-income neighborhoods. Community
organizations can use CRA as well as the positive experiences that they or other groups have had working
with different financial institutions to encourage banks to work with them on financial literacy programs.
Sometimes financial literacy can be a part of a larger campaign to increase lower-income families' access
to basic financial services. For example, the CRA agreement that the Chicago CRA Coalition negotiated
with First Chicago NBD/Bank One upon the merger of the banks in 1998 called for the bank to do a
feasibility study of a pilot program for lifeline bank accounts. Woodstock staff and members of the
Services Task Force of the Coalition met with bank staff on a regular basis for six months to develop
account features, create marketing strategies and implement financial literacy programs. The resulting
"Alternative Banking Program," which started in three low- to moderate-income Chicago neighborhoods,
has since expanded to six neighborhoods and has resulted in over 1,500 checking and savings accounts,
the vast majority of which belong to the previously unbanked. The Coalition continues to meet with Bank
One to monitor and evaluate the pilot, which will hopefully be significantly expanded.
The Role of Partners
These types of partnerships work well because both parties bring different areas of expertise to the table.
The principal strengths of community groups in offering financial literacy training are their keen
understanding of the specific needs of their constituents and their ability to tailor programs to fit those
needs. Without partnerships with community groups, many banks are not experienced in dealing with the
unbanked population. The CRA Coalition works with branch managers and bank staff from community
reinvestment, compliance, retail, risk, and marketing departments to structure accessible trainings, and
encourages them to create new low-cost/low-fee products. This learning process can be time-intensive,
but is well worth the effort.
Banks, on the other hand, have resources money, time and staff that community groups often lack.
They can also provide a specific and vital incentive by offering bank accounts to families that previously
relied on high-cost check cashers for basic financial services.
That said, nonprofit agencies are increasingly structuring their own financial literacy curricula and
courses. A wide variety of social service and community institutions such as homeless shelters, immigrant
service organizations, and legal assistance offices are acutely aware that financial problems subvert
important goals such as personal development, health, family life, and community stability. Although
financial literacy is not their primary mission, these types of organizations are increasingly integrating
personal finance education into their programs. Many groups find this integrative approach effective,
since the training becomes a part of a program that already has a "captive audience," such as an English
as a Second Language class or a job training program.
Options are the Key
The importance of financial literacy programs can perhaps best be illustrated by the disastrous impacts of
the lack of financial options on low-income people. John Taylor of Chicago Commons remembers the
plight of one of Chicago Commons' students who missed the last day of class when the women opened
savings accounts. She was in an unstable situation at home, and the father of her child removed all of her
savings from under her mattress, leaving her with nothing. "She said that she just really wished she had

opened that account," says Taylor. "I told her there would be another chance, that I would be sure to help
her take care of it right away. This has definitely been a learning experience for all of us."
The Empowerment Zone Initiative is becoming a model program for community revitalization. Will these
programs lead to real community empowerment or will they become just a collection of tax incentives for
businesses? The initiative's experience to date offers clues and warnings.
Over the last several decades, the federal government has launched numerous programs aimed at "saving
America's inner cities." Model Cities, CAP Agencies, Urban Renewal, VISTA and others have focused
primarily on housing and social services. All have shown limited success, and are often pointed to as
examples of the dangers of addressing such intricate challenges with such huge programs.
The latest effort in this quest The Empowerment Zone and Enterprise Community Initiative (EZ/EC),
administered by HUD (and USDA in rural areas) focuses on economic development, primarily in the
form of tax incentives to businesses willing to work in and with local governments and residents of
distressed communities. Out of hundreds of applicants, 137 communities have been chosen in two rounds
of funding (1994 and 1998) to share in more than $1.5 billion over 10 years. Urban Empowerment Zones
received a total of $100 million each, while rural Zones chosen in the first round got $40 million and
those chosen in the second round got $20 million. Enterprise Communities are promised $3 million each.
The funds are accompanied by more than $2.5 billion in tax incentives to participating businesses. A
business in an EZ/EC hiring a resident who lives within the same EZ/EC can deduct up to $3,000 from
their taxes, for example. Tax-exempt bond financing is also available, and the federal dollars have already
helped communities leverage another $10 billion in local and private funds, says Dennis Kane, HUD's
EZ/EC program coordinator.
Beyond the funds, Kane says, the program is unique among federal efforts to find solutions for
disinvested communities because of its effort to encourage collaboration among local agencies,
participation from residents, and "strategic visions for change." For a site to receive EZ/EC money, all
those with a stake in the targeted communities must play a role in the effort, and the proposed plan must
demonstrate that the participants have committed to work together toward long-term sustainable
solutions.
Successes and Struggles
Relatively little has been written about the EZ/EC program in the five years since its launch, likely due to
the complexity of the program, and because no two sites are similar enough to lend the nationwide effort
to a simple overall assessment (though a large-scale, HUD-funded evaluation is due early in 2001). Even
the EZ/EC section of HUD's own usually excellent website was for a long while replete with out of date
information and faulty links. What press coverage there has been has tended to be local and focused on
the particulars of individual sites' performance and operation.
An investigation by the Cleveland Plain Dealer in September 1999 found that city's Empowerment Zone
to be falling quite short of the promise many thought it held. Barely one-quarter of the resources allocated
over five years had been spent, turnover among initiative staff was high, oversight was limited, and
management which was supposed to be largely in the hands of a Citizens Advisory Board was
gradually being taken over by City Hall.
But the report also found that the $32 million that had been spent was expected to create 1,063 jobs, and
that an additional 1,100 people went through training and went on to find work.

A March 1999 report by HUD's Inspector General found that HUD was not adequately assessing
performance of the Zones, nor making an effort to verify the accuracy of the performance reports
submitted by the sites themselves. Similar investigations of individual EZ/EC sites in recent years have
yielded reports citing examples of funds being misspent, funds spent outside the boundaries of designated
areas, and results being misreported.
But such critiques are to be expected in an initiative the size and complexity of EZ/EC, says Kane. What's
most important is that around the country communities are developing strategies at the grassroots level,
and thousands of people are finding jobs as a result. "Every Zone has had successes and failures," says
Kane. "This is really an experiment in trying to revitalize communities that have been declining for
decades." The plans and processes need time to mature and develop before any real determination of
success or failure is made, he adds, particularly because of the rigorous citizen participation requirements,
which often work at odds with a push for rapid results.
Creating Jobs
Every one of the EZ/EC sites has created or retained jobs, says Kane. While there's no total number for
how many jobs have been created since the program begin, he says the initiative can lay claim to putting
"tens of thousands" of people to work, citing 3,000 new jobs in Baltimore, and 2,000 in New York City as
examples.
Reporting and tracking such figures are challenging, says Kane, since each site's EZ/EC plan is part of a
larger strategy in its community, so it's difficult to say exactly which jobs are attributable to which
programs. The nature of the economic development work done by each site also makes it hard to track
success uniformly, he says. Some sites use EZ/EC money to link people with jobs that already existed,
while others use the program's tax incentives to encourage new or existing businesses to make their home
within the community.
"It's up to the community what types of jobs they want to create," he stresses. Some sites have focused on
finding part time jobs for students, while others have created hundreds of union positions in their
neighborhoods. Some offer simple placement services, while others have launched elaborate job training,
placement, and retention programs.
Soon after the Detroit, MI Empowerment Zone was designated, jobs did indeed begin to become
available, says Maggie DeSantis, executive director of Warren Conner Development Coalition, a Detroit
CDC. "We had a broken-down, empty, environmentally poisonous former auto plant, that's now being
rebuilt and the company [Daimler-Chrysler] wants to do neighborhood beautification and hire people
from the neighborhood," she says. "And that's great." The lines of the EZ, she says, were drawn with the
location of the auto plants in mind.
"Anyone who wanted to call this [the EZ/EC initiative] urban policy was nuts, though," she adds. "It's tax
breaks for businesses. What we need is a whole range of incentives to change the behavior of
corporations, make them accountable to the neighborhoods." Corporations should work directly with
neighborhood residents and other stakeholders to determine what they can bring to the community in
which they're based, suggests DeSantis. Then, any financial incentives or favorable decisions the
corporation desires regarding land use should be contingent upon it satisfying its commitment to the
community.
The Burlington, VT Enterprise Community program has created just that type of partnership, says Bruce
Seifer, Burlington's assistant director for economic development. "We've had an unbelievable community
process, and completely wrote the plan based on community feedback." As for jobs, the EC has created or
leveraged funds to create a community technology center that has provided computer literacy skills to
more than 1,600 people, build a 150,000 square foot department store employing hundreds of residents,

convert an abandoned industrial building into an artists' incubator with living, working and gallery space
for 12 low-income households, and more. They've funded programs training women in the building
trades, pairing mentors with students to prepare them for employment, and offering a range of funding
mechanisms for local businesses.
Having reviewed many of the sites' plans for a series of early EZ/EC assessments for HUD, David
Wright, director of urban studies at the Rockefeller Institute of Government at SUNY Albany, says that
most of the plans put a high priority on training and placement activity. "Most of the conversation was
that past efforts and current programs didn't do enough to tailor programs to specific skills for living
wage jobs that were available," he says. Plans he reviewed showed a great deal of direct involvement of
employers that had actual jobs they needed to fill, and strategies to provide general employability skills as
well as industry-specific skills. Some of the more advanced sites even looked at ancillary services like
transportation and child care he says. Training youth for jobs, particularly in the construction trade, was
another theme at many of the sites.
"Inherently the Empowerment Zone paradigm is paradoxical," says Wright, because of the place-based
focus. "Geographic targeting helps with focus, with community participation goals, and is rooted in a
desire for efficient use of resources," he says. "But the idea of drawing bright red boundaries and
focusing resources only within them is inconsistent with what might be best for the people and those
areas." In many cases, targeting efforts based on a geographic area is less important than building
linkages and informal networks across borders. The EZ/EC program is very strict about those borders,
however, and in some cases next-door neighbors have been treated differently because one was within the
Zone and the other was not.
While the focus is on jobs and business opportunities, Kane says that the initiative encourages
comprehensive planning efforts that look at all aspects of a community. "Even if you can get someone a
job, if it's a crummy place to live they're not going to stay there," he says. Of the range of plans
submitted, those that were looked at most favorably were those that looked at a range of impediments to
employment issues like transportation and child care, for example as well as those that proposed
efforts to coordinate service delivery to the families in the communities being served. First time
homebuyer programs providing low-cost loans to families who choose to move into the communities are
also common among EZ/EC sites, and some have included arts and culture programs. "We're looking for
strategic visions for change" in the plans, he says.
The neighborhoods chosen "have had very little voice in resource allocation," he explains, and by
providing some funds to fill gaps and leverage other resources, the initiative aims to help heighten and
sustain that voice.
Community Participation
EZ/EC is also distinguished by its commitment in principle, at least to community control of the
decision making at each site. Kane calls resident participation the "biggest success" of the EZ/EC
program, even among communities that didn't get grants. "I've heard it a hundred times from
communities that have applied for funds but didn't win even the application process is valuable in that
in brings people together to talk about their communities' future."
"This is a pathbreaking program for the federal government," says Kane, because "it's up to the
community to tell us what strategy they're going to use. We're not telling them 'here's what you've got to
do to get the money.'" While there's no formula for how residents should be engaged in the process, HUD
wants residents to have a role in the decision making at each site, and Kane says that most sites have
followed through on that commitment well. Again, no two are exactly alike, but Kane says that the sites
where citizen participation has been the most vigorous have also shown the most success in carrying out
their plans.

Wright agrees that HUD made it very clear that the application process as well as the design and
implementation of the strategies had to be community-based and bottom-up, and cites examples where
residents felt that city government was being overly controlling of an initiative, and HUD intervened to
stress the importance of resident power.
"The design of the program really was a concerted effort to get community people involved directly,"
says Wright, and most of the sites did engage residents throughout the process, he says. Most followed a
pattern of beginning the project as a city-sponsored initiative, holding public meetings, and forming
advisory committees and subcommittees made up of residents, CBO representatives, and city government
representatives. "Every one of our field associates [conducting research] reported that the level of activity
and participation was greater than any other federal programs," Wright says.
But early levels of participation proved difficult to maintain over the course of the initiatives, says
Wright, and while HUD's application process required sites to describe a proposed governance structure,
there was no requirement that those descriptions be followed. As a result, there are a few sites where
EZ/EC funds are being used by cities just as they use other federal funds, without any oversight by the
residents whose input is supposed to be key.
Another aspect of the program that makes sustaining community participation challenging, Wright points
out, is that EZs and ECs are areas based on census tracts with certain criteria relating to poverty and
disinvestment, in contrast to most community development efforts, which focus on neighborhoods or
communities residents are familiar with. "Nobody knows what census tract they live in," says Wright.
General development trends toward regional and sectoral development that don't observe political or
census boundaries also clash with the program's requirements.
The application process itself was extremely rigorous in its participation requirements. "Developing the
vision brought people out, but asking people for continued participation tasks like issuing an RFP or a
contract is harder," says Wright. "The character of continuing community involvement after sites were
chosen is a very different kind than what went on before. There are much lower levels of community
involvement in the technical work than in the early processes, but there is still some advisory input from
residents."
In Detroit, for example, residents and local organizations fought hard to ensure that residents would make
up 60 percent of the governing board of their Empowerment Zone, but had to compromise to include
representatives of small businesses in that number, says DeSantis, who was part of the early planning
process. "We designed the EZ to not have a legal relation with the City Council, to be independent of the
City Government, but when the Mayor and City Council got wind of that it was brought directly under
the control of the City Council," she says. Such political manipulations can undermine resident
engagement in these initiatives, DeSantis says, and suggests that stronger guidelines are in order,
mandating not just resident involvement but at least some degree of resident control.
The 1995 EZ/EC assessment published by the Rockefeller Institute of Government reported that Detroit's
experience is not unique. Some of the EZ/EC governing bodies in the cities examined consisted of fewer
than 10 percent residents, although in others residents represented a majority. Also noted in the study was
the fact that "true grassroots empowerment of everyday citizens was far from realized in most cities in the
study sample." Instead, "most citizen participants were savvy and well-seasoned representatives of
community groups, neighborhood-based service providers, and civic associations."
To DeSantis, the EZ/EC initiative was a lot of money and tax breaks that could help some aspects of her
community, and "for any community in the shape we're in to say no or to not try to influence it would be
stupid." But it's frustrating to see how limited the avenues for resident participation are, she adds, and it's
disappointing to see that it has become just another city agency, beholden to the same political machinery
as the rest of the city government.

The resident engagement aspect of the initiative now seems like little more than empty promises,
DeSantis says, and as a result, "I don't get a sense that people in the community feel attached or engaged
in the EZ."
In contrast, Burlington's EC is controlled almost exclusively by residents, and the process has brought
together representatives of the nonprofit, business, and public sectors to collaborate in ways they never
had before, says Maria Vaivao, who coordinates Burlington's EC. "The city had a history of participatory
processes, but people and local institutions weren't really working together they were vying for the
same funding." Since the EC process brought them together, she says, organizations have started looking
at where they were duplicating services and how they can work together. Five youth service providers
have formed a network, for example, and now apply for funding together, and the local Boys and Girls'
club was close to having to shut down but was saved thanks to an alliance they formed with the YMCA.
The Future
Despite the abuses that have plagued specific sites, the economic development focus of the EZ/EC
program seems to have had some success in bringing jobs to where they are most needed. The Clinton
administration has requested funds for a third round of EZ/EC funding in the FY2001 budget, and the
bipartisan support that the program has enjoyed in the past is likely to continue.
However, to live up to its promise of being a program unique for its resident participation, that
participation needs to extend beyond the application process to governance, implementation, and
evaluation. If past experience is an indicator, EZ/EC residents will have to rely on their own initiatives to
create true "empowerment" zones.
Copyright 2000

Sidebar:
When Communities Stay Involved:
Learning Initiative Evaluates Rural EZ/ECs
By Larry Parachini and Andrew Mott with Susan Rees
To make the participation requirements of EZ/ECs a reality, a project called the Learning Initiative (LI)
used what we call Community-based Monitoring, Learning, and Action (CMLA). CMLA includes
community monitoring and/or research of targeted government or private sector institutions, policies or
practices by poor people ; participatory learning processes to build poor peoples' research and/or
monitoring skills and other capacities, and to involve them in determining strategic goals, objectives and
plans; and strategic action directly involving poor people in efforts intended to influence the targeted
institutions, policies, or practices.
The Learning Initiative, which ran from 1995-1998 and was administered by the Community Partnership
Center at the University of Tennessee, was designed to foster continuing citizen involvement in
monitoring, learning, and action in ten rural EZ/EC communities. Funded initially by the U.S.
Department of Agriculture (USDA), the Ford Foundation, and the Rural Economic Policy Program of the
Aspen Institute, the LI was intended to provide a national assessment for federal officials.
The initiative drew heavily from the traditions of participatory research (see Shelterforce #108) and
popular education, including those of the Highlander Center, whose former director was co-director of the
Community Partnership Center during the Learning Initiative. The LI design was radically different from
traditional evaluations that rely on outside experts which, more often than not, examine and report on the

success or failure of a program very late in its implementation or after its completion. It provided a means
for community representatives to measure their EZ or EC's progress and recommend mid-course
corrections to the agencies running the program.
Organized into learning teams of between eight and 20 local volunteers, each LI had a part-time paid
coordinator. Participants decided which of the EZ/EC program's local goals were most important to them.
Using a flexible evaluation tool designed by the Partnership Center, each team did its own monitoring,
analysis, and reporting. Experienced "regional researchers" were available to assist.
There are several examples of the LI's impact. In Jackson County, Kentucky, the team conducted
intensive interviews and attended over 400 EZ meetings as it monitored the program. Along the way, it
uncovered numerous questionable, if not corrupt, transactions. A spokesperson for the county's power
structure labeled the initiative's findings as "not only ignorant, but stupid." But national observers viewed
the report as balanced, and the respected Louisville Courier-Journaltook the learning team's side,
editorializing, "Count us among the stupid."
In McDowell County, West Virginia, the learning team conducted an exhaustive "social capacity audit" to
create a baseline for measuring community revitalization. The county's first ever survey of 15 community
sectors, including churches, social service agencies, government institutions, media, business and arts,
taught the county it had a lot more going for it than anyone had realized.
One member of the team summarized: "I'll never again be part of any evaluation performed by an outside
consultant. The quality and utility of what we can do on our own - with proper and sufficient assistance as
we have had from a person knowledgeable about and committed to participatory research and evaluation
- far surpasses any 'professional' evaluation I've ever seen."
Copyright 2000

Larry Parachini is an independent consultant to community-based organizations, regional and national

public policy and advocacy organizations, private foundations, and other institutions concerned with
social justice and change. Andrew Mott is executive director of the Center for Community Change. Susan
Rees is an independent researcher and writer working in Washington, DC.