NEW YORK SHARES

It's traditional for bankers and their customers to think about banking as centered on the bank account. Even policy makers talk about "banking the unbanked" as if opening a bank account immediately changes a person from financially excluded to included. The bank account is the top line indicator examined by the Global Findex, the new survey of financial access by 150,000 adults from over 148 countries. The finding that 43 percent of adults in the developing world have bank accounts has quickly become the reference point for financial inclusion.

For decades, balancing one's checkbook has been the cornerstone of personal finance for conscientious adults in the developed world. When I first opened an account of my own, I received a little checkbook-sized booklet in which to write down every deposit and withdrawal. I learned that keeping track of the bank balance was like the personal hygiene of finance, like brushing your financial teeth.

The implicit message, not just for me, but I think for society at large, was that the bank account was the locus of money management. All one's main financial transactions would pass through the account, and the account would serve as a kind of running financial statement, showing not only income and expenses but also personal solvency. (I'm setting aside for now the very important function of accounts as savings vehicles. That's a story for another day.)

I believe this 1950s image of the bank account is an unacknowledged presence in the minds of bankers and policy makers like the G-20 financial inclusion group when they advocate banking the unbanked. There is an assumption that opening an account equates with using an account to manage personal finances.

But what if the low income people who don't have bank accounts -- and many who do -- don't see things that way?

Consider three observations that suggest that the image of the bank account as the central money management tool is simply not relevant for many low income people:

• The Global Findex shows that many bank accounts in the developing world are relatively inactive. While in high income countries, 72 percent of accounts have more than two withdrawals per month, in low and middle income countries that figure plummets to 16-17 percent. Many people appear to be using their accounts simply as a way to get paid.

• Yet Portfolios of the Poor reveals that low income people have complex financial lives in which they manage many financial arrangements at the same time. Individuals often have multiple, complicated transactions going on at once - cash stashed away somewhere, a loan from a friend, sales on credit, etc.

• In many countries that have introduced them, "no frills" bank accounts designed as starter accounts for the poor have experienced very low usage.

This raises the very important question: for low income people who are "unbanked" where does "money management" reside? And what is money management, anyway?

Money management is an essential component of financial capability. I propose the following definition: money management is the ongoing process of keeping track of one's financial status so that as new financial decisions arise one can make them appropriately and maintain personal solvency. The focus is on maintaining a consolidated view of where one's financial assets and liabilities are at any given time.

If I have a bank account that keeps track of deposits and pay outs, I can consult my bank statement whenever I have to make an important financial decision, and therefore I do not need to keep the money management function in my head. I can outsource a big part of my money management process to the bank account.

But what if I am a first time user of an account? I might prefer to keep track in the way I am used to, which in all likelihood means keeping a running tab in my head. Unless I already keep a written record of my financial transactions (probably rare except for sophisticated microenterprises) it might not occur to me to use an account as a money management tool. Moreover, if most of my transactions remain informal, a bank account would not be a very good representation of my financial life.

The implications of this observation for providers and policy makers are profound. Providers and policy makers should not expect people to shift their locus of money management in a twinkling. It is likely to be a gradual process, involving financial education (how to use an account as a money management tool) and, perhaps even more important, the formalization of transactions so more of them flow through the account.

This observation also shows the fallacy of no frills accounts: perhaps the low demand for the money management support provided by an account shows that many people are satisfied with the money management function that resides between their ears. It also poses a challenge to payments innovations like mobile money or remittances sent through money transfer organizations. If provided outside the context of a bank account, such transactions do not result in consolidation of the money management function, but instead require a person to continue to keep track in the head (or somewhere else).

I am finally left with a question I do not know how to answer, but it is a question that should occupy anyone working on financial inclusion. If we want to assist people in their efforts to be competent money managers, what is the best mix of services? I would welcome your thoughts.