Financial Shock

Life had been good for Pein Ton in the years since peace was restored to Cambodia. She met her husband, Suon Than, in a refugee camp in Thailand as Cambodia’s civil war wound down. With the brutal Khmer Rouge finally gone, the couple returned in the early 1990s to Ton’s hometown of Panya — a quiet village of thatched homes and palm-studded rice fields outside the city of Battambang. With assistance from an international aid agency, they bought a small home and a few acres of land. They grew rice and vegetables, raised six children, and sent them all of them to school.

Like everyone in Cambodia around them, Ton and Than slowly rebuilt their lives. They arrived at middle age in comfort. They had no savings to speak of but they had no debts either. They’d renovated their house and they owned a few farm animals. Their two-acre paddy produced enough rice to generate a little surplus beyond the family’s basic needs. Then Ton took a gamble. Hoping to boost the family income, she sold a cow, bought a small tractor, and planted rice on five additional acres she rented from neighbors. It seemed like it would be a good investment. It wasn’t; drought struck before the very next harvest. The crops wilted; production plummeted. Struggling to make ends meet, the couple decided that Than would follow their children to Thailand, where throngs of Cambodians go seeking higher-paying jobs, and send money back home to Ton.

As bad as things were getting, the situation was still manageable compared to what happened next. While he was in Thailand, Than was overcome by a debilitating illness. He was barely able to speak. He was diagnosed with diabetes. Unable to afford his treatment in Thailand, the children arranged for him to return to Panya. To pay for Than’s medical bills, Ton began to borrow small amounts from a local lender. It wasn’t enough.

“I decided to sell everything I had so I could look after my husband,” says Ton, 54, as she sits with Than in their open-air kitchen. “Life is more important that stuff. You can buy everything except life.” First, she sold the tractor. Then, her motorbike. Finally, she had to sell their farmland. “We were not poor. We had more than enough to eat. Since he got sick, we are getting poorer and poorer.” As Ton reveals that she is now USD$4,000 in debt to a microfinance company, her husband turns his back and begins to weep.

Every day around the world, people like Ton and Than are struck by unforeseen emergencies. Most of us are on the edge of a financial precipice and one event, or a host of concurrent events, can push us over the edge of that financial cliff. To manage financial emergencies, many end up in a cycle of spiraling debt. It happens in rich industrial nations as well as in developing economies. These instances of financial shock are often triggered by a medical emergency or an ongoing health condition, like Than’s diabetes. Throw in bad weather, a poor business decision, or the financial needs of a dependent relative and our financial — and emotional — lives quickly become desperate. Even when people have health insurance, high deductibles and out-of-pocket expenses can be too much for those who haven’t managed to save enough money. And sometimes, it would take a lot of saved money to bridge the crisis.

The team at Orb decided we would take a deep look into how people around the world manage financial shock. When we have an unexpected financial emergency, are we able to raise the money needed to deal with it, and if so, how? Our exploration reveals some powerful insights into our overall fiscal health, as individuals and societies. As well as into the implications of efforts to extend formal financial services to every adult on the planet.

The World Bank and other international institutions assert that, in large part, our global and individual economic well-being hinges on something called “financial inclusion” — the access people have to regulated financial services, such as bank accounts, mobile money, and credit cards.

In 2011, the World Bank commissioned a global poll centered on the issue of financial inclusion and examined how people around the world save and borrow money, make payments, and manage financial risk. In 2014, with the results gleaned from more than 150,000 adult respondents in 143 countries, the World Bank compiled an updated study — the Global Financial Inclusion database, or Global Findex. It is the most comprehensive survey of its kind ever conducted and, in 2015, its findings formed the basis for launching a worldwide initiative, the Universal Financial Access (UFA) 2020, aimed at bringing financial inclusion to the two billion people who do not yet have a formal “transaction account” — one that allows its user to store money safely, as well as to send and receive payments.

As we sifted through this rich data set the World Bank generated, we came to focus on an individual’s ability to get money in a crisis and where it would come from — two questions asked in the Global Findex survey.

Orb does original data analysis as part of our unique reporting process. And by selecting four criteria — level of education, income, gender, and participation in formal financial structures, we built a model to predict the percentage of a country’s population that ought to be able find funds in an emergency. We then compared those numbers to actual responses in the Global Findex. The results provided some interesting direction and a unique window for evaluating whether financial inclusion is delivering on its promise — especially when people need it most.

Based on what we learned from the data analysis, we selected four countries — Brazil, Cambodia, Myanmar, and the United States — to do on-the-ground reporting. These four countries have vastly different economies but all harbor large numbers of financially stressed citizens, regardless of whether or not they participate in the formal financial system.

In Cambodia and Myanmar, both countries where few people have a formal education or financial account, high numbers of Global Findex respondents said they could find money in an emergency. Conversely, a majority of people in Brazil, where 68 percent of the population is financially included, reported that they would not be able to find money in an emergency. We wanted to find out what factors, beyond the scope of the Global Findex data, might account for such discrepancies.

Economists at the World Bank and other global institutions, such as the International Monetary Fund, say that people who participate in the formal financial system are better able to do all sorts of things that improve their quality of life — from starting and expanding a business to investing in education to responding to financial shock. Having savings in a bank account, experts say, is an especially strong indicator of a family’s resilience and ability to weather a crisis.

Even low-income families can save money and should make a point of doing so, says Paul Luchtenburg, an inclusive finance specialist based in Yangon, Myanmar for the United Nations Capital Development Fund (UNCDF). He cites the case of a group of women in India who were paid for their work in rice and began putting aside a small amount before each meal. Eventually, he says, they were able to sell that rice, turning their saved grain into real money.

“So if those women who were getting paid in rice can save, anyone can save. It’s a matter of living below your means and it’s a key part of handling some kind of emergency. If there’s a problem, having some savings gives you a margin.”

He adds: “Saving money is a key part of wealth building. Helping people to understand savings and having a safe place to save their money really help people to be able to build some wealth and break out of poverty.”

His views echo those of the World Bank, whose economists see bringing financial outsiders into the fold as a vital ingredient in the fight to end extreme poverty. Fourteen public and private sector partners lined up behind the World Bank in 2015 to launch UFA2020. The overall goal is to get every adult in the world signed up for a transaction account by 2020. Having such an account — whether it’s a traditional bank account or a mobile money account linked to a cell phone — is held by experts to be a “basic building block” to manage and improve one’s financial life. Efforts are centered on 25 specific countries that are home to nearly three-quarters of the world’s “unbanked” citizens — as they are often referred to by development experts — mostly in South and East Asia and sub-Saharan Africa.

The World Bank holds that financial inclusion will not only help alleviate poverty but will also foster greater economic equality — two objectives that would significantly contribute to overall social and financial stability on a global scale. After all, a population whose basic economic needs are being met tends to be more satisfied and participate more broadly in society than one that is financially struggling.

“Financial inclusion is increasingly recognized through research and by good solid evidence as an enabler of poverty reduction and of equal growth, of shared prosperity,” says Douglas Pearce, who oversees financial inclusion efforts at the World Bank. “It’s an enabler for individuals and firms to take advantage of opportunities, to improve incomes, to manage risk and to access services, to improve health outcomes.”

More than 50 countries have made formal commitments to meet financial inclusion goals. World Bank officials do acknowledge that those who remain outside the formal financial system also represent an “untapped market.” In other words, the governments, financial institutions, companies, and foundations who have joined the UFA2020 initiative see the potential for profit and raising tax revenue in addition to the positive social goals the group seeks to achieve.

Critics argue that the benefits of financial inclusion are overstated and that it should not be seen as a panacea for curing the world’s economic ills. They cite the example of improving access to formal lines of credit — one of the pillars of financial inclusion. If not accompanied by controls on interest rates and financial education for consumers, easy access to credit can end up burying families, even entire communities, under a crushing load of debt. “Financial inclusion is great, but within a controlled environment,” writes Hugh Sinclair, chief operational officer for Norway-based Alliance Microfinance, a nonprofit firm that extends credit to low-income populations while stressing community development and client protection.

Others warn that an emphasis on extending financial services to the poor could end up encouraging governments to shift their focus away from more basic developmental programs, such as public education and affordable health care.

UFA2020 and similar projects to “include” citizens in formal financial systems are largely centered around efforts to encourage individuals to save money safely (i.e., in an account of some kind). It is believed that having such savings will improve an individual’s overall financial resilience. Yet, just 22 percent of the global population is actually saving at all — whether they have an account or not. Given the expanded access to credit that comes with financial inclusion, many of the newly banked could end up mired in crippling lifelong debt if these efforts are not accompanied by a strong emphasis on shifting our behavior to save money.

Among the questions in the 2014 Global Findex survey were several that asked respondents if they used formal financial services such as traditional brick-and-mortar banks, microfinance companies, e-money, or credit cards. Respondents were also asked if, faced with a financial emergency, they would be able to acquire a certain amount of money within 30 days. The amount varied from country to country but always represented 1/20 of the per-capita gross national income, or GNI, in local currency. (In the United States, for example, people were asked if they could come up with USD$2,600 in 30 days.) Those surveyed could respond with one of four choices: very possible, somewhat possible, not very possible, or not possible at all. They could also respond “don’t know” or refuse to answer. Worldwide, only 31 percent said that it would be very possible to get that nationally adjusted sum within 30 days. People who are able to find that money have a variety of ways to do so, depending on who they know, their particular economic circumstance, and where they live.

Take Myanmar for example. The country of Myanmar, formerly called Burma, has one of the lowest levels of financial inclusion worldwide. It ranks in the bottom third of the world’s nations in Gross Domestic Product (or GDP, the widely used measure of economic vitality), with nearly 80 percent of the population living in far-flung, rural areas beyond the reach of traditional financial institutions. The country is only now emerging from a half-century of international isolation, military dictatorship, and more than a dozen ethnic-fueled insurgencies.

Much of the country’s economic activity takes place outside of formal structures. Farmers, day laborers, traders, street vendors — all rely primarily on cash or barter to transact their business. Less than 23 percent of the country’s 54 million people have formal financial accounts. The UNCDF’s Paul Luchtenburg says this informal, or “gray economy,” in Myanmar rivals the size of the country’s entire commercial banking sector.

Despite this low rate of access to formal financial accounts, 90 percent of Myanmar’s respondents to the Global Findex said they would be able to find money in an emergency — nearly 40 percentage points higher than predicted by the analytic model Orb developed and applied to the Global Findex data.

What could account for this huge discrepancy in a country like Myanmar? To begin with, traditional agrarian societies, with their tightly woven social networks, may make it easier for someone in distress to borrow from friends or family. Around the world, those closest to us are the first place we look for financial help. Of the 31 percent of Global Findex respondents who said they could access emergency funds with relative ease, 38 percent said their principal source for doing so would be friends or family.

Beyond that, we discovered the existence of a vast network of informal money lenders and pawnshops that have sprung up throughout the country in the absence of formal financial services. It turns out that these lenders provide the easiest and fastest method for people in Myanmar to get cash when they need it most. Informal lenders are well known in their communities and they know their clients well too. In such circumstances, trust and personal relationships are often the only collateral.

“You know the people around you,” says Aye Win San, 36, an informal lender in Kyan Sit Thar, a destitute squatter village set amid swampland just west of Yangon, formerly known as Rangoon. “If someone does not easily repay a debt, next time I will not lend to them, no matter what.”

Aye Win San, a round-faced woman with a ready laugh, speaks to us at her single-table, open-air restaurant perched along a narrow dirt lane that bisects the surrounding marsh. Women and children from up and down the pathway gather under the low roof to listen in. She tells us she got into the lending business after her daughter came down with dengue fever, a mosquito-borne illness, in 2008, and she had to borrow money to pay the medical bills. It took seven months to pay off the loan, paying down the interest first. But she says the experience proved invaluable.

“I learned from that experience,” she says. “And I’m a good manager.” So she began offering small loans to other women in the neighborhood, usually in the USD$20-$80 range. At the moment, she has 15 outstanding loans, representing close to USD$1,000. Aye Win San is not only a lender but also a borrower. She takes out loans from a “rich person” at 20 percent interest a month and lends the same money to neighbors at 30 percent. That rate may seem high but the loans are usually paid off on time and it’s in line with what other informal lenders in Myanmar charge. Besides, Aye Win San says, since it’s all done without formal contracts, she has no guarantee that her clients will repay her.

“They borrow money from me because they need it,” she tells us. “If I lend 20,000 kyat (roughly USD$17), I will earn some interest. So it’s good for my family and it’s good for them. I lend to them with this idea. I lend to them on trust.”

Aye Win San says most of her borrowers are local women with sick children in need of urgent medical care or women who need to make ends meet until their husbands get paid at the end of the month. Though her husband also works a day job in a warehouse on the Yangon River, Aye Win San is hardly any better off than the people to whom she lends. Like them, she is squatting on land that is not legally hers. She has three school-aged children, no savings, and no bank account.

“If I had extra money, I would put it in a bank account,” she tells us. “But I spend all the money I make each day. I have to sell things to feed my three daughters. If I had extra money, I wouldn’t do this work. It’s very tiring.”

Aye Win San’s restaurant and her palm-thatched home just across the road remain vulnerable to young enforcers hired by the landowners to raze dwellings and evict the squatters. They knocked down her last house just three months ago and they could return at any moment. She’s had to rebuild her house on four occasions in the past decade, including the time in 2008 when the entire village was swept away by Cyclone Nargis, which sent a massive surge up the Irrawaddy River delta and killed 140,000 people.

In order to “scale” and serve big markets efficiently, formal financial institutions have become less personal and often less connected to the many communities they serve. Often, they are more focused on business expansion and shareholder interests (i.e. profit). But these organizations, based in the individualistic ethos of fast-paced Western culture, may do well to take a cue from the community-oriented approach still common in countries like Myanmar and Cambodia. The personal connection between informal lenders and their clients can not only facilitate a quick loan in an emergency, it can also help lenders recognize when a potential client might be seeking too big a loan, which could ultimately lead to financial ruin.

“I know most of the people in my village,” says Srey Pouv, 37, a local micro-lender who lives in Siem Reap in central Cambodia. She’s originally from Panya, the same community where Pien Ton and her sick husband live. Nearly all of her clients live in the same village and those whom she does not know personally she knows by reputation. She refuses to lend to risk-takers who might fritter away a loan on nonessential items. “The good people come to me and the people who are not good do not. They will go to someone higher or more expensive and they will go downhill from there.”

Even among her clients who know how to read and write, Pouv asks them to sign their loan contracts with a thumbprint. The contract is not legally binding but leaving a thumbprint reinforces the sense of duty to repay the loan, she says. “I lend to them because I know them. I am not worried that they won’t pay me back.” Twenty of her borrowers have deposited land titles with Pouv but she refuses to confiscate land or homes when her clients are unable to pay. She prefers to either buy their land, which she has done twice, or simply to wait for them to pay.

Unlike lender Aye Win San in Myanmar, Pouv counts herself among the ranks of the financially included. She has a bank account where she saves the modest profits from her lending business, about USD$400-500 each month. In other ways, Pouv may also be an exception. She says more rapacious lenders, including some foreign microfinance companies, deliberately lend to farmers already steeped in debt, anticipating they will be forced to surrender their land for pennies on the dollar and join the legions of displaced farmers migrating to Thailand to seek work.

Hom Han, 37, is a farmer in Kompang Chhang Province 40 miles northwest of Phnom Penh. He’s handsome, of medium stature, and his winsome smile betrays nothing of the anguish you might expect for a man in his predicament. A prolonged drought has stunted his crops. Wells in the surrounding flatlands have run dry and the juice of sugar palms he collects to help meet expenses is drying up as well. His wife works seven days a week in a garment factory while he looks after their six children, including seven-year-old Han Srey Vin whose feet were deformed at birth by polio.

On a sweltering summer morning, Han comforts Vin as she sprawls on a cot at an open-air clinic with an IV drip in her arm. She’s been nauseated since early morning; when several hours of treatment from a traditional healer only seemed to make her worse, he brought her here. He doesn’t know how much her treatment will cost and he’s not sure where he’ll get the money to pay for it. He might have enough rice to cover the cost, but barely.

“When I have a problem, I have to borrow from other people and then I will borrow from the microfinance institution to pay them back. After I have borrowed for a while, we have to try to work hard to pay them back.”

Financial inclusion proponents would like to see honest, hardworking people like Han borrow from an established lender at more reasonable rates of interest than the 30 percent monthly rate that is typical from informal lenders here. They would like him to have a bank account and to save money, so that he wouldn’t have to borrow every time one of his kids needs medical care.

But for Han, the barriers to financial inclusion seem almost insurmountable. He never went to school and cannot read or write. He currently owes USD$1,000 to relatives and another USD$200 to a microfinance company. “I don’t have a bank account,” he says. “Because I am uneducated. I don’t know how to deal with a bank.”

UNCDF’s Luchtenburg acknowledges that informal lenders like Aye Win San and Srey Pouv are performing a valuable service in their communities. Trying to get a formal loan from a bank, or even a more agile lender such as a microfinance company, can range from an intimidating to impossible process for someone with little or no education or formal employment. And the process often involves a maze of paperwork and visits from loan officers that could drag on for weeks, making it logistically difficult and often just not fast enough.

But for Luchtenburg, that speed is where the advantage of informal lending ends. He fears that a growing number of families are getting trapped in a recurring cycle of debt, borrowing at astronomical interest rates and shuffling money between one lender and another without ever actually paying down the principal of the original loan.

“We don’t have any exact information on that but I believe there’s more and more of that going on underneath the surface,” he says. “If you see what’s happening underneath, it’s a little bit scary. People are borrowing from Peter to pay Paul.”

Take Moeung Susadey, 55, a flower seller who lives with her husband and three children in Kandal province, outside Phnom Penh, Cambodia. She broke her ankle in 2015 when a car knocked her off her motorbike and sped away. “There were people who were trying to take me to the hospital,” she recalls, sitting atop a table on the ground floor of her home, crutches within reach. “But I couldn’t afford it.”

Two months of traditional remedies proved ineffective. Finally, Susadey sold a cow to pay USD$700 for an operation at the hospital. But the bone has not fused properly and she hasn’t been able to find enough money to pay for follow-up treatment. With her husband also disabled by a work accident, she finds herself locked in revolving debt, borrowing from one microfinance company to make interest payments on a loan from another. In all, she owes money to six different companies. With each loan application she’s filed, the lenders demand land certificates as collateral. “I don’t know where I’m going to get the money from,” she says. “Now, I am unable to borrow money from anyone.”

Without mandatory client-protection measures, borrowers in Cambodia like Susadey are often at the mercy of unscrupulous lenders and microfinance companies. The creditors know where her house is, she says, and she dreads the end of the month when bills come due. She fears that eventually, they will force her to sell the house to meet her obligations.

Luchtenburg hopes that the recent political and economic openings in neighboring Myanmar will favor consumers. As formal lending institutions penetrate more deeply into the market, interest rates will come down, ultimately raising living standards. That’s the idea, anyway. “Their interest rates are too high,” he says, referring to the informal lenders. “So our job, in a way, is to put them out of business or have them come down in price.”

Worldwide, the informal economy represents an enormous challenge to the financial inclusion agenda. Not only are most transactions conducted off the books, where governments are unable to monitor and tax them, but those who work in the informal economy are often turned away when they seek the services of a bank or other formal financial institution because they have no proof of employment.

Such was the case for Zilda Gomes, 46, a single mother who struggles to make ends meet by recycling bottles and discarded appliances in a favela, or shantytown, in the city of Vila Velha on Brazil’s Atlantic Coast. With her brother convalescing from a bullet wound and her father deathly ill, she desperately tried to juggle work and family responsibilities. She obtained a credit card to buy medical supplies for her brother, unaware of the punishing interest rates typically charged in Brazil. In a matter of months, her debt grew ten-fold. She went to a bank to seek a loan to pay off the debt.

“They asked where I worked,” she says. “They told me that recycling wasn’t a real job. So, they said no. I felt really embarrassed because human beings are treated worse than animals. When you have money, you have everything. When you don’t, you’re worse than a dog. I was so ashamed.”

“Informal” banks, not regulated by the state or the Central Bank of Brazil, have sprung up to fill a need and serve the communities where they’re based. Today there are 150 of these “community banks” in Brazil. Eventually, Zilda found help from one of them, Banco Verde Vida, which was founded in 2008 in response to the needs of Vila Velha’s residents. The bank created a local currency that circulates within the community and provides a means of exchange for recycled goods, which the bank, in turn, sells to outside purchasers. The currency can be redeemed at a “solidarity supermarket” for food and other basic items. Zilda at least has enough for her and her family to get by. But she doesn’t know what she’d do if she were to experience another financial shock.

Worldwide, 69 percent of respondents told the Global Findex pollsters that it would be either “somewhat possible,” “not very possible,” or “not at all possible” to find the required amount of money to respond to an emergency within 30 days. But in Brazil, you can count Zilda Gomes among the whopping 86 percent who responded in that country that it would be “somewhat possible,” “not very possible,” or “not at all possible” to get those funds, despite the fact that 69 percent of the country’s adult population has access to formal financial services. Such numbers would seem to call into question whether standard indicators of financial inclusion — access to bank accounts, electronic payment systems, and lines of credit — in and of themselves lead to greater prosperity and/or financial resilience.

It’s not just poor Brazilians who say they would have difficulty responding to a financial shock. That 86 percent of Brazilians who said they couldn’t come up with the funds includes well-educated individuals in middle and even upper income brackets. The country experienced a globally venerated consumer renaissance in the first decade of the new millennium, based largely on a booming economy of raw-material exports and a rapid expansion of the availability of credit.

Brazil became a darling of economists and development experts and, with several other countries — Russia, India, China, and South Africa, became a member of the “BRICS,” emerging economic powerhouses. But the much celebrated rise of a new middle class in Brazil was financed in part by those lines of credit, which came with variable interest rates that now run as high as 400 percent annually.

“Through credit, the current government fostered the creation of a middle class, or rather a new middle class, that was able to purchase goods and services they previously could not afford,” says Carlos Eduardo Batalha Tardin, chief advisor on corporate governance to the municipal government of Rio de Janeiro. “Today, the average consumer cannot find a solution for his debt without resorting to new loans. We call this the ‘debt cycle.’”

Brazil is experiencing its worst economic downturn in nearly a century. Commodity prices have crashed; inflation has soared. With their country caught in a deepening economic and political crisis, many Brazilians who had perceived their fortunes to be rising during the boom years are now facing layoffs and the grim prospect of forfeiting not just their high-priced consumer goods but even their homes.

Oswaldo Gonçalves is an electrical engineer with a wife and school-aged daughter from the port city of Vitória. In many ways, Oswaldo exemplifies the kind of educated consumer the financial inclusion agenda needs if it is to work. After losing his job 10 years ago, he learned the hard way about the high price of borrowing money and spent years digging himself out of debt. He cut up his credit cards, became a frugal shopper, and sought out bargains. Tired of spending money on rent without accruing value, he signed a 15-year mortgage for a condo in 2013.

But two years later, Oswaldo once again lost his job working on an offshore platform for the state oil company, Petrobras. The company has been at the center of a corruption and bribery scandal that has shaken public confidence in Brazil’s institutions to the core. Without resorting to high-priced loans to make up the shortfall, he doesn’t know how long he can hold out before he’ll be forced to sell their home.

“The money is running out and my wife and I are seeing what we can do to survive,” he says. “We have to eat and we have my daughter’s school to pay for. We’re seeing what we can do before we get caught up in the world of sky-high interest rates.”

Wages have fallen to less than 30 percent of what he was earning before getting laid off. Still, Oswaldo is unable to find work. He fears that if he and his wife sell their apartment, they may end up with no place to live at all.

“I don’t even know how to rent,” he says. “It’s complicated because no one wants to rent to unemployed people.”

Indeed, financial shock comes in all shapes and sizes. Even in developed, industrial countries, skilled workers with high-paying jobs can find their lives turned upside down by unforeseen expenses. And when it happens, the damage is not only financial but psychological as well.

By every measure, Karen Oliver, 60, has been a model of fiscal responsibility. She’s held a high-paying job as a civilian program trainer for the U.S. Department of Defense for more than 30 years. She is single with no children, has no debts, and she owns her townhouse in the affluent suburb of West Arlington, Virginia. Her home has been accruing equity, doubling in value since she bought it in 1999. She’s been saving for her retirement in a 401K account, which allows her to make tax-deferred contributions every two weeks that are matched by her employer.

But over the past few years, Karen has been forced to go without the simple pleasures she once took for granted. No more morning stops at Starbucks. No more cable television. She began to sell off kitchen appliances and living room furniture via the internet. Why? Because she came to the aid of financially-strapped relatives, including her aging mother, who faced an avalanche of expenses after she suffered a stroke three years ago.

“I’ve been selling things since 2013, when my mother became ill and my brother also had some problems,” says Karen. She lets out a sigh and looks around her sparsely furnished living room. In fact, the room is about to become even emptier. A young couple will soon arrive to take away the very couch Karen is sitting on. The USD$200 Karen will get for the sofa will end up in a check she’ll send to her mother in El Paso, Texas, to help cover her medical bills before they come due at the end of the month.

Luckily for Karen, her 401K account is still intact. But her personal savings have been wiped out, along with her peace of mind. Sometime in the next few years, if not sooner, Karen will sell her townhouse and move back to Texas to look after her mother. The daily care her mother requires is simply too expensive and complicated for Karen to manage from afar.

“It’s very depressing,” she says. The uncertainty racks her, “You think, ‘Where’s my life going? Is it for a year? Is it for two years? Is this for the next five years?’ I mean, this is not what I planned. I hadn’t planned to move back to El Paso, Texas and move into her house and take care of her, because she really has to have somebody there.”

Karen is certainly in a better position to manage financial shock than most people. But that hasn’t spared her the complicated emotions that accompany the difficult choices involved in caring for an elderly parent. Should Karen herself face an unforeseen emergency, she’d have to dip into her retirement account to pay for it. It’s a situation that worries financial advisors who have seen fiscally responsible clients get financially blindsided when they try to step in to help a relative in need.

“Because of the nature of the crisis and the stress that comes with it, they may not be in a place where they can think clearly about their own situation and the solutions that might be available,” says Bruce McClary of the Washington, DC-based National Foundation for Credit Counseling. “It may get one family member out of a financial jam but it may put the person who’s being generous into a crisis of their own.”

He likens such emotionally charged moments of financial shock to the “fog of war.” Even solid income earners may need outside help to see the situation clearly, McClary warns, to avoid crippling debt and its attendant emotional anguish. McClary, himself a former credit counselor, is more worried about millions of other American families that have no savings at all, financing consumption with easy credit — and spiraling debt.

“We’ve got a lot of work to do in changing mindsets and getting people to put aside money for financial emergency, short-term savings, and also save for retirement,” he says.

When we look at how people handle financial shock, we find that many who are able to access funds in an emergency live in countries with low rates of financial inclusion. They may even be among the two billion “unbanked” targeted by UFA2020 who do not yet have access to formal financial services. Proponents maintain that these populations will greatly benefit from financial inclusion by having a transaction account that allows them to store money safely — and send and receive payments.

Yet, inclusion in the formal financial structure often means giving those same people unprecedented access to credit. That’s why many experts are now saying that financial literacy must be a critical component in any effort to extend the benefits of financial inclusion to the world’s unbanked. Unless ordinary citizens know how to save money, invest prudently, and borrow responsibly, financial inclusion will have far less positive an impact than economists would like to see. Many officials see expanded dispersing of credit cards as especially troublesome, unless accompanied by a parallel effort to educate consumers on the dangers of spiraling debt.

“We believe a credit card is a good tool for financial inclusion,” says Elvira Cruvinel, head of financial education at the Central Bank of Brazil. “But … we have to be very careful with credit cards, especially in Brazil.” That’s because interest rates have soared, making it impossible for millions of consumers and business owners who have used them to dig their way out of debt without defaulting. “The credit card is a tool that is widely used in this country and it’s used improperly,” adds Cruvinel. “The credit card must be the focus of our plan to strengthen financial citizenship.”

Economies with high rates of financial inclusion, such as those of Brazil and the United States, may provide a cautionary tale for institutions and governments who seek to expand access to formal financial services in developing countries. In the U.S., for example, financial services companies spend 25 times more on marketing their products than on customer education, according to the United States Consumer Financial Protection Bureau — the federal regulatory agency set up in the wake of the 2008-09 financial crisis.

To shield vulnerable borrowers from spiraling debt, experts also believe stronger and more effective consumer protection measures — such as limits on interest rates — must be enacted. This should happen not only in countries where informal lenders currently claim a large share of the market, they say, but even where formal financial structures are already in place.

As we have seen in Brazil and the U.S., financial inclusion in itself may not be as strong an indicator of empowerment, resilience, and economic well-being as proponents would have us believe. The informal lenders that financial inclusion proponents hope to shut down do provide a valuable service. They provide quick, easy-to-obtain loans that enable their clients to respond to emergencies. And many lenders know their clients well enough to make sure they will be able to repay without getting locked into spiraling debt. Without adopting the tact and personal touch that community lenders bring to their relationships, banks and other formal lending institutions may end up leaving consumers mired in an expanding web of debt.

It would seem there are common measures that could facilitate the successful implementation of financial inclusion on a global scale. They include consumer protections, the replication of personal relationships and knowledge of community lenders, and financial education — with its emphasis on saving money and avoiding debt. Yet, when we look at the global landscape, we see that these measures are unevenly applied.

As the World Bank and its partners grapple with the huge task of lifting the world’s lowest income-earners out of extreme poverty, they might benefit from taking a deeper look at their data. Beneath it. Beyond it. Coupling the birds-eye view with an intimate, on-the-ground perspective, such as we have done here, may offer the kind of fresh insights needed to successfully achieve their important and ambitious global goals.