The Financial Diaries methodology is a powerful research methodology for understanding the behavior of low-income people. Stakeholders can use the behavioral insights generated from the Financial Diaries to develop or adapt policies, products, services, and processes to serve this populations better. Initially developed to understand the financial behavior of low-income households, Microfinance Opportunities (MFO) has developed the methodology to be applicable across sectors. MFO has used its iteration of the Financial Diaries methodology to deliver insights into the behavior of individuals as they relate to rural agriculture, financial inclusion, off-grid energy, and the ready-made garment sector in developing countries.
At its core, MFO’s Financial Diaries tool collects economic transaction data. MFO’s approach has two key dimensions that distinguish it from other data-gathering methodologies:
1. It gathers multi-dimensional data on the economic transactions performed by individuals.
In addition to tracking basic information about economic transactions, like what items individuals purchased or their cost, MFO’s methodology collects data on how and why individuals transacted (cash versus credit card; for household use or for a business); the gender and relationship of other parties in the transaction; and the location where the transaction took place. With this comprehensive collection of behavioral, spatial, and network data, stakeholders can gain a deep understanding of the ways in which people earn and spend money and how they manage in difficult economic times.
2. It is a high-frequency panel survey, meaning enumerators conduct surveys multiple times with the same person. Typically, MFO interviews the same set of respondents every week for a year.
Most surveys that examine behavior only occur once, providing a picture of behavior at one-point in time. The Financial Diaries allow stakeholders to understand behavior over time, which is critical for understanding the role of seasonality in people’s behavior. Additionally, it allows MFO to identify how an event at one point in time affects people’s behavior at a later point in time.
MFO designed the Financial Diaries research instrument to be simple to implement and adaptable to a variety of contexts. It uses straightforward questions that are easy for enumerators and respondents to understand. The main instrument has four sections:
• Outflows of money
• Inflows of money
• In-kind exchanges and gifts
The first two modules capture economic transactions performed using cash or electronic methods (e.g. bank transfers, credit card purchases, direct deposits, etc.) for each respondent for each week of the study. Enumerators capture all outflows, probing for the type of the transaction such as whether there was a purchase of a good or service, a cash transfer or gift given, or any use of a financial service (e.g. savings deposit, loan repayment, loan made, insurance premium paid, etc.). Enumerators also capture all inflows and probe whether each was due to the sale of a good or service, the receipt of a cash transfer or gift, a form of employment compensation, or any financial service inflow (savings withdrawn, loan or loan repayments received, insurance payouts, etc.). Each record contains information on an individual transaction or group of small transactions, including a description of the type, its purpose (household, business, or both), the amount involved, the gender and a coded description of the other party to the transaction, and the location of the transaction (with approximate latitude and longitude coordinates).
In addition to cash transactions and electronic payments, enumerators collect data on whether respondents have:
• Engaged in any barter exchanges
• Given or received in-kind gifts or in-kind loans or loan repayments
• Harvested any crops
• Placed harvested crops in storage
• Taken food out from storage for sale.
Enumerators use the Events module to capture data on any shocks or unusual events a respondent has experienced in the past week such as sicknesses, funerals, weddings, celebrations, etc.
To adapt the Financial Diaries to different research contexts, MFO can create additional research modules that collect project-specific data over time. For instance, in the Energy Diaries, which sought to understand the economics of households’ energy use better, MFO created a module that collected multi-dimensional data on the types of fuels households used and how much they used them. In the Garment Worker Diaries, MFO added modules that collected data on work hours, work conditions, and physical well-being. MFO’s expertise is using the Financial Diaries to identify the interplay between factors like these and how individuals earn money, spend money, and the personal and work-related events they face.
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