Transcript EUROPEAN BANKING FEDERATION

FINANCIAL LITERACY: DOLCETA
Brussels, 28 May 2010
The Banks’ view on the value of Financial Education
Eric Leenders
Executive Director
British Bankers Association (BBA)
Chairman of the Consumer Affairs Committee
EUROPEAN BANKING FEDERATION
THE VOICE OF EUROPEAN BANKS
 Over 5 000 banks
 Major cross-border institutions and small
regional entities
 Wholesale and retail financial institutions
THE VOICE OF EUROPEAN BANKS
20 000
billion €
Assets
Employs
over 2.2
million
people
Contributes
3% of GDP
EBF CONTRIBUTION TO THE ECONOMY
EBF MEMBERS
31 national member
associations:

27 EU Member States

4 EFTA countries

13 Associates
WHAT WE STAND FOR
50 years
of sound banking representation
We aim to achieve an integrated European
financial services market
WHY FINANCIAL LITERACY IS KEY
 It is an essential component of the empowerment of the
consumer
 It enables people to improve their understanding of the
financial opportunities offered to them
 It does NOT replace BUT complements effective, clear and
comprehensible information provided by banks
 It is an indispensable part of the necessary background for a
sound consumer regulatory environment.
FINANCIAL LITERACY:
What Does it Mean?
:
FINANCIAL LITERACY:
What Does it Mean?
APRC
FINANCIAL CAPABILITY:
Making Ends Meet
•How well are you keeping up with commitments?
•How often do you run short of money/have money
left over?
•Have you been in financial difficulties in past 5 years
•Is your current account overdrawn?
•Do you use your credit card for daily expenses?
•Ratio of borrowing to saving
•Attitudes to money management
KEMPSON (2002)
FINANCIAL CAPABILITY:
Making Ends Meet
FINANCIAL CAPABILITY:
Keeping Track of Finances
•What do you do with bank statements?
•What do you do with credit card statements?
•Do you keep records of money withdrawn or spent?
•How accurately do you know how much money you
have?
•Frequency of checking account balance before
withdrawing cash
•Provision for ‘lumpy’ expenditure
•KEMPSON (2002)
FINANCIAL CAPABILITY:
Keeping Track of Finances
FINANCIAL CAPABILITY:
Planning Ahead
Provision for a fall in income:
1. Whether made provision personally
2. Length of time could ‘make ends meet’
3. Any protection insurance?
Adequate provision for significant major expense?
Whether provision made for anticipated future
expense?
Whether has made own pension provision?
Attitudes to planning ahead
KEMPSON (2002)
FINANCIAL CAPABILITY:
Planning Ahead
Nearly half of the UK
population appear to
be making insufficient
effort to plan ahead
FINANCIAL CAPABILITY:
Choosing Financial Products
Note: based on two most complex products bought
personally in past 5 years
•Whether any information was collected
•Main source of information
•How respondent chose product
•Whether knew if an adviser was authorised
•Why the respondent chose a particular product
•Whether read the terms and conditions
KEMPSON (2002)
FINANCIAL CAPABILITY:
Choosing Financial Products
Many people are
not very capable
at choosing
products
FINANCIAL CAPABILITY:
Staying Informed
•Number of indicators you are keeping an eye on
•Frequency measures economic indicators
•Financial literacy score
•Importance of keeping up to date with financial matters
•Knowledge of types of mortgages
•Knowledge of risk associated with savings and investments
•Didn't know key features of at least one product held
KEMPSON (2002)
FINANCIAL CAPABILITY:
Staying Informed
FINANCIAL CAPABILITY:
Who Knows What?
• Can segment the population according to levels
of capability across all 5 areas
• Nearly 4 in 10 had no areas of weakness
• Nearly 3 in 10 weak in only one area
BUT
• 2 in 10 weak in four or all five of the areas
FINANCIAL CAPABILITY:
Who Knows What?
• Age is the most important factor in all five scores
– Suggesting that levels of financial capability
increase with experience
• Some interesting tenure and area effects
– Suggesting pockets of low financial capability
• But income per se is far less important
FINANCIAL CAPABILITY:
Staying Informed: Why 18 – 25 Have
Difficulty Making Financial Decisions
Complexity
Motivation
CII (2008)
FINANCIAL CAPABILITY:
What Should We Be Doing About It?
FINANCIAL CAPABILITY:
Who Knows What?
 Products on offer are increasing in range and complexity
 Consumers are willing to better understand the products they
buy.
 However, consumers tends to overestimate their knowledge of
financial products
 In the absence of adequate financial education, even relatively
straightforward financial products can appear quite complex to
the average citizen
 For the information provided to consumers to be useful to
them, more robust financial literacy must support the efforts of
the industry towards more transparency
FINANCIAL CAPABILITY AND
CONSUMER CONFIDENCE
Financial education and information requirements are different but
complementary issues.
FINANCIAL CAPABILITY AND
CONSUMER RESPONSIBILITY
In order for the relationship between banker and customer to work
most effectively, customers should:
- Take the time to read documents before they sign them;
- Be honest and divulge all relevant information when
applying for financial products;
- Read and reflect on communications received;
- Borrow responsibly – i.e. only what they can comfortably
afford;
- Inform their banks/financial providers of changing
circumstances /hardship;
- Ask if they are not sure.
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
EBF gathers information on national banking associations’ initiatives
in financial education, allows sharing of best practices and exchange
of solutions to common problems.
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
• In the EU competence in
(financial) education remains
mainly under the remit of
national authorities following
the subsidiarity principle
• The debate on Financial
Literacy at EU level relies on
the boosting effect of the
exchange of best practices and
on initiatives like DOLCETA
• Similarly, at EBF level introducing
top-down inititives in financial
literacy to EBF members would
not be efficient, due to cultural
and background differences
• The EBF is facilitating the
exchange of experiences,
inspiring and encouraging new
actions and supporting the
networking of EBF members
EBF’s MAIN ROLE: TO DISSEMINATE WHAT IS ALREADY DONE
BY EBF MEMBERS
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
EBF dedicated website page
http://www.ebf-fbe.eu/index.php?page=financial-education
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
The new EBF webpage dedicated to Financial
education gives access to:
 The EBF 2009 Report on Financial Literacy
 The links towards EBF Members’ dedicated
webpages
 Other useful links (e.g. the Dolceta website)
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
EBF 2009 Report on Financial Literacy
EBF Members are
natural partners of
national authorities and
other
private stakeholders in
their respective
countries and
contribute, either
as co-operators or as
main leaders, to the
performance of
numerous
projects.
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
Main focus of national
banking
associations’
projects : “money
basics”
 How to use a bank account
 Developing budgeting skills
 Managing credit and debt
Areas such as investment, saving and
retirement, insurance and risk
management are less developed and
might deserve more attention
WHAT WE DO
TO IMPROVE FINANCIAL LITERACY
Main target
audience of EBF
Members’
initiatives:
Children and
young people
Adults
Banking staff
More specific
public groups are
less often targeted
based on specific
needs:
Pre-retirement age
Women
Ethnic minorities
Low-income households
WHAT WE THINK ABOUT
THE DOLCETA INITIATIVE
The EBF supports the Commission’s initiative DOLCETA
Strong points:
However:
Multilingualism
Adapted to national culture
Interactive
Wide coverage
Not advertised enough
Needs more involvment of public
authorities and private stakeholders
Shold not be a policy tool, but a support
for teaching financial education
Thank you for you attention
For further information: www.ebf-fbe.eu
EBF 50th Anniversary