Strengthening the Population's Financial Capability What does international experience tell us?

Transcription

1 Strengthening the Population's Financial Capability What does international experience tell us? Shaun Mundy International Financial Literacy Consultant Sofia, Bulgaria 11 June 2014 Click to edit the outline text format Second Outline Financial & Private Sector Development

2 What is meant by financial literacy? My definition: Financial literacy is the knowledge, understanding, skills and confidence which lead a person to make financial decisions and take actions which are appropriate to their circumstances. It excludes: - Marketing initiatives; - Advice or encouragement to use a particular financial institution; and - Entrepreneurship. It concerns personal and household finances. The aim is to influence how people behave not merely to give them knowledge, understanding and skills. 2

3 Financial literacy initiatives are necessary, but not sufficient. Prudential regulation, financial consumer protection regulation, financial inclusion initiatives and financial literacy initiatives all have a vital role to play in the development and maintenance of a stable and vibrant financial sector. None is sufficient on its own: they are complementary, rather than alternatives. 3

4 Benefits of having a national strategy on financial literacy: In the absence of a national strategy, financial literacy initiatives tend to be patchy and uncoordinated and to lack strategic focus. A national strategy can help to: 1 Set priorities. 2 Harmonise the activities of stakeholders with the national strategy. 3 Reduce the risk of both unplanned gaps and unnecessary duplication. 4

5 Countries with or developing national financial literacy strategies include: Armenia Azerbaijan Australia Belarus Brazil Canada Colombia Czech Republic Estonia Ghana India Indonesia Ireland Japan Kenya Latvia Lebanon Malawi Malaysia Mauritius Mexico Netherlands 5 New Zealand Nigeria Peru Poland Portugal Romania Russian Federation Rwanda Serbia Singapore Slovenia South Africa Spain Sweden Tanzania Thailand Turkey Uganda UK Ukraine USA Zambia

6 Who benefits from a more financially literate population? Consumers more likely to take advantage of formal financial products which are suitable for them; less likely to accumulate unmanageable debts; less likely to fall victim to financial frauds, such as Ponzi schemes Educationalists $ Financial services industry consumers who are informed and engaged are more likely to buy appropriate financial products and services (this increases business volumes; reduces marketing costs; and leads to fewer complaints) Employers Financial services regulators and the Government NGOs 6

7 Working in partnership: International experience No single organisation can improve financial literacy on its own There are many organisations with an interest in improving people's financial literacy who can potentially contribute Typically, a broad range of partners from the public, private and non-profit sectors collaborate Most commonly, the implementation of national strategies on financial literacy is led by a financial services regulator 7

8 Working in partnership: UK example Development and implementation of first national strategy on financial literacy led by regulator (Financial Services Authority). Steering Group advised FSA, comprising Ministers + Chairmen & CEOs of FS industry, NGOs, educationalists, employers, media. Many different types of organisation worked in partnership e.g. FSA, Government, financial institutions, educational bodies, NGOs (especially those supporting various types of disadvantaged people), employers & media. Organisations typically consulted FSA before deciding on FL projects to enable them to fill gaps & to avoid duplication. 8

9 Banks and other financial institutions can play an important role Financial Literacy Marketing... so long as financial literacy programmes are not, in reality, marketing. People need to be able to trust a financial education initiative as providing objective advice. They will not do so if it is or seems to be an advertisement or other marketing. In UK, an educational NGO awards Quality Marks which teachers can rely on to resources which meet criteria, including objectivity 9

10 Why should financial literacy be objective? 1. In many countries, there is a luck of trust in the financial services industry (e.g. because of poor experiences of themselves/others or simply unfamiliarity). People need to understand why using financial services will benefit them (and not merely be good for the business of financial institutions) 2. Financial education is like other forms of education the purpose is to equip people with life skills, not persuading them to acquire particular products or helping them to complete forms. (Nothing wrong with these things but they are not financial literacy.) 3. If people think that an initiative is marketing/advertising, then the reality is that it is marketing/advertising 10

11 Teach people the basics If people do not budget, they are unlikely to have money to save. They need to be educated about why budgeting would benefit them not just the mechanics of how to budget. Similarly, people need to be educated about why saving would be in their interests not just the mechanics of how to save. People need to be educated on how to avoid financial frauds and other unexpected losses if they (or people they know) suffer frauds/losses, they will not feel confident in using financial institutions. People need to be confident that they will be treated fairly and that they will feel welcome or they will not use financial institutions. 11

12 Insights from behavioural economics Consumers' behaviour depends not only on their knowledge and skills, but also on their psychological biases/attributes. Important to focus on people's attitudes, as well as on education, information and skills. People tend: - to be overwhelmed and do nothing if they are given too much information or too many choices - to be over-confident about their ability to manage their personal finances and to ignore information which calls into question their views - to struggle to make good decisions. 12

13 Lessons for financial education programmes Lessons include: - keep things as simple as possible - use relevant and engaging language and contexts - repeat messages - use a variety of methods and channels - direct people to particular steps (e.g. increase their saving); and make active interventions rather than merely provide passive information or education - provide people with training on how to make good decisions. 13

14 Typical features of effective financial literacy programmes: 1. User-friendly being based on what consumers will in practice engage with. 2. Different programmes use a variety of approaches and channels. 3. Start with the basics build on these for those consumers who need to have more sophisticated knowledge and skills. 4. Use clear, simple and lively communications (less is more!). 5. Focus on attitudes and changing behaviours, not just knowledge and skills. 6. Programmes are tested; and are monitored and evaluated. 14

15 Examples of financial literacy programmes: Financial education in schools Financial education for young people Financial education presentations in workplaces Financial education via clubs, associations and community groups Financial education for people in rural communities Taking advantage of teachable moments Use of trusted intermediaries Mass communications Financial education days/weeks 15

16 UK example: Financial education for expectant mothers 1. User-friendly a teachable moment. New mothers helped to design the resources. Pack is distributed by midwives (trusted intermediary). 2. Variety of approaches and channels hard copy and internet. 3. Starts with the basics different sections on different topics. 4. Uses clear, simple and lively communications + behavioural focus. 5. Both concept and draft resources were tested in advance with expectant mothers + programme was monitored and evaluated (a high proportion of new mothers said the resources helped them to manage their family finances at a time of change in their lives). 16

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18 Prioritise: This includes deciding not to undertake initiatives which could be cost-effective because there are other initiatives which would be more cost-effective. If any organisation tries to do too much, resources are likely to be spread too thinly. Decide on some initial priorities taking into account needs, likely reach, likely impact (i.e. changes in people's behaviour), the resources which are expected to be available, and opportunities. 18

19 Test in advance, then monitor and evaluate: Testing can be via focus groups and/or via pilot tests. It is important to monitor and evaluate each financial education programme in order to: determine whether it is cost-effective and should be continued (possibly with changes) or whether it should be stopped; and to establish any lessons for other financial education programmes. Qualitative as well as quantitative assessments should be made. Evaluation should be built in from the outset otherwise, there will almost certainly be gaps in what can be assessed. 19

20 Skills which are needed to undertake effective financial literacy programmes: 1. Ability to see things from consumers' perspective. 2. Understanding of how people learn. 3. Excellent communication skills ability to put things simply and clearly. 4. Ability to work successfully with partners. 5. Project management skills. 6. Note: the necessary levels of financial expertise can fairly easily be acquired. 20

21 Common mistakes: Unnecessary duplication e.g. more than one financial literacy website Undertaking programmes which are unlikely to be cost-effective (in terms of impact, reach and sustainability given the costs involved) Going it alone rather than working in partnership Providing what it is thought that people need rather than what, in practice, they are willing to use Over-complicating Combining financial education with marketing so, people do not trust the financial education 21

22 Shaun Mundy Thank you!