EN QUOI L’ÉDUCATIONFINANCIÈRE EST-ELLE DEVENUE

UN ENJEU DE SOCIÉTÉ?

BRUSSELS, MARCH 2015

WIKIFIN-GLOBAL AND EUROPEAN MONEY WEEK

André Laboul

Chair of the International network on Financial EducationDeputy Director of the Directorate for Financial and Enterprise Affairs 1

A changing financial landscape

Increasing financial risks (financial crisis, demographic challenges )

Access and inclusion issues (vulnerable groups)

Increased sophistication

Increased transfer of risk to households. This is true for instance for both credit decisions (mortgage ), and retirement savings (DC schemes).

This calls for a new regulatory approach. - A new culture

New focus on market conduct and not only on prudential regulation

New Focus on financial education but also access and consumer protection

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Transparent information and disclosure is key. This is the minimum

Information should be understandable; plain language should be used

“Less is more”: danger of overinformation

Information is necessary but not sufficient: individuals need to understand the information

Call for further

information BUT also education

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The level of financial literacy is low in most countries, including in developed countries.

Worse: consumers often overestimate their financial understanding and thus do not seek to improve it

This is all the more important as the process of financial education takes time

Financial education is not just for investors : It is essential for the average family trying to balance its budget, save for children’s education and save for retirement

The situation is serious

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Low knowledge of key financial concepts and

overconfidence

Limited understanding of :

• the concept of compound interest

• Importance of risk diversification

Consumers overestimate their knowledge :

75% of US citizens have positive perceptions of

their own financial knowledge, only 14% are

able to answer all 5 simple financial literacy quiz questions correctly.

Difficulty in several areas of financial behaviours

Use of formal services

Planning ahead for unexpected life events as

well as important one such as retirement

Responsible use of credit

Groups at risksand in need

young

elderly population

women

low income

Migrants

MSME

Financial literacy is still low(Source OECD survey, 2012, national surveys)

Low level of adult’s financial knowledge:The exemple of the concept of simple/compound interest

Source : based on OECD/INFE measurement tool

• they can increase workers participation in pension plans,

• reduce mortgage and credit delinquency, • increase consumers confidence in themselves

and in financial institutions.

We have found that good financial

education programmes are

effective

This calls for efficient financial educationand systematic evaluation

• More savings, better financial planning• Higher financial autonomy• Positive effect on parents• Factors: high quality resources, teaching

training, targeted programme

Impact evaluationof the Brazilian

pilot programme of financial educationin schools showed

But solutions encouraging

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Financial education is a process aimed at empowering individuals including vulnerable groups to be more aware of and educated on financial risks they are exposed to, knowledgeable about financial concepts and have the confidence and skills to make informed decisions according to their needs and situation with a view to improving their financial wellbeing

Financial literacy is defined as a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financialdecisions and ultimately achieve financial wellbeing

Financial education is an essential complementary policy tool to :

• protect consumers by improving their financial literacy

• restore much needed trust in financial markets and

• address the increasing complexity of the financial landscape and the growing transfers of financial risks and responsibilities to consumers.

Advancing financial literacy

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• improving trust • encouraging the development of

new products and services • increasing competition, innovation

and product quality

Financial education will

help build more efficient and

healthy financial markets by:

• engage in social reforms• reduce poverty and • improve social cohesion

Financial education can also help to:

Broader impact of financial education

How do financial literacy and entrepreneurship fit together?

Not everybody's going to be an entrepreneur, but everybody should be financially literate. Financial literacy is a base requirement that everybody should acquire at any early age. The financial habits you develop when you are young are going to go with you into your adulthood. But you can't be an entrepreneur unless you're financially literate.

(Warren Buffet)

→ Upcoming OECD/GFLEC Global Policy Research Symposium on harnessing financial education to spur entrepreneurship and innovation, 7 May, Paris

Financial education and entrepreneurship

A role for all stakeholders

Win-win strategy for financial industry

When objectively promoting financial education and awareness, financial institutions help:

– Improve confidence and trust in financial markets, products and institutions

– Improve risk awareness and thus increase demand for protection

– Improve understanding of products and their advantages and thus increase demand

– Reduce losses through better prevention and mitigation

A role for all stakeholders

• Governments and financial authorities working hand in hand with parliament

• Schools

• Financial institutions

• Employers

• Trade unions

• NGO’s (for instance CYFI)

• etc.

→ There is a strong call for :

– a strategical and coordinated approach to financial education

– public-private partnerships

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Findings from a survey conducted through the International Network for financial Education

– Lack of financial literacy is one of the factors contributing to the

aggravation of the financial crisis

– The crisis and its consequences have highlighted the need for enhanced level of accountability of financial institutions vis-à-vis their clients and consumers

– They have also raised awareness on the need for increased financial literacy households and policymakers

– The crisis is a « teachable moment »

– The crisis is a trigger for policy actions in the financial education area

→ but we need to also ensure the sustainability of this approach

Momentum due to financial crisis

OECD and INFE work on financial education

Recognising the need for policymakers and other relevant stakeholders to meet the objective of improving financial education, the OECD launched in 2oo3 its “international programme on financial education”

Under the aegis of the OECD Committee on Financial Markets and the OECD Insurance and Private Pensions Committee

Conducted through the International Network for Financial Education hosted by the OECD : INFE

Members from more than 250 institutions representing 119 countries and international bodies

OECD and the network have become the international leader on the development of guidelines and standards in financial education

G8 Financial Ministers recognised, at their Moscow June 2006 meeting, OECD work on financial education and requested OECD to further develop financial literacy guidelines

Since then multiple OECD recommendations expanded at worldwide level through the INFE

OECD work is now supported by policymakers all over the world including G20

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2012

G20 Leaders endorsed

OECD/INFE High-level Principles

on National Strategies for Financial Education

(approved by OECD CMF & IPPC in April 2012)

2013

G20 Leaders :

• welcomed the G20/OECD publication on national strategies for financial education

• endorsed OECD/INFE policy guidance on addressing women and girls’ needs for financial education (approved by OECD CMF & IPPC in May/June 2013)

• welcomed OECD/INFEtool to measure financial literacy

2014

G20 Finance Ministers were transmitted :

• OECD/INFE Guidelines on Private and Non-for-Profit Stakeholders in Financial Education(approved by OECD CMF & IPPC in August 2014)

• OECD/INFE Progress report on Financial Education

The OECD policy instruments

are well recognised by G20

Main contributions :

Key comparative analysis and evidence

the first international survey on financial literacy and inclusion of adults

G20 report on advancing financial education

Publications on financial education for youth and for women

Publication on improving financial education effectiveness

Sectoral reports on financial literacy in insurance and private pensions

Research on behavioral issues in financial education, on annuities, communication

20 Working papers

More at www.financial-education.org

Framework : Strategies (high-level principles, publication, policy handbook)

Target audiences

Youth

Women

Migrants

SMEs

Vulnerable groups

Evidence & tools

Financial literacy indicators

for adults for youth (PISA)

Evaluating programmes

Corecompetencies

Sectoralissues

Credit

Saving & investment

Pensions

Insurance

Improving delivery

Behavioral economics

Peer review

Practical guidance

Current work areas

The overall Framework (2012) OECD/INFE High-level Principles

on National Strategies for Financial Education

General instruments

•2005

Principles and Good practices on Financial Education and Awareness

•2014

OECD/INFE Guidelines for private and civil stakeholders in financialeducation

Sectoral Good Practices

• 2008

2 Good Practices for Financial Education relating to Private Pensions &for Enhanced Risk Awareness and Education on Insurance issues

•2009

Good Practices on Financial Education and Awareness relating to Credit

Methodological tools

•2011

High-level Principles for the Evaluation of Financial Education Programme

• 2013

Toolkit on measuring Financial Literacy and inclusion (revised in 2014)

Target Audiences

•2012

OECD/INFE Guidelines for Financial Education in Schools

•2013

OECD/INFE Policy guidance on addressing women’s and girls’ needs for financial education

Ten OECD/INFE policy and practical instruments

to be consolidated in 2015

Key G20/OECD deliverables in 2015

• Policy Handbook and Checklist on Implementing National Strategy for Financial education

• Core Competencies on Youth’s Financial Literacy

New work streams

• Financial education for Micro, Small and Medium enterprises

• Impact of digital finance for financial education

Cross comparable data collection

• Survey on financial literacy and inclusion in 2015 (> 30 Countries)

• 2nd PISA financial literacy in 2015 (launch of the 2012 results last July in Paris in co-operation with EDU)

Future main directions

• They encourage the development of evidence and research

• They allow for strong engagement of all relevant stakeholders under a key leadership

• They will allow for rationalization and coordination of existing programmes, with a better and more efficient allocation of resource.

FE strategies play a crucial

role in promoting

efficient financial

education policies

Financial education strategies

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A strategy for financial education (NS) is defined as “a coordinated approach to financial education that consists of an adapted framework or programme, which:

• Recognises the importance of financial education and defines its meaning and scope at the relevant local level in relation to identified local needs and gaps ;

• Involves the cooperation of different stakeholders as well as the identification of a leader or coordinating body/council;

• Establishes a roadmap to achieve specific and predetermined objectives within a set period of time ; and,

• Provides guidance to be applied by individual programmes in order to efficiently and appropriately contribute to the strategy .”

Principles: definition of a strategy

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• OECD/INFE Guidelines on financial educationin schools

• Case studies report

• Comparison of existing learning frameworks in schools

New PUBLICATION!

• Rationale for financial education in schools

• Figures and quotes

• Main guidance

New LEAFLET!

OECD/INFE project and policy tools

on financial education for youth and in schools

2005 - OECD Recommendation:

“Financial education should start at school”

2008 - Creation of the INFE expert

subgroup on financial education

in schools

2008/2011-Broad stock take

exercise:37 countries

Report to G20 in 2013

Strong performance in

financial literacy

Low performance in financial literacy

Average performance

of 15-year-olds in

financial literacyP

ISA

Fin

an

cia

l L

ite

racy

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Distribution of student performance

625 and above

550 to <625

475 to<550

400 to <475

Less than 400

points

Financial literacyperformance levels

Top performers

Baseline

Wide skill gaps within countries…

Financial education is necessary…

but not sufficient

– Other measures are needed to overcome consumers myopia and passive behaviour

– To deal with fraud, miss-selling

– To protect consumers against bankruptcies

– To promote access

– And more generally to protect consumers’ rights

– This calls for a trilogyapproach

Financial Education

Financial Consumer Protection

FinancialInclusion

Consumer

protection

Ensuring Adequate Retirement Income

Regulation Financial Other

Education

Approaches

Provision Management Awareness Information Instruction Advice Automatic

Of of Enrolment

Information Investment

Funds

Content and Delivery

Behavioural

Characteristics

Of

Consumers

Financial education: part of a system(pension example)

• OECD active on FCP issues for over 30 years: first recommendation in 1977

• Work developed by the G20/OECD Task Force on financial consumer protection

• High Level Principles on financial consumer protection endorsed by G20 leaders in 2012

• Action Plan of the G20/OECD Task Force endorsed by G20 leaders in 2012

• Effective approaches for the implementation of the 10 principles submitted to G20 leaders in 2013 and 2014

• New work focusing on behaviour issues, including the impact of regulation on behaviour

Financial consumer protection

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Developed by the G20/OECD Task Force on financial consumer protection, in cooperation with G20 members, FSB and other international bodies ; and with public consultation. They cover:

1. Legal, Regulatory and supervisory Framework

2. Role of Oversight Bodies

3. Equitable and Fair Treatment of Consumers

4. Disclosure and Transparency

5. Financial Education and Awareness

6. Responsible Business Conduct of Financial Services Providers and Intermediaries

7. Protection of Consumer Assets against fraud and misuse

8. Protection of Consumer Data and Privacy

9. Complaints Handing and Redress

10.Competition

G20 High-level Principles on

Financial Consumer Protection (2011)

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• Financial inclusion is essential: What is the relevance to be educated and protected if you do not have access to financial services?

• The 3 approaches inclusion, education and protection are all necessary but not sufficient when taken alone.

• We need the « trilogy »

• Which itself is part of a « multilogy » together with prudential regulation, governance, competition

But again…

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• Example: THE OECD ROADMAP FOR THE GOOD DESIGN OF DEFINED CONTRIBUTION PENSION PLANS

• Encourage people to enroll, to contribute and contribute for long periods. Where mandatory enrolment is not considered opportune, mechanisms such as automatic enrolment, with the possibility for individuals to opt out, are particularly useful, together with setting adequate default contribution rates. From opt in to opt out option.

• Improve the design of incentives to save for retirement, particularly where contributions are voluntary. An appropriate structure of tax incentives and/or matching contributions can both be efficient mechanisms to encourage participation and increase contributions. .

• Establish appropriate default investment strategies, while also providing choice between investment options with different risk profile and investment horizon. As many members may be unwilling or unable to choose investments, default options need to be carefully designed following the lessons learnt from behaviouraleconomics.

This may call for further incentives,

nudges and default approaches

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• Financial inclusion

• Prudential regulation and enhanced governance

• Consumer information and protection

• Competition

• Financial education and awareness

They are interconnected and interactive

Integrated pillars

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No- Financial education is not a substitute to regulation and yes- consumers should continue to be protected through consumer protection

Yes- FE, FI, and FCP work when combined and not in isolation

No- financial literacy is not just about knowledge, but more importantly about attitudes, skills and behaviors

Yes- FE is efficient when delivery is well designed and yes- sometimes it is not the case which calls for systematic evaluation and reporting

Yes- there may be conflict of interest when financial institutions promote theirproducts under the cover of financial education and yes- this needs to be closely monitored

Some final thoughts….

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In the framework of growing risks and increasing transfer of risks, of gaps in coverage and lack of financial literacy and awareness

There is a strong need for improving financial education, awareness, inclusion and financial consumer protection .

This process calls for public-private partnerships

Financial education should:

• Not be one-size fits all and take account of local specificities

• be based on evidence on both literacy levels and delivery efficiency

• start early (and ideally in schools)

• deal with priority areas such as pensions, credit, savings and risk awareness

• allow for special role by financial institutions whose responsibility should be encouraged

• address vulnerable groups’ needs

financial education alone is not the panacea; it is part of a wider policy approach, complementing prudential regulation and calling for consumer protection

Conclusion

THANK YOU

more information at:

• www.oecd.org/daf/financialeducation

• www.financial-education.org

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