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

FINANCIAL LITERACY: DOLCETABrussels, 28 May 2010

THE VOICE OF EUROPEAN BANKS

Over 5 000 banksOver 5 000 banks Major cross-border institutions and small Major cross-border institutions and small

regional entitiesregional entities Wholesale and retail financial institutionsWholesale 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 50 years of sound banking representationof sound banking representation

We aim to achieve an integrated European We aim to achieve an integrated European financial services marketfinancial services market

WHY FINANCIAL LITERACY IS KEY

It is an essential component of the empowerment of the It is an essential component of the empowerment of the consumer consumer

It enables people to improve their understanding of the It enables people to improve their understanding of the financial opportunities offered to themfinancial opportunities offered to them

It does NOT It does NOT replacereplace BUT BUT complementscomplements effective, clear and effective, clear and comprehensible information provided by bankscomprehensible information provided by banks

It is an indispensable part of the necessary background for a It is an indispensable part of the necessary background for a sound consumer regulatory environment.sound consumer regulatory environment.

FINANCIAL LITERACY: What Does it Mean?

:

FINANCIAL LITERACY: What Does it Mean?

APRCAPRC

FINANCIAL CAPABILITY: Making Ends Meet

•How well are you keeping up with commitments?How well are you keeping up with commitments?•How often do you run short of money/have money How often do you run short of money/have money left over?left over?•Have you been in financial difficulties in past 5 yearsHave you been in financial difficulties in past 5 years•Is your current account overdrawn?Is your current account overdrawn?•Do you use your credit card for daily expenses?Do you use your credit card for daily expenses?•Ratio of borrowing to savingRatio of borrowing to saving•Attitudes to money managementAttitudes to money management

KEMPSON (2002)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 bank statements?•What do you do with credit card statements?What do you do with credit card statements?•Do you keep records of money withdrawn or Do you keep records of money withdrawn or spent?spent?•How accurately do you know how much money you How accurately do you know how much money you have? have? •Frequency of checking account balance before Frequency of checking account balance before withdrawing cashwithdrawing cash•Provision for ‘lumpy’ expenditureProvision for ‘lumpy’ expenditure

•KEMPSON (2002)KEMPSON (2002)

FINANCIAL CAPABILITY: Keeping Track of Finances

FINANCIAL CAPABILITY:Planning Ahead

Provision for a fall in income:Provision for a fall in income:

1.1. Whether made provision personallyWhether made provision personally2.2. Length of time could ‘make ends meet’Length of time could ‘make ends meet’3.3. Any protection insurance?Any protection insurance?

Adequate provision for significant major expense?Adequate provision for significant major expense?Whether provision made for anticipated future Whether provision made for anticipated future expense?expense?

Whether has made own pension provision?Whether has made own pension provision?

Attitudes to planning aheadAttitudes to planning aheadKEMPSON (2002)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 Note: based on two most complex products bought personally in past 5 yearspersonally in past 5 years

•Whether any information was collected Whether any information was collected •Main source of information Main source of information •How respondent chose productHow respondent chose product•Whether knew if an adviser was authorisedWhether knew if an adviser was authorised •Why the respondent chose a particular productWhy the respondent chose a particular product•Whether read the terms and conditionsWhether read the terms and conditions

KEMPSON (2002)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 onNumber of indicators you are keeping an eye on•Frequency measures economic indicatorsFrequency measures economic indicators•Financial literacy scoreFinancial literacy score•Importance of keeping up to date with financial mattersImportance of keeping up to date with financial matters•Knowledge of types of mortgages Knowledge of types of mortgages •Knowledge of risk associated with savings and investmentsKnowledge of risk associated with savings and investments•Didn't know key features of at least one product heldDidn't know key features of at least one product held

KEMPSON (2002)KEMPSON (2002)

FINANCIAL CAPABILITY: Staying Informed

FINANCIAL CAPABILITY: Who Knows What?

• Can segment the population according to levels Can segment the population according to levels of capability across all 5 areasof capability across all 5 areas

• Nearly 4 in 10 had no areas of weaknessNearly 4 in 10 had no areas of weakness• Nearly 3 in 10 weak in only one areaNearly 3 in 10 weak in only one area

BUTBUT• 2 in 10 weak in four or all five of the areas2 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 scoresAge is the most important factor in all five scores– Suggesting that levels of financial capability Suggesting that levels of financial capability

increase with experienceincrease with experience• Some interesting tenure and area effectsSome interesting tenure and area effects

– Suggesting pockets of low financial capability Suggesting pockets of low financial capability

• But income But income per se per se is far less importantis far less important

FINANCIAL CAPABILITY: Staying Informed: Why 18 – 25 Have Difficulty Making Financial Decisions

CII (2008)

Complexity

Motivation

FINANCIAL CAPABILITY: What Should We Be Doing About It?

FINANCIAL CAPABILITY: Who Knows What?

Products on offer are increasing in range and complexityProducts on offer are increasing in range and complexity Consumers are willing to better understand the products they Consumers are willing to better understand the products they

buy. buy. However, consumers tends to overestimate their knowledge of However, consumers tends to overestimate their knowledge of

financial productsfinancial products In the absence of adequate financial education, In the absence of adequate financial education, even relatively even relatively

straightforward financial products can appear quite complex to straightforward financial products can appear quite complex to the average citizenthe average citizen

For the information provided to consumers to be useful to For the information provided to consumers to be useful to them, more robust financial literacy must support the efforts of them, more robust financial literacy must support the efforts of the industry towards more transparency the industry towards more transparency

FINANCIAL CAPABILITY AND CONSUMER CONFIDENCE

Financial education and information requirements are different but Financial education and information requirements are different but complementary issues.complementary issues.

FINANCIAL CAPABILITY AND CONSUMER RESPONSIBILITY

In order for the relationship between banker and customer to work In order for the relationship between banker and customer to work most effectively, customers should:most effectively, customers should:

- - Take the time to read documents before they sign them;Take the time to read documents before they sign them;- - Be honest and divulge all relevant information when Be honest and divulge all relevant information when applying for financial products;applying for financial products;- - Read and reflect on communications received;Read and reflect on communications received;- - Borrow responsibly Borrow responsibly –– i.e. only what they can comfortably i.e. only what they can comfortably afford;afford;- - Inform their banks/financial providers of changing Inform their banks/financial providers of changing circumstances /hardship;circumstances /hardship;- Ask if they are not sure. - Ask if they are not sure.

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

EBF gathers information on national banking associations’ initiatives EBF gathers information on national banking associations’ initiatives in financial education, allows sharing of best practices and exchange in financial education, allows sharing of best practices and exchange of solutions to common problems.of solutions to common problems.

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

• In the EU competence in In the EU competence in (financial) education remains (financial) education remains mainly under the remit of mainly under the remit of national authorities following national authorities following the subsidiarity principle the subsidiarity principle

• The debate on Financial The debate on Financial Literacy at EU level relies on Literacy at EU level relies on the boosting effect of the the boosting effect of the exchange of best practices and exchange of best practices and on initiatives like DOLCETA on initiatives like DOLCETA

EBF’s MAIN ROLE: TO DISSEMINATE WHAT IS ALREADY DONE EBF’s MAIN ROLE: TO DISSEMINATE WHAT IS ALREADY DONE BY EBF MEMBERSBY EBF MEMBERS

• Similarly, at EBF level introducing Similarly, at EBF level introducing top-down inititives in financial top-down inititives in financial literacy to EBF members would literacy to EBF members would not be efficient, due to cultural not be efficient, due to cultural and background differencesand background differences

• The EBF is facilitating the The EBF is facilitating the exchange of experiences, exchange of experiences, inspiring and encouraging new inspiring and encouraging new actions and supporting the actions and supporting the networking of EBF membersnetworking of EBF members

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

EBF dedicated website pageEBF dedicated website page http://www.ebf-fbe.eu/index.php?page=financial-education http://www.ebf-fbe.eu/index.php?page=financial-education

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

The new EBF webpage dedicated to Financial The new EBF webpage dedicated to Financial education gives access to:education gives access to:

The EBF 2009 Report on Financial LiteracyThe EBF 2009 Report on Financial Literacy The links towards EBF Members’ dedicated The links towards EBF Members’ dedicated

webpageswebpages Other useful links (e.g. the Dolceta website)Other useful links (e.g. the Dolceta website)

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

EBF 2009 Report on Financial Literacy EBF 2009 Report on Financial Literacy EBF Members are EBF Members are natural partners of natural partners of national authorities and national authorities and otherotherprivate stakeholders in private stakeholders in their respective their respective countries and countries and contribute, eithercontribute, eitheras co-operators or as as co-operators or as main leaders, to the main leaders, to the performance of performance of numerousnumerousprojects.projects.

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

How to use a bank accountHow to use a bank account Developing budgeting skillsDeveloping budgeting skills Managing credit and debtManaging credit and debt

Main focus of national Main focus of national banking banking associations’ associations’ projects : “money projects : “money basics”basics”

Areas such as investment, saving and Areas such as investment, saving and retirement, insurance and risk retirement, insurance and risk

management are less developed and management are less developed and might deserve more attentionmight deserve more attention

WHAT WE DO TO IMPROVE FINANCIAL LITERACY

Children and Children and young peopleyoung people

Adults Adults

Banking staffBanking staff

Main target Main target audience of EBF audience of EBF Members’ Members’ initiatives:initiatives:

More specific public More specific public groups are less groups are less often targeted often targeted based on specific based on specific needs:needs:

Pre-retirement agePre-retirement ageWomenWomenEthnic minoritiesEthnic minoritiesLow-income householdsLow-income households

WHAT WE THINK ABOUT THE DOLCETA INITIATIVE

The EBF supports the Commission’s initiative DOLCETAThe EBF supports the Commission’s initiative DOLCETA

Strong points:Strong points:

MultilingualismMultilingualismAdapted to national cultureAdapted to national cultureInteractiveInteractiveWide coverageWide coverage

HoweverHowever::

Not advertised enough Not advertised enough Needs more involvment of public Needs more involvment of public authorities and private stakeholdersauthorities and private stakeholdersShold not be a policy tool, but a support Shold not be a policy tool, but a support for teaching financial education for teaching financial education

Thank you for you attentionThank you for you attention

For further information: For further information: www.ebf-fbe.eu

EBF 50th Anniversary