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FINANCIAL LITERACY: DOLCETA Brussels, 28 May 2010

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

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FINANCIAL LITERACY: DOLCETA Brussels, 28 May 2010

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  1. FINANCIAL LITERACY: DOLCETABrussels, 28 May 2010 The Banks’ view on the value of Financial EducationEric Leenders Executive Director British Bankers Association (BBA) Chairman of the Consumer Affairs CommitteeEUROPEAN BANKING FEDERATION

  2. THE VOICE OF EUROPEAN BANKS • Over 5 000 banks • Major cross-border institutions and small regional entities • Wholesale and retail financial institutions

  3. THE VOICE OF EUROPEAN BANKS BANKING IN EUROPE 20 000 billion € Assets Employs over 2.2 million people Contributes 3% of GDP EBF CONTRIBUTION TO THE ECONOMY

  4. EBF MEMBERS • 31 national member associations: • 27 EU Member States • 4 EFTA countries • 13 Associates

  5. WHAT WE STAND FOR 50 years of sound banking representationWe aim to achieve an integrated European financial services market

  6. 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 complementseffective, clear and comprehensible information provided by banks • It is an indispensable part of the necessary background for a sound consumer regulatory environment.

  7. FINANCIAL LITERACY: What Does it Mean? • :

  8. FINANCIAL LITERACY: What Does it Mean? APRC

  9. 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)

  10. FINANCIAL CAPABILITY: Making Ends Meet

  11. 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 • Do you keep records of money withdrawn or spent?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)

  12. FINANCIAL CAPABILITY: Keeping Track of Finances

  13. 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)

  14. FINANCIAL CAPABILITY:Planning Ahead Nearly half of the UK population appear to be making insufficient effort to plan ahead

  15. 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)

  16. FINANCIAL CAPABILITY: Choosing Financial Products Many people are not very capable at choosing products

  17. 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)

  18. FINANCIAL CAPABILITY: Staying Informed

  19. 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

  20. 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

  21. FINANCIAL CAPABILITY: Staying Informed: Why 18 – 25 Have Difficulty Making Financial Decisions Complexity Motivation CII (2008)

  22. FINANCIAL CAPABILITY: What Should We Be Doing About It?

  23. 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

  24. FINANCIAL CAPABILITY AND CONSUMER CONFIDENCE CONSUMER CONFIDENCE Financial education and information requirements are different but complementary issues. FINANCIAL LITERACY PRE-CONTRACTUAL INFORMATION

  25. 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.

  26. 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. EBF

  27. 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 EBF’s MAIN ROLE: TO DISSEMINATE WHAT IS ALREADY DONE BY EBF MEMBERS • 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

  28. WHAT WE DO TO IMPROVE FINANCIAL LITERACY EBF dedicated website page http://www.ebf-fbe.eu/index.php?page=financial-education

  29. 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)

  30. 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.

  31. WHAT WE DO TO IMPROVE FINANCIAL LITERACY • How to use a bank account • Developing budgeting skills • Managing credit and debt Main focus of national banking associations’ projects : “money basics” Areas such as investment, saving and retirement, insurance and risk management are less developed and might deserve more attention

  32. WHAT WE DO TO IMPROVE FINANCIAL LITERACY Main target audience of EBF Members’ initiatives: More specific public groups are less often targeted based on specific needs: Children and young people Adults Banking staff Pre-retirement age Women Ethnic minorities Low-income households

  33. WHAT WE THINK ABOUT THE DOLCETA INITIATIVE The EBF supports the Commission’s initiative DOLCETA Strong points: Multilingualism Adapted to national culture Interactive Wide coverage However: 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

  34. BANKING IN EUROPE Thank you for you attentionFor further information: www.ebf-fbe.eu EBF 50th Anniversary

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