- Levels of financial literacy—which is key to individual economic health—are low across Europe
- Governments, educational institutions and employers must work together to improve financial education
- The Internet and technology will play a greater role in educating European citizens
The pendulum has swung from institution to individual when it comes to managing financial matters. Individuals with high levels of financial knowledge and confidence can enjoy the opportunities this new savings environment presents—yet in the absence of robust financial literacy, this level of choice and influence over financial matters can be precarious.
“Given the significant economic challenges European society faces, it is important for people of all ages to be equipped with economic literacy and planning skills to assess their need for financial protection,” says Michaela Koller, general director of Insurance Europe, the European insurance and reinsurance federation.
Europeans lack financial literacy
The preliminary results of a 2015 OECD study of financial literacy across the globe found “a large proportion of individuals who could benefit from initiatives designed to change their behaviour”.1 In another study of financial literacy, published by McGraw Hill in 2014, just 52% of EU citizens were found to be financially literate.2 And while there were discrepancies across the EU in standards of financial literacy, even the most educated nations only reached levels of 65%.
Such low levels of financial literacy today are a concern for both individuals and society as a whole, according to Ms Koller. “Education on financial and insurance matters can enable people to make informed financial choices, helping them to live fuller, more prosperous lives ,” she explains, “which in turn drives economic growth.”52%Just 52% of EU citizens were found to be financially literate, according to a 2014 study by McGraw Hill.
Driving the agenda
To improve financial literacy among individuals, governments must remain committed to supporting financial education, even as they step back from contributing to long-term saving.
Olivier Salles, unit head for retail financial services and payments, Directorate-General for Financial Stability, Financial Services and Capital Markets Union (FISMA) at the European Commission, says: “Financial education activities should be encouraged and supported at national level by public authorities, including ministries of education and financial-market regulators. It is their role to draw the attention of consumers and educational centres to the importance of financial education.”
But governments cannot afford to work in isolation; efforts must also be supported in the private sector. According to a 2012 OECD paper on establishing a national strategy for financial education, private companies—and in particular financial institutions “owing to their expertise and resource”—have a critical role to play.3
Flore-Anne Messy, administrator in the Directorate for Financial and Enterprise Affairs at the OECD, notes: “Public authorities should have the lead in defining the objectives and activities to improve financial inclusion, while other stakeholders—private and civil—can support the implementation of particular programmes and their evaluation.”
Never too early to start
A test of financial literacy among 15-year-olds, conducted by the OECD in 2012 and covering 13 countries, found that around one in seven students were “unable to make even simple decisions about everyday spending”, while only one in ten could “solve complex tasks”.4
The study found that in France, for example, one in five students did not meet the baseline of financial proficiency. According to the study results, “at best, these students can recognise the difference between needs and wants, can make simple decisions on everyday spending, and can recognise the purpose of everyday financial documents, such as an invoice.”5
In its 2012 study Financial Education in Schools, the OECD recommends that schools build financial education into their curriculums so that children can from an early age acquire the knowledge and skills that will drive responsible financial behaviour.6
Of course, the responsibility of equipping children with the financial tools necessary to budget and save does not fall solely to schools. According to Markus Leibundgut, CEO of Swiss Life Germany, families must also play a part: “Parents have to carry a lot of the responsibility for their children. They must teach them to swim in modern society, and financial literacy is a crucial part of keeping their heads above water.”
Mr Leibundgut also suggests integrating a financial component into apprenticeship programmes or courses of further study, as a means of improving financial literacy.
Students or people undergoing professional training would then be better equipped for managing their finances when they start working. “It is relatively simple to include financial literacy systematically in professional training curriculums,” says Mr Leibundgut.
The information age
Offering financial education as part of apprenticeships and at schools across the EU would improve the prospects of future generations—but what about those who have long since left formal programmes?
Access to affordable independent financial advice is critical for those who need support in determining when, how much and where to invest, says Mr Salles: “Consumers should be educated about the importance of financial planning and have access to independent advice at low cost whenever they need to take an important financial decision.”
Mr Salles points to automated or digital advice as a possible means of providing financial support to the mass market. “Robo-advice” is already making its mark in developed countries. In December 2015 the European Supervisory Authorities released a discussion paper exploring the increase in digital advisory platforms with a view to regulating this effectively across the EU.7 Smartphones and online tools are also providing easy access to financial education.
Erwin Heri, for example, runs Fintool, a Swiss-based financial literacy website offering independent educational videos in German. The videos, which are free, are emailed directly to subscribers’ inboxes. According to Professor Heri, a successful “finformation” video is entertaining and relevant, but most importantly, it has to be concise: “We are not aiming our videos at bankers,” he says, “but rather public citizens who need to improve their financial literacy.”
Keep it simple
The financial industry has long been criticised for baffling consumers with jargon and for overcomplicating products.
To improve financial literacy, there is pressure on banks, insurance companies and financial services in general to simplify either the products themselves or the language they use to sell them. As Ms Messy of the OECD points out: “Enhancing the comparability, suitability and adequacy of information on financial products is certainly a desirable goal to support individuals’ financial decision processes.”
However, the EU’s Mr Salles warns against oversimplification, arguing that if products are pared back too far, they may not achieve investors’ objectives. “Product simplification,” he says, “could help in certain areas but may be counterproductive in others. One should be wary of one-size-fits-all approaches as simplification or standardisation of products, as this will not necessarily result in their greater uptake or understanding.”
According to Mr Leibundgut of Swiss Life Germany, the trick lies in keeping the language straightforward and ensuring that the topic is relevant. “We are making a big effort to simplify the way in which we explain our products and services to make the terms and conditions more straightforward. We train independent agents and our own financial advisors and employees in how to explain insurance and financial solutions clearly and to demonstrate exactly how they add value for the client.”
Expecting individuals to engage with financial education is only realistic if the products and terminology used are accessible. Transparency, simplicity and fairness will be crucial to improving financial literacy—empowering citizens, in turn, to take control of their future.
Defining financial literacy (Source OECD)
A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.
La clé : la simplicité
Il a longtemps été reproché au secteur financier d’utiliser un jargon déconcertant pour les consommateurs et de rendre les produits excessivement complexes.
Afin d’améliorer l’éducation financière, les banques, les compagnies d’assurance et les services financiers dans leur ensemble sont incités à simplifier les produits qu’ils proposent ou le vocabulaire qu’ils utilisent pour les vendre. Comme le souligne Mme Messy de l’OCDE : « L’optimisation de la comparabilité, la pertinence et la qualité des informations relatives aux produits financiers est certainement un objectif souhaitable pour soutenir les gens dans la prise de décisions financières. »
M. Salles, de l’UE, met toutefois en garde quant à une simplification excessive, en soutenant que si les produits sont trop simplifiés, ils risquent de ne plus répondre aux objectifs des investisseurs. Selon lui, « la simplification du produit peut s’avérer judicieuse dans certains cas, mais contreproductive dans d’autres. Il faut rester prudent concernant les approches uniformisées dans le cadre de la simplification ou de la normalisation des produits, car elles n’en permettent pas automatiquement une meilleure compréhension. »
D’après M. Leibundgut de Swiss Life Allemagne, la clé consiste à conserver un langage simple et à veiller à la pertinence du sujet. « Nous mettons tout en œuvre pour simplifier les documents expliquant le fonctionnement de nos produits et prestations, mais également les conditions des produits. Nous formons des courtiers indépendants ainsi que nos propres conseillers et collaborateurs sur la façon d’expliquer clairement des solutions financières ou d’assurance et d’en présenter concrètement la valeur ajoutée pour le client.»
Attendre des consommateurs qu’ils s’intéressent à l’éducation financière n’est réaliste que si les produits et la terminologie utilisée sont accessibles. La transparence, la simplicité et l’impartialité seront essentielles pour améliorer l’éducation financière et aider les citoyens à prendre le contrôle de leur avenir.
Définition de l’éducation financière
Il s’agit d’un mélange de sensibilisation, de connaissance, de compétence, de comportement et d’état d’esprit nécessaire pour prendre des décisions financières éclairées et, à terme, assurer son propre bien-être financier.