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: DOLCETA Brussels, 28 May 2010

THE VOICE OF EUROPEAN BANKS  Over banks  Major cross-border institutions and small regional entities  Wholesale and retail financial institutions

THE VOICE OF EUROPEAN BANKS 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 of sound banking representation We aim to achieve an integrated European financial services market

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

FINANCIAL LITERACY: What Does it Mean? :

APRC

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 left over? How often do you run short of money/have money left over? Have you been in financial difficulties in past 5 years Have 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 saving Ratio of borrowing to saving Attitudes to money management Attitudes to money management 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 Do you keep records of money withdrawn or spent? Do you keep records of money withdrawn or spent? How accurately do you know how much money you have? How accurately do you know how much money you have? Frequency of checking account balance before withdrawing cash Frequency of checking account balance before withdrawing cash Provision for ‘lumpy’ expenditure Provision for ‘lumpy’ expenditure KEMPSON (2002) KEMPSON (2002)

FINANCIAL CAPABILITY: Keeping Track of Finances

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)

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 personally 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 product How respondent chose product Whether knew if an adviser was authorised Whether knew if an adviser was authorised Why the respondent chose a particular product Why the respondent chose a particular product Whether read the terms and conditions Whether read the terms and conditions 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 mortgagesKnowledge 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)

FINANCIAL CAPABILITY: Staying Informed

FINANCIAL CAPABILITY: Who Knows What? Can segment the population according to levels of capability across all 5 areas Can segment the population according to levels of capability across all 5 areas Nearly 4 in 10 had no areas of weakness Nearly 4 in 10 had no areas of weakness Nearly 3 in 10 weak in only one area Nearly 3 in 10 weak in only one areaBUT 2 in 10 weak in four or all five of the areas 2 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 scores 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 Some interesting tenure and area effects – Suggesting pockets of low financial capability But income per se is far less important But income per se is 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 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

FINANCIAL CAPABILITY AND CONSUMER CONFIDENCE Financial education and information requirements are different but complementary issues.

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.

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.

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

WHAT WE DO TO IMPROVE FINANCIAL LITERACY EBF dedicated website page

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)

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.

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

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

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

Thank you for you attention For further information: EBF 50 th Anniversary