Financial literacy and education

Improving financial capability through literacy and education is essential to help consumers make sustainable decisions in financial matters, especially because the credit market is becoming increasingly complex, requiring an advanced level of knowledge. In turn, enhancing financial capability means facilitating consumer decisions to choose financial services that are suitable for their needs and providing information that helps consumers to manage economic resources in a sustainable way.126 This cannot be taken for granted, as the frequent episodes of consumer over-indebtedness demonstrate a significant lack of financial understanding and rational behaviour on the part of consumers. How, therefore, can financial capability of market participants be enhanced through information and education? What tools may help consumers to evaluate risks and to manage their financial means adequately?

The OECD has been leading in this regard, developing specific guidelines on financial education in the credit sector, as a tool to prevent over-indebtedness. In 2009 the OECD issued a ‘Recommendation on Good Practices on Financial Education and Awareness Relating to Credit’, including suggestions on how public actions, credit market players, specific platforms, and NGOs may enhance financial literacy of consumers, especially after the recent financial crisis.127 Furthermore, the OECD proposes a wide range of tools and

Concerning the UK consumer credit movement, see N. Ryder, ‘Out with the Old and in with the New? A Critical Analysis of Contemporary Policy towards the Development of Credit Unions in Great Britain’, (2005) J. Business Law, pp. 617 et seq.

  • 124 For more on the consumer credit movement in the UK see Ryder, ‘Out with the Old and in with the New?’ (n 123), pp. 617 et seq.
  • 125 Reifner, ‘The Lost Penny, Social Contract Law and Market Economy’ (n 115), pp. 158-9.
  • 126 See the FSA publications at: . See also the consumer financial capability approach in Leskinen & Raijas (n 5), pp. 10 et seq; for a ‘financial capability index’ as a financial self-evaluation tool for the consumer, see Nicolini, ‘A Regulatory Perspective on Consumer Financial Capability’ (n 39), pp. 84-90.
  • 127 OECD, Financial Literacy and Consumer Protection: Overlooked Aspects of the Crisis, OECD Recommendation on Good Practices on Financial Education andAwareness Relating to Credit (Paris: OECD, June 2009).

objectives to enhance financial literacy, whose suitability may depend on specific national contexts:

  • • ensuring media coverage;
  • • the development of free and objective sources of consumer information, such as consumer information centres;
  • • the development of alternative information and communication channels, including Internet sites, guides, and leaflets, to help consumers compare different credit products and assess the protection and risks involved;
  • • the use of social networks, targeting the most vulnerable consumers; and
  • • ensuring the provision of clear and plain information for consumers.[1]

The concept of financial capability has been used as a model in national policy to promote financial literacy of consumers. For example in the UK, in the early 2000s, the FSA (now FCA)[2] formulated a ‘National Strategy for Financial Capability’, as part of its statutory duty to promote public understanding of the financial system.[3] Financial capability for the FSA meant: being able to manage money; keeping track of finances; planning ahead; choosing financial products; and staying informed about financial matters. The FSAs Financial Capability division was subsequently spun off and renamed, in April 2011, the ‘Money Advice Service’, an independent organization charged by the Financial Services Act 2010 with two statutory objectives: (1) enhancing the understanding of members of the public of financial matters; and (2) enhancing the ability of members of the public to manage their own financial affairs.[4]

Meanwhile, at the EU level, the Consumer Credit Directive discussed earlier in the chapter does not make any reference to financial education. However, there have been several EU-wide initiatives in this domain. An EU conference was held in 2007 on financial capability, where tools to enhance financial education were discussed.[5]

Moreover, in a ‘Communication on Financial Education' (2007), the European Commission suggested eight basic principles which could help public authorities, financial services providers, or consumer organizations to establish financial education programmes.[6] These broad principles range from the recommendation that financial services providers should provide financial education in a fair, unbiased, and transparent manner, to the suggestion that national authorities should try to financially educate consumers as early as possible, beginning at school.[6]

In addition, the Commission has established ‘Dolceta', a web-based consumer education tool, which covers, among other things, consumer rights and financial services.[8] This project was launched in 2003 and aims to raise the level of awareness and understanding of European consumer rights in the Member States through online consumer information and education.

Interestingly, the recently established European Insurance and Occupational Pensions Authority (EIOPA) was given a core role ‘in promoting transparency, simplicity and fairness' in the market for consumer financial services. Moreover, according to Article 9 of Regulation 1094/2010, it was given a specific task to review and coordinate financial literacy and education initiatives by competent authorities.[9] Pursuing these objectives, EIOPA recently issued a report on the state of financial literacy in EU Member States and its effect on consumers.[10] This report showed that the level of financial education varies greatly between Member States, and that national strategies are rare and patchy, indicating a need to establish a coherent strategy at the European level to promote financial consumer education.

For the time being, the EU has mainly adopted a stock-taking function on this issue, which is certainly a useful step to understand the status quo. However, considering the existing gaps at national level, it might be beneficial if the EU takes a leading role assisting in the elaboration of a consistent programme promoting consumer financial understanding.

  • [1] OECD, Financial Literacy and Consumer Protection (n 127), pp. 19-20.
  • [2] The FSA has now become two separate regulatory authorities: the Financial ConductAuthority (FCA) () and the Prudential Regulation Authority (PRA)().
  • [3] See e.g. the publication ofthe FSA: ‘Towards a National Strategy for Financial Capability’, (2003),at the FSA webpage: .
  • [4] .
  • [5] EU conference: ‘Increasing Financial Capability’: .
  • [6] See the Communication from the European Commission on Financial Education, Brussels,COM(2007) 808 final, 18.12.2007.
  • [7] See the Communication from the European Commission on Financial Education, Brussels,COM(2007) 808 final, 18.12.2007.
  • [8] ; see also: .
  • [9] EIOPA webpage: .
  • [10] EIOPA, Report on Financial Literacy and Education (Frankfurt am Main: EIOPA, 16December 2011).
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