International perspective

FINANCIAL
EDUCATION: AN
INTERNATIONAL
PERSPECTIVE
Adele Atkinson, PhD
Outline
Background
• National Strategies
OECD work on Financial Education on Risk and
Insurance
Two Recent projects
• Core Competencies for youth and adults
• Digital financial services
Summary
BACKGROUND
OECD International Network on Financial
Education (OECD/INFE)
OECD work on financial education started in 2002
• under the aegis of the OECD Committee on Financial Markets and the
Insurance and Private Pensions Committee
The International Network on Financial Education (INFE) was created in
2008: Brazil is on the Advisory Board
• It includes over 200 institutions from 114 countries and economies.
• It organises global and regional policy platforms and regular meetings to
discuss the latest developments, share good practice…
• … and develop analytical and comparative studies, methodologies, policy
instruments and practical guidance on key priority areas related to financial
education
4
Financial Education is…
“… a process by which financial consumers/investors improve their
understanding of financial products and concepts; and through
information, instruction and/or objective advice
develop the skills and confidence
to become more aware
of financial risks and opportunities
to make informed choices,
to know where to go for help, and take other effective actions to
improve their financial well-being”. (OECD 2005)
The intended outcome of education is improved
financial literacy and well-being
5
Empowerment requires a
multi-dimensional approach
OECD/INFE (2012)
High-Level Principles on
National Strategies for
Financial Education
Financial
Education
Financial
Inclusion
G20 (2010) Principles
for Innovative
Financial Inclusion
G20 (2011) High-Level
Principles on Financial
Consumer Protection
developed by the OECD
Financial
Consumer
Protection
6
NATIONAL STRATEGIES
National Strategy for Financial Education
What is it?
No one-size-fits-all model!
A National Strategy is a nationally coordinated approach to financial education that
consists of an adapted framework which:
Recognises the importance of financial education and defines its meaning and
scope at national level in relation to identified national needs and gaps
Involves the cooperation of different stakeholders as well as the identification of a
national leader or coordinating body/council
Establishes a roadmap to achieve specific and predetermined objectives within a set
period of time; and,
Provides guidance to be applied by individual programmes in order to efficiently and
appropriately contribute to the strategy”
8
Steady development of national strategies
Status of national strategies in 2015
Status of national
strategies in 2012
This document and any map included herein are without prejudice to the status of
or sovereignty over any territory, to the delimitation of international frontiers and
boundaries and to the name of any territory, city or area
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Private sector involvement
(OECD/INFE Guidelines for Private and not-for-profit stakeholders in
financial education, 2014)
Co-ordinating
framework
• In various countries, including Brazil, Czech Republic, Estonia,
Ireland, Netherlands, private and not-for-profit stakeholders
are involved in the development and implementation of the
national strategy together with public authorities
Supporting role,
avoiding conflict of
interest
• Financial support for governmental strategies and initiatives
(e.g. New Zealand) and levies (e.g. Ireland, UK),
compulsion (e.g. South Africa, Indonesia)
• Indirect involvement of financial institutions through industry
associations: e.g. developing materials and providing trainers
Meeting key criteria
• Codes of conduct to monitor behaviour voluntarily or
compulsory (e.g. Portugal)
• Ensuring objectivity / impartiality; marketing free
• Quality mark / certification (UK, US)
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Some of the key criteria to contribute effectively to
financial education
Objectivity
• Address consumer
needs
• Balanced, impartial
unbiased education
• No marketing
activities
Not linked to
commercial
priorities
Quality
of resources and trainers
• Resources that are:
• Tailored
• Targeted
• Appropriate
• Accurate
• Up to date
• Accessible
• Trainers should be
competent and confident
Monitoring and
evaluation
• Systematic,
independent, evaluation
is essential
• Learning from previous
success (and failure)
saves time and money
FINANCIAL EDUCATION ON
RISK AND INSURANCE
An opportunity to increase take-up?
Insurance spending:GDP 2014
14
12
10
8
6
4
2
0
2,977
)
OECD (2016), Insurance spending (indicator). doi: 10.1787/adb73055-en (Accessed on 10 May 2016
I tend to live for today and let tomorrow
take care of itself OECD/INFE survey 2015
Brazil
total: all participating countries
27,1
25,5
22,4
21,0
29,1
24,4
14,9
14,9
10,0 9,9
1 Completely
agree
2
3
Preliminary data based on responses from 24 countries: Brazilian data Source
Central Bank of Brazil/Serasa Experian
4
5 Completely
disagree
I am prepared to risk some of my own money
when saving or making an investment
OECD/INFE survey 2015
Brazil
21,5
6,6
total: all participating countries
24,9 23,8
19,4
29,3
24,5
19,4
17,7
11,1
1 Completely
agree
22
33
Preliminary data based on responses from 24 countries: Brazilian data Source
Central Bank of Brazil/Serasa Experian
44
5 Completely
disagree
Selected OECD work on insurance, risk and
financial education: needs and challenges
Various reasons to focus on
the needs of individuals:
• Risk transfer, complex products and decisions, the
role of intermediaries, burden on taxpayers from
lack of insurance
In 2011: schools / stakeholders were providing education on emergency disaster response,
less on risk reduction or financial planning: suggesting a need for a more
empowering approach
Reasons for
inappropriate
coverage
• Underestimating likely chance and cost of adverse events
and extent of responsibility
• Lack of trust in, and understanding of insurance;
procrastination and passivity
Selected OECD work on insurance, risk and
financial education: targeted benefits
Some groups are particularly
vulnerable
Financial
education can help
people to:
•
•
•
•
Be aware it can be hard
to shift the needle:
• e.g. Women, elderly, sick/disabled, jobless,
migrants, those with low literacy/language skills
Recognise the need for insurance AND reduce risks
Choose appropriate policies
Make claims when relevant
Understand the need for mandatory schemes
• Japan promoted hazard insurance; take-up 33.5% in
2002 to 40.3% in 2006.
• Istanbul earthquake insurance coverage shifted from
15% to 30% in 7 years.
Selected OECD work on insurance, risk and
financial education: suggestions
Some key conclusions for financial
education and inclusion:
People need specific
awareness: e.g.
Other
recommendations
• Households need access to financial tools
that are available locally, affordable and of
sufficient quality.
• Trust in providers is vital
• Risk of earthquake/flood etc in local area
• Specific risks when travelling
• Knowledge of how insurance can help when
things go wrong
• Measure financial literacy and evaluate
• Maximise the value of teachable moments
• Ensure insurance is properly covered within
national strategies and at school; involve all
stakeholders
CORE COMPETENCIES FOR
YOUTH AND ADULTS
Background
2013: G20 leaders called on INFE to develop frameworks for youth and
adults.
Core Competencies Framework on Financial Literacy for Youth was
included in the Annex to the G20 Leader’s Communiqué Antalya, Turkey
November 2015.
Two proposals for an adult framework were discussed at the 2nd Meeting of
the Expert Subgroup and the 4th Meeting of the INFE Technical Committee.
Agreed to follow approach similar to that used for the youth framework,
and requested that the Secretariat develop a draft Core Competencies
Framework for comment through an iterative process and submission to
the G20 in 2016.
Intended purpose
1. Support the development and implementation of national strategies; guide the
development of financial education initiatives
2. Describe the outcomes considered to be the most important components of
financial literacy
3. Reflect all aspects of financial literacy (traditional and emerging) considered to be
internationally relevant to financial well-being
4. Be a flexible tool that can be applied taking into account factors such as personal
circumstances and decision making, and national priorities and levels of inclusion
Identifying core competencies related to
risk and insurance (1) Youth
Identifying Risks
• Aware that risks such as flood or ill-health may have financial
consequences
• Knows that late/ non-payment of bills or credit can have negative
financial consequences.
Financial Safety Nets and Insurance (knowledge)
• Basic awareness of how saving products and insurance can help
manage risk
• General understanding of the reasons that people buy insurance
products
• Knows some common features of certain types of insurance such as
travel insurance or car insurance [depending on national
specificities].
• Understands the purpose of disclosing relevant information when
applying for insurance.
Identifying core competencies related to
risk and insurance (2) Youth
Financial Safety Nets and Insurance (skills and behaviour)
• Able to describe the purpose of insurance policies
• Can decide whether simple insurance products are relevant to them
• Checks whether their household already has protection for a particular
adverse event before insuring
…. And more advanced knowledge, skills and behaviour:
• Aware of the possibility and limitation of government financial safety
nets
• knows whether insurance is mandated
• Makes an informed decision about the need for insurance when buying
products or services or planning to travel
• Considers carefully whether insurance represents good value for money
Why focus on young people?
Young people
more likely to
access digital
financial
products
Parents do not always
discuss money
matters
Financial
products are
complex
Positive behaviours (and
negative ones) are
created in childhood
Young people are
given increased
personal
responsibility and
freedom to shop!
Today’s youth
can expect
increased
longevity
Many youth face
unemployment or a
lack of job security
Identifying core competencies related to
risk and insurance (3) Adults INFE Work-in-progress
Identifying risks (underpinning competencies)
• Aware of risks in a financial context, including those inherent in products and those
that can be insured against
• Aware that certain risks can be reduced through positive actions
• Considers the risks of significant external issues that may impact on personal
finance [including for example environmental, health-related, security or economic
factors]
• Motivated to identify own risk tolerance
• Confident to make own assessment of risks [avoiding availability bias]
Financial Safety Nets and Insurance (underpinning competencies)
• Knows how to create a financial safety net such as rainy day savings
• Can calculate how long it will take to build a safety net that could cover three month’s
income
• Motivated to create a financial safety net and purchase insurance against adverse events
or outcomes with a financial consequence where relevant
DIGITAL FINANCIAL
SERVICES (DFS,
OR FINTECH)
Availability of DFS and main actors
Pension
Insurance
Credit
In 15 countries
insurance is
available through
mobile banking
Savings
•
Payments
Insurance
is
available through
internet banking in
21 INFE member
countries
International
Transfers
•
Domestic
Transfers
Digital provision of
insurance
is
widespread
40
30
20
10
0
Basic cash
in/cash out
within 36 INFE countries/economies
Availability of DFS
Internet Banking
Mobile Banking
Mobile Wallet
Simple Mobile Money
Instruments combining prepaid cards and mobile phones
Potential benefits of DFS for insurance
DFS offer opportunities for financial inclusion of
disadvantaged groups
IT and digital services make it easier to compare prices
and services
Technology can lower costs of provision, thus increasing
inclusion
Automation can prevent missed payments and ensure
continued insurance cover
Electronic data can be analysed easily [but this also
brings its own risks e.g. profiling]
Potential challenges
More decisions will be made without human guidance
• Strong requirement for good literacy and financial
knowledge
• Temptation to make quick decision
• Need to know which features to compare
Consumers and providers need to keep data secure
• It is important to know how to recognise fraudulent
offers/scams
Buyers may not read and understand the terms and
conditions before signing electronically and may not
recognise that the contract is legally binding
Using education to maximise the
potential
of
DFS
for
insurance
Make digital part of the solution: as with the Brazilian Citizen
Financial Education Project
Create tools to compare products and reminder to check
policies
Reach out to the most vulnerable to help them to understand
the products available: e.g. Malaysia National e-payment
roadshows
Use technology to ensure that the terms and conditions are
being read: e.g. Portugal
Provide teaching resources to schools: e.g. UK pfeg
Put educational resources online: e.g. Canadian Life and Health
Insurance Association
Summary
Financial education is important; hence the growth in national strategies.
OECD work shows that financial education for risk and insurance has multiple potential
benefits; more evaluation would help to identify the most effective approaches.
Recent work has identified core competencies on these topics, and…
A new project on DFS continues to identify new challenges and potential solutions, many
of which are relevant to the insurance industry.
THANK YOU!
[email protected]
[email protected]
www.oecd.org/finance/financial-education
www.financial-education.org
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