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Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
Mikyung Yun - 2014 Symposium on Financial Education in Korea
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Mikyung Yun - 2014 Symposium on Financial Education in Korea

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This presentation by Mikyung Yun was made at the High-level Global Symposium on Financial Education: Promoting Long-term Savings and Investments in Korea which explored policies and good practices for …

This presentation by Mikyung Yun was made at the High-level Global Symposium on Financial Education: Promoting Long-term Savings and Investments in Korea which explored policies and good practices for supporting long-term savings and investments through financial education and financial consumer protection. Find out more at http://www.oecd.org/daf/fin/financial-education/globalsymposiumonfinancialeducationforlong-termsavingsandinvestments.htm

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  • 1. Financial education for long-term savings and investments: Financial education for investor protection in Korea Yun, Mikyung, Catholic University of Korea And Hong, Eun-Joo, Hanyang Cyber University 2014. 2.27. High-level Global Symposium on Financial Education 26-27 February 2014, Seoul, Korea
  • 2. Contents The importance of LTSI and financial education Financial education in Korea Policy implications 1 2 3
  • 3. Globally, declining birthrate and increasing longevity threatens adequacy of public pension funds for stable post-retirement stage. Additional factors: increasing costs of healthcare and elderly care, greater transfer of responsibility from the state to individual consumers in preparing for old age Therefore, pensions, long-term savings and investment has become important in preparing for better financial well-being of individuals. However, consumers are often unaware of the importance of long-term savings, and do not possess adequate knowledge of financial products to make sound savings and investment decisions. At the same time, financial products are becoming increasingly more complex. 1. The importance of LTSI and financial education
  • 4. Financial education helps consumers to make sound financial decisions This increases consumer access to financial markets OECD (2013: 3) “Financial education for long-term savings and investments is a strand of financial education which complements existing regulation and consumer protection to provide consumers and investors with knowledge, skills and capability to manage and accumulate savings with the intension of increasing their future financial well-being while also supporting economic and financial development.” And leads to economic growth and employment generation 1. The importance of LTSI and financial education
  • 5. OECD/INFE Survey (2013): Consumers, governments and the private sector all face challenges. Consumers: low financial capability Industry challenges: appropriate product design and responsible marketing Governments: difficulty of coordination and setting priorities with limited information about the market and consumer behavior 1. The importance of LTSI and financial education
  • 6. Financial Education for Consumer Protection: A high priority issue in Korea Why investor protection is a high priority issue in Korea Significant increases in the number of individual investors Increasing proportion of risky financial assets in total household assets. 1 Market background Proliferation of financially engineered products such as ELW, ELS, KIKO, Futures/Forward and Options Proliferation of disputes concerning “mis-sales” practice Inability to spot unfair sales practices, mis-sales of high risk, complex financial products without fully understanding the risks. 2 Low level of financial capability of investors
  • 7. Recent examples of consumer damage Examples of consumer damage Corporate papers and bonds: savings bank CB, Dong Yang Group CB & CP, LIG CP, Sungwon Construction CB cases Financial derivatives and investment funds ELF, forward exchange contracts, KIKO Stylized facts of the cases Most of the victims were in the vulnerable group: elderly, women, clergy, socially disadvantaged, with little opportunity to become financially literate, SMEs with low capacity to take up risks or handle legal actions Collective damage but difficulties in taking collective action cases to courts
  • 8. Recent examples of consumer damage Investment in subordinated corporate bond of savings banks Restructuring of savings banks in 2011 led to losses for those owning high interest bearing, subordinated corporate bonds issued by the restructured or bankrupt savings banks, where 42.6% of victims were the elderly Corporate bonds and papers issued by Dong Yang Group Dong Yang Group issues corporate bonds and papers of speculative grade and retailed them to general public through its subsidiary Dong Yang Securities while the Group was undergoing a corporate reorganizing procedure. 70% of the victims were women, and 74.5% were in their 40s or above. Losses of victims over 70 years old were 2.2 times as much as those in their 30s. Many other similar cases: LIG CP case, Sungwon Construction CB case.
  • 9. Recent examples of consumer damage Investment in Equity Linked Fund (ELF) A mis-sales dispute case where sales were found to be based on insufficient advice of risks involved (return conditions at the time of maturity and possibility of loss) to a consumer (eg. clergy) without much knowledge of the financial market. Investment in forward exchange transactions Courts acknowledged mis-sales on the grounds that unsuitable offer of a complex financial product was sold to an investor with low financial capability without detailed explanation of risks involved. Exporting SMEs had purchased KIKO en masse, to hedge against exchange rate risks, but incurred losses with sudden increase in won-dollar exchange rate in 2008. Of 517 firms incurring losses, 91% were SMEs, and many were forced into bankruptcy. KIKO (Knock in-Knock out) case
  • 10. 2. Financial education in Korea Regulatory agencies have expanded financial education to enhance consumer financial capability. Extended outreach Development of financial education materials Training of teachers, college students and military officials as financial educators Total Network for Financial Education: FSS in cooperation with financial institutions to vitalize youth financial education. Financial consulting to complement education Reach out program to the financially excluded, esp. through partnership with consumer groups and regional organizations Text books for elementary and secondary level students Developing on-line diagnosis and consulting materials
  • 11. 2. Financial education in Korea The Financial Education Vitalization Plan 3 core strategies 9 projects Consistent and systematic financial education Easy access and reach out programs Customized education for each financial consumer Establish early financial education through regular school curriculum Set up a standard investor guideline and train financial educators Use of media, internet and a variety of other tools Introduce ex-post evaluation system of education content and trainers Reach out program for rural areas Intensive assistance program for the financially excluded Consumer demand survey and assessment of financial literacy Financial education customized to each phases of lifecycle Expanding public financial consulting services
  • 12. 2. Financial education in Korea Focus of the current financial education: credit management and avoiding scams rather than enhancing overall financial capability to make sound, long-terms investment plans. Private educators often use education program for advertisement purposes and shun providing sufficient risk information due to concerns that this may discourage investment. Limited investor demand for pre-investment education: even this is exclusively focused on investment strategy to achieve high returns and there is little public awareness that various investor education programs are available.
  • 13. 2. Financial education in Korea Low social awareness regarding the need for investor education, reflected in the limited academic research on financial and investor education. Strengthening the Vitalization Plan: investor education content should be strengthened, especially in view of the recent consumer loss cases.
  • 14. Efforts to strengthen investor education for customer protection Most of recent publicized consumer damage cases involved illegal actions, unfair sales practices, mis- sales, unsuitable offers and insufficient disclosure, unrelated to financial capability of investors and consumers. But damage could have been mitigated if there was effective preventive financial education The importance of financial education for consumer protection, especially for the elderly, women and other socially disadvantaged groups.
  • 15. The Financial Education Council devised a plan to strengthen the investment education content for financial consumer. Objectives for investor education: To enhance the capability of the investor to choose the financial product that most suites her/his personal needs. To provide the basic, essential information on and how to get advice to make a sound investment. Moving towards a more efficient market, leading to overall increase in investment levels. Efforts to strengthen investor education for customer protection
  • 16. Strengthening investor education to promote sound investment environment Introduce tools for appropriate risk assessment: On-line self-diagnosis and investor check list at the point of sales Mandatory education for highly risky products Evaluation and awards as incentives Encourage financial institutions to provide investor education on a voluntary basis Deepen investor education through supporting academic research Assessment of consumer financial literacy, Case studies of consumer damage Bi-annual survey of financial literacy and impact analysis of financial education Efforts to strengthen investor education for customer protection
  • 17. Financial education to enhance overall financial capability is important, but for consumer protection, strengthening specific, pre- investment investor education has become even more important. 3. Policy implications We need tools to change consumer behavior and not just provision of simple information. Financial education, including investor education cannot replace regulation, and other legal tools for consumer protection but financial education is an important preventive measure, and a significant channel to promote social awareness, inculcating a culture of sound and responsible investment.
  • 18. Investor education can enhance long-term savings and financial investment, by contributing to making capital markets efficient. 3. Policy implications Implications for developing countries Financial education may become especially important when rapid financial market development is accompanied by lagging social awareness of risks and social conscientiousness of financial institutions.
  • 19. Thank You

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