Presenter: Mary O’Dea Consumer Director Financial Regulator (Ireland) Ireland’s approach to financial education IADI conference – Washington, October 2008
Now more than ever…
Recent events in international markets have focussed everyone’s minds on money
It is clear that much of the language being used is confusing (even for those using it) and scary for consumers
Liquidity, capital, toxic debt, sub-prime write-downs, bail-outs, inter-bank loans etc.
Most consumers have a limited understanding of how these markets operate and an even more limited understanding of how things could impact on them.
It is against this back-drop that we are talking here today about confidence in the financial system
Clearly we cannot expect consumers to have confidence in the financial system if commentators are publicly questioning confidence?
Is financial education important?
We think so – individuals have had to take on more risks but it is not clear whether they understand these risks or what they can do to mitigate them
Some level of financial capability is necessary for full participation in society
Initial results from our financial capability study shows a correlation between financial capability and:
financial product ownership – with a bank account a key product
Financial exclusion can have negative consequences for individuals and can both exacerbate and embed social exclusion
Financial education and what it means
Borrowing from the OECD definition:
a process by which consumers improve their understanding of financial issues and
through information, instruction and objective advice,
develop the skills and confidence to become more aware of financial risks and opportunities.
Consumers can then make informed choices, know where to go for help, and to take other effective actions to improve their financial well-being.’
Financial education and what it means
But remember that:
for adults education is a choice;
providing education directly is expensive and resource intensive
most regulators do not have a competence in education – other stakeholders must be involved; and
it is vital that the importance of financial education is fully appreciated by the education sector
consumer education is not a magic formula – it will not necessarily create confidence in the financial system by itself
Financial education in a wider consumer protection framework.
We will need to consider the balance of our structure and depth of supervision for the future
Consumer Protection Prudential supervision for a safe market Conduct of business for a fair market Informed consumers for informed decisions
What is the Financial Regulator (Ireland) doing in the area of financial education?
Statutory role in ‘raising awareness among consumers of the costs, risks and benefits of financial products and services’.
National Steering Group on Financial Education comprising key stakeholders in the area of financial education.
Money Advice and Budgeting Service –MABS
These three strands make broadly meet the elements of the OECD definition of information, instruction and generic advice
Financial Capability Research Study
As is the experience internationally – school curricula are crowded and part of our role with our stakeholders is to raise awareness among policy makers of the need for enhanced financial education
Information - raising awareness of the costs, risks and benefits of financial products
The Financial Regulator has a personal finance information service for consumers comprising:
Suite of publications on financial products
Guides on mortgages, savings and investments, personal loans, pensions and insurance.
Contact points for information and help
For consumers to contact us and ask questions or seek guidance, we have a personal finance telephone help-line and an Information Centre in Dublin city centre.
Personal finance website for consumers itsyourmoney.ie
Features include, generic information on a range financial products, cost comparisons, tools such as a budget planner and loan / mortgage calculators.
Dynamic information as people want it (especially in recent months!)
Using itsyourmoney.ie as a key channel
Getting the word out
We use traditional marketing techniques to communicate with consumers. As we do not sell anything this can be called ‘social marketing’
As with traditional marketing if you do not give people what they need – they will not be interested
We analyse what people need
We design solutions to meet these needs
We let people know what we have and how they will benefit
We use traditional marketing channels such as mass media (TV and radio advertising) PR, and on-line / viral marketing
Objective is to get a message across
Message must be relevant and useful – if you want people to engage – credit crunch / jargon buster
Credit Crunch – Jargon Buster
What is the ‘credit crunch’?
Credit crunch is a general term used to describe a situation where bank credit is less available than before and/or credit becomes more expensive. This applies to credit between banks and from banks to their customers.
What does ‘liquidity’ mean?
The term ‘liquidity’ refers to how easily an investment can be turned into cash. For you, your most liquid investment is probably your current account because you have almost immediate access to your cash. An example of a less liquid asset would be your car because it takes time to sell your car and turn it into cash. If you needed to sell your car to raise money quickly, you would be under pressure and might not get the best possible price for your car.
What is solvency?
A bank is considered solvent when the value of its assets is greater than the value of its liabilities. Part of our job as the Financial Regulator is to set and closely monitor rules for banks so that their assets are enough to cover their liabilities with some room to spare.
Instruction – supporting and advocating for the teaching of personal finance
We have produced (in partnership with MABS) a teaching resource for 16-17 year olds called ‘Get smart with your money’ and have this year participated in the training of teachers and on classroom visits.
We offer generic advice in a one-to-one setting – on the phone, face-to-face and in writing
Our objective is to give people the right information on which they can act and make informed decisions
We offer information seminars to employers and community groups on personal finance issues
We attend public events and shows where we talk to consumers about their personal finance issues and offer out publications
This does not constitute product recommendations but might include:-
Dos and don’ts
Questions to ask
Plain English explanation of financial terms and concepts; and
Support and guidance on how to complain.
The Financial Regulator (Ireland) established and chairs a National Steering Group for Financial Education comprising key stakeholders from;
the financial services industry;
voluntary/not for profit groups; and
the education sector.
The aim of the Group is to direct and co-ordinate financial education based on best international practice
The Group is due to produce a report by the end of the year. The report will be based on the output from a number of working groups
The focus of the group is expected to be on the development of standards for financial education
National Steering Group for Financial Education
One key innovation will be a new financial competency framework which lists all the learning outcomes (over 420) needed for a person to become financially capable
The learning outcomes are divided into 4 levels corresponding with the levels in Ireland’s national framework for qualifications
The framework is intended as a tool to assist those developing financial education resources and to allow for the development of standards and awards in formal education
The framework contains learning outcomes that relate to basic economic principles
Sample extract from competency framework – focus on credit levels leading to specific learning outcomes Broad learning outcomes Areas of learning Prioritise needs over wants Explain life events that lead to the need for planning Prepare for a loss in income Anticipate and plan for growing expenditure Understand that options for dealing with debt problems Access information provided by firms and other sources Compare costs and benefits Compare how different forms of credit affect the ownership of assets Understand the basic types of borrowing Manage an appropriate level of debt Plan to absorb rising interest rates Understand the consequences of defaulting Analyse their own financial needs and wants Plan for changes in their personal circumstances Critically evaluate and compare information Budget for daily spending Social and personal issues about finance Coping with problems and the unexpected Researching and evaluating information and advice Foundation knowledge, skills and concepts