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

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