This presentation by See Eim Ooi was made at the third session of the 2nd OECD-GFLEC Global Research Symposium to Advance Financial Literacy on 6 November 2014, which addressed cutting-edge policy issues and research ideas to advance the global financial literacy agenda. Find out more at http://www.oecd.org/daf/fin/financial-education/oecd-infe-gflecsymposiumfinancialliteracy.htm

1. BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA
2nd OECD/GFLEC Global Policy Research Symposium to Advance Financial Literacy Session 3: A Roundtable on the Way Forward - Insights from Research and Practices OOI See Eim Consumer and Market Conduct Department Bank Negara Malaysia 6 November 2014

2. Specific consumer risks and vulnerable target segments
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Rising trend of young adults getting into financial difficulty as a result of lifestyle pressure and lack of financial management skills
Highly leveraged low income household, with large loan size relative to their income
-Rising cost of living
Innovative products and easy repayment arrangement
-Easy repayment scheme and repayment via salary deduction - increase indebtedness
-Consumers purchase unsuitable or unnecessary financial products
Cultural aspects and behavioral biases affect decision making
-Consumers more receptive to financial education (FE) during teachable moments
-Lack interest to read product disclosure documents and to understand the risk factors
-No urgency to plan for retirement
In environment of low interest rate, search for higher yield may lead consumers to fraudulent investment schemes and financial scams

3. Understanding consumer behavior is key for policy makers to design appropriate financial literacy initiatives and undertake policy interventions Household Preparedness for income shock* Financial Distress and Debt Management* Review on Measuring Effectiveness of Financial Literacy* OECD (INFE) 2010 Data: Measuring Financial Literacy Among Malaysians Impact of POWER! programme by AKPK*
Recent studies conducted
* in collaboration with a local university ** in collaboration with CGAP Fairness of Interest Rate Methodology on Loan Accounts Effectiveness of Mandatory Disclosure Requirements**
Ongoing Studies Effectiveness and Impact of Responsible Lending Requirements* 2014/2015 Financial Capability and Inclusion Demand Side Survey
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4. Impact evaluation of POWER! programme revealed the need to reinforce FE programmes at various touch points and life stages
Higher financial knowledge
Mixed observation for financial attitude
Not much improvement in behavior
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Treated group
Controlled group 1
Controlled group 2

5. 58% of respondents make decisions without an understanding of risk factors
Close to 42% of consumers read no more than half of the financial agreements
49% or respondents are not aware of the product disclosure sheet (PDS)
PDS lacks prominence in the sales process and on websites
Consumers are not given sufficient time to read the PDS
Language used in PDS is difficult to read due to lengthy paragraphs and lack of definition for technical terms
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FE need to be supported by consumer protection measures
Study on effectiveness of mandatory disclosure requirements
Different treatment by financial institutions (FIs) on advance/over payment by customers - customers not aware of the option to reduce loan principal or treat as instalment pre- payment
Consumers not fully aware on the implication of non-repayments & increase in interest rates charged
Consumers may not know the effective rate of flat rate loans
Fairness of Interest Rate Methodology on Loan Accounts
•FIs would be required to enhance disclosure at optional time and provide proper advice and explanation
•PDS to be presented in more simplified language and terms
•Promote consumers’ interest to read and understand key terms
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6. The findings from other studies have several important implications
Important to intensify education at school levels
Financial literacy initiatives need to ensure effective planning for retirement and ability to sustain through retirement
Need to educate households on the minimum level of emergency funds required, as 2/3 of households are poorly prepared for income shocks with savings of less than 3 months
To look beyond financial education in changing consumer behaviour as cultural aspects and behavioural biases also play a role in decision making process
Low earning power (of the young) & rising costs – importance of educating the young on better financial management & to cultivate the habits of living within their means
Need to focus education on risk diversification & management, including to diversify savings by investing part of savings funds (for those with financial capability) and risk mitigation via insurance
To re-examine measurement for financial behaviour and attitude with less reliance on self assessment
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