Andre Laboul, Head of OECD Financial Affairs Division and Chair of the International Network on Financial Education, presentation from the workshop launching the Financial Education Financial Literacy Program in the Russian Federation, Moscow, April 4, 2011

1. 1

2. Outline
!
International financial education issues
• The framework
• Calling for financial education
• International responses: The OECD and INFE
programme
• Principles
• Pensions
• Credit
• Need for an integrated approach
2

3. Selected International Trends
• Increasing financial risks ( financial crisis)
• Access and inclusion issues (vulnerable
groups)
• Increased sophistication
• Increased transfer of risk to households who
are taking on more financial risk and
responsibility. This is true for instance for
both credit decisions (mortgage ), and
retirement savings (DC schemes).
3

4. Increasing financial risks
and transfer of risks to households"
• This calls for a new regulatory approach
• New focus on market conduct and not only
on prudential regulation
• Focus on financial education but also access
and consumer protection
• Awareness is key
4

5. Lack of awareness"
• The problem is indeed that households may not
be aware of the risk they face
• Households may not understand the need to be
protected or overestimate their protection and
their understanding
• Thus, they do not seek protection
• and may…just not care

6. Call for further
information and awareness"
• Transparent information and disclosure is
key. This is the minimum
• Information should be understandable;
plain language should be used
• “Less is more”: danger of overinformation
• Information is necessary but not
sufficient: individuals need to understand
the information
6

7. Call for financial education"
– Many individuals are ill-equipped to face risks
and make proper financial decisions
– This calls for improved financial education
and awareness on
• Risks
• Financial ,pensions , insurance products
• Their rights and responsibilities
– The goal of financial education (a process) is
to improve financial literacy (the result)

8. Broader impact of
financial education"
• Financial education will help build more efficient
financial markets by:
—improving confidence
—encouraging the development of new products and
services
—and thus increase competition, innovation and
product quality
• Financial education can also help to reduce
poverty and improve social cohesion

9. The situation is serious"
• Recent surveys show that the level of financial education
is low in most countries, including in developed
countries.
• Worse: consumers often overestimate their financial
understanding and thus do not seek to improve it
• This is all the more important as the process of financial
education takes time
• Financial education is not just for investors. It is
essential for the average family trying to balance its
budget, save for children’s education and save for
retirement

10. Solutions are encouraging"
• We have found that good financial education
programmes are effective: they can increase
workers participation in pension plans,
reduce mortgage and credit delinquency, and
more generally, increase consumers
confidence in themselves and in financial
institutions.

11. A role for all stakeholders"
• Governments and financial authorities (key role of
central banks in several countries) working hand in
hand with parliament (including national campaigns,
coordination)
• Schools
• Financial institutions
• Employers
• Trade unions
• NGO’s, etc.
There is a strong call for national strategy
and public-private partnership
11

12. Win-win strategy for financial
industry"
• When objectively promoting financial
education and awareness, financial
institutions help:
• Improve confidence and trust in financial markets,
products and institutions
• Improve risk awareness and thus increase demand
for protection
• Improve understanding of products and their
advantages and thus increase demand
• Reduce losses through better prevention and
mitigation
12

13. Momentum due to financial crisis"
• Findings from a survey conducted through the
International Network for financial Education
– Lack of financial literacy is one of the contributors to the crisis
and in particular of its aggravation
– The crisis and its consequences have highlighted the need for
enhanced level of accountability of financial institutions vis-à-vis
their clients and consumers
– They have also raised awareness on the need for increased
financial literacy and capability of households and policymakers
– The crisis is a « teachable moment »
– The crisis is a trigger for policy actions in the financial education
area

14. OECD and INFE programme
on financial education"
• Recognising the need for policymakers and other
relevant stakeholders to meet the objective of
improving financial education, the OECD
launched in 2oo3 its “international programme
on financial education”
• Under the aegis of the OECD Committee on
Financial Markets and the OECD Insurance and
Private Pensions Committee
14

15. OECD and INFE programme
on financial education"
• OECD and the network have become the
international leader on the development of
guidelines and standards in financial education
• G8 Financial Ministers recognised, at their Moscow June 2006 meeting, OECD
work on financial education and requested the Organisation to further develop
financial literacy guidelines based on best practices
• Since then multiple OECD recommendations expanded at worldwide level
through the INFE
• OECD work is now supported by policymakers all over the world
• new G20 mandate (in Seoul and Paris) for FSB, with OECD and others to report
to G20 2011 summit on policy options to enhance financial consumer protection
and education and for OECD, FSB and others to develop principles for the G20
FM and CBG meeting
15

16. Key Russian role and leadership"
• In 2006 at Russian G8 Presidency, first time that financial education was on
the agenda of G8 Finance Ministers meeting
• Russia lead the G8 Finance ministers decision to mandate the OECD to
develop further guidelines, based on work already developed; strong
encouragement for OECD international work
• Later on, Russian set up a Trust Fund to support World Bank and OECD
work . The OECD is notably expected to “develop standards, criteria and
guidelines for financial literacy improvement and the design and
operation of outreach and education programmes; this allowed for
substantial developments in international guidance and analysis which will
also benefit to Russia
• And now major Russian national programme, the biggest programme ever
launched by a government in cooperation with the WB
• OECD stands ready to contribute to this programme
16

17. Outputs
!
• Several publications
– the first international survey on financial
literacy
– Report on financial literacy in insurance
– Report on financial literacy in pensions
– Research on behavioral issues in
financial education, on annuities,
communication
– Stocktake on methodology, financial
education at school
– etc
• An international definition
focusing on a capacity building process

18. OECD definition!
• OECD 2005 Definition: A Capacity Building
Process
• “by which financial consumers/investors improve
their understanding of financial/insurance
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 and
protection”.
18

19. OECD Principles
on financial education: a selection"
• Financial education programmes should focus on high priority
issues (credit, debt, pensions, etc)
• Financial education should be taken into account in the regulatory
and administrative framework and considered as a tool to promote
economic growth, confidence and stability, together with regulation
of financial institutions and consumer protection .
• National campaigns should be encouraged to raise awareness of the
population
• Financial education should start at school. People should be
educated about financial matters as early as possible in their lives

20. OECD Principles
on financial education!
• The role of financial institutions in financial education should
be promoted and become part of their good governance with respect
to their financial clients. Financial institutions’ accountability and
responsibility should be encouraged not only in providing
information and advice on financial issues, but also in promoting
financial awareness of their clients, especially for long-term
commitments and commitments which represent a substantial
proportion of current and future income
• The development of methodologies to assess existing financial
education programmes should be promoted. Official recognition of
financial education programmes which fulfil relevant criteria should
be considered.
• .
20

21. OECD Principles
on financial education!
• In order to take into account the diverse backgrounds of investors/
consumers, financial education that creates different programmes
for specific sub-groups of investors/consumers (i.e. young people,
the less educated, disadvantaged groups) should be promoted.
• According to the needs of the jurisdiction, evaluation processes
should inter alia involve: Evaluation on a more systematic basis of
the risks, of the population’s degree of literacy, of the education
needs
21

22. OECD good practices (building on
comparative analysis)"
• Good practices for financial education
on pensions ( 2008)
• Good practices for risk awareness on
insurance (2008)
• Good practices for Financial
education on credit (2009)
• More to come (e.g on financial
education at school 2011)

23. The case of pension: first
communication !
• To successfully manage risks, individuals need to understand both the nature of their
pension plans and their responsibilities and to receive periodic and recurring updates
on the status of their pension savings. Such updates are typically provided by the
pension statement.
• Policymakers, plan sponsors and plan members generally agree that communicating
pension benefits in a clear, understandable and timely manner benefits all
stakeholders, yet there is little consensus as to what information should be included
or excluded from the pension statement or how that information should be presented.
• But communication is often not enough and may not be successful. This calls for
financial education and also alternative mechanisms
23

24. 24

25. Financial education in private
pensions
!
• Governments and other public authorities should explain public policy
clearly (particularly where mandatory savings are involved) – including any
pension reforms taking place, the changes in the pension environment,
increased individual responsibility and demographic and other changes
requiring individuals to save more for their retirement
• Intermediaries should be encouraged to engage in initiatives increasing the
population’s awareness of the need to save for retirement. However, clear
distinctions should be made between financial education and commercial
product recommendations.
• Governments and other public authorities should direct public awareness
campaigns as broadly as possible, given the widespread lack of
understanding of pension issues. In addition, specific programmes targeted
at the most vulnerable groups (migrants, lowest income and savings levels)
25

26. Financial education in private
pensions
!
• Governments and other public authorities should work towards
making individuals aware of their limited knowledge of financial
matters, and pension products in particular, stressing the risks of
not having an adequate income in retirement, and should provide
information on where to seek further information and advice on
how to mitigate these risks.
• Governments and other public authorities should strive to ensure
that reliable information of projected public pension income is
delivered on a regular basis by public pension providers in order for
individuals to have a clear and prudent projection of potential
retirement income.
26

27. Financial education in private
pensions
!
• Plan sponsors should inform employees of any pension plan offered
to them, its broad structure, a projection of what benefits can be
expected and any responsibilities which it entails for them
• Where employees or members are offered a range of investment
options, plan sponsors should consider limiting, in a well-structured
fashion, the number of investment choices available (or provide a
‘two tier’ choice between a basic system and a system offering more
sophisticated investment choices) and should provide a suitably
structured default option in order to help employees or members
make optimal pension investment decisions.
27

28. National campaigns
!
• Most of the OECD countries are facing the challenge of how to
maintain sustainable pension systems in the face of aging
populations. Many have undertaken pension reforms – which
frequently involve the introduction of policies which may be seen as
unpalatable to parts of the population. These reforms also often
involve individuals having to take more responsibility for saving for
and funding their retirement income.
• Several OECD governments have therefore launched public
awareness campaigns to help explain to their populations the need
for reforms, the policy undertaken and the increased responsibilities
which individuals have for funding their own retirement.
28

29. Initial conclusions / good practices
– Governments first need to define their role in the campaign (which should focus on explaining systematic
change and building confidence)
– When explaining reforms of a pension system objective information is essential
– Government campaigns work when they clearly distinguish between information and advice
– To be successful governments need work with many partners and to use varied channels
– Building on existing financial education work and campaigns can boost effectiveness
– Governments need to coordinate their campaigns carefully with these other stakeholders – particularly
private sector advertising
– Campaigns may be divided into different stages – e.g. an initial stage may choose to focus on opinion
leaders, who can subsequently provide independent information /advice to others
– Governments may include an element of targeting journalists in the media in their campaigns – with these
groups then able to explain reforms to the broader population.
– For campaigns to work they should not only target older people – information needs to be delivered to those
still working and the young.
– People need a unified picture of their pension options – hence projections are important
– Governments should not shy away from linking pension reform to other topics – such as labour market
issues (e.g. need to work longer)
– To have the long lasting impact aimed at, campaigns need to be on-going
– The impact of campaigns needs to be regularly evaluated
– Behavioural economics shows that some groups will not or cannot save and governments should therefore
consider linking their campaigns with other mechanisms (e.g. automatic enrolment and well designed
default options)
29

30. 30

31. 31

32. 32

33. Need for consumer protection:
OECD Core Principle on the rights of members and
beneficiaries and adequacy of benefits!
• Non-discriminatory access should be granted to private pensions
schemes. Regulation should aim at avoiding exclusions based on
age, salary, gender, period of service, terms of employment, part-
time employment, and civil status. It should also promote the
protection of vested rights and proper entitlement process, as regard
to contributions from both employees and employers. Policies for
indexation should be encouraged. Portability of pensions rights is
essential when professional mobility is promoted. Mechanisms for
the protection of beneficiaries in case of early departure, especially
when membership is not voluntary, should be encouraged.
33

34. More recent work on credit
(2009 Recommendation) !
• Interesting recommendation mixing
financial education, awareness and
consumer protection
• Insist also on early education (school) but
also individuals’ key teachable moments
through their life cycle (entry in
workforce, buying a house, marriage, birth
of child etc)
34

35. FE objectives in credit
!
Financial education on credit issues should help to enable individuals to:
• develop the knowledge, understanding, skills and confidence needed to
adequately appraise and understand their rights and responsibilities as
credit holders and the various credit options available to them;
• know where to look for important information, objective advice or help if
they need it;
• take informed decisions about how to protect themselves and their relatives,
to adopt a proactive and responsible behaviour as regards their credit;
• develop basic abilities of financial planning as regards their credit, taking
into account their possible future income and life cycle changes; and
• understand the consequences of bad credit choices, decisions or behaviours.
35

36. Selected credit
recommendations !
• Governments should contribute to promoting consumers’ awareness and a
competitive marketplace by providing individuals with appropriate tools to
understand their profile and needs, to compare the costs and characteristics
of various credit options and to shop around for the best credit product
available to them.
• In addition to encouraging efforts to equip consumers with the tools to
understand their credit, governments should work towards making
individuals aware of their limited knowledge on credit-related issues,
stressing the risks and implications of having bad credit behaviour and of
making inadequate credit decisions. Governments should also provide
information for where to seek further information and advice on how to
mitigate those risks and how to file complains and seek redress
36

37. Selected credit
recommendations !
• Governments should direct public awareness campaigns as broadly as possible, with
specific programmes targeted at the most vulnerable groups (migrants or those with
the lowest income and savings levels). Public awareness campaigns should be
conducted at least on a yearly basis
• Governments should ensure, through regulation and supervision, that credit market
players provide quality information as part of their disclosure and consumer
information duty, which can be distinguished from advertising and promotion.
• To facilitate product comparison by consumers, governments should promote the use
by all creditors and lenders, in their advertising campaigns and marketing and
disclosure documents, of a unique and standardised, effective interest rate that takes
into account any fees, in addition to interest charges, that may be associated with the
credit product or loan.
• To enhance consumers’ awareness, governments should promote the use by all
creditors and lenders, and for any type of loan or credit product, of a box prominently
displayed in the loan or credit agreement, and clearly summarizing the important
terms and conditions of the loan or credit product.
37

38. Selected credit
recommendations !
• In co-operation with market conduct regulators and supervisory authorities,
governments should seek to inform consumers about abusive, dishonest, non-
transparent, unethical and/or illegal credit market practices, and their implications
for consumers. They should actively inform consumers about their right to recourse
and redress, and facilitate access and affordability of recourse mechanisms.
Supervisory authorities should also consider disclosing to the public the enforcement
measures and penalties issued to market players resulting from these practices .
38

39. Selected credit
recommendations !
• Uniform “due diligence” standards to assess consumers’ profiles should be developed,
and their use by all credit providers should be mandatory as part of the underwriting
process. Consumers should receive objective and relevant explanations and advice
commensurate with their degree of sophistication and needs. Sales staff or agents
should be adequately qualified and trained in this respect, and their remuneration
and incentive structure should be designed accordingly. This should particularly
apply to complex credit products, products that carry higher inherent risks for
consumers (such as variable interest rates, foreign currency loans, etc), products
involving long-term commitments, or commitments which represent a substantial
proportion of current and future income or which feature important penalty clauses
in case of payment default or contract termination by the consumer
39

40. Selected credit
recommendations !
• According to the needs of the jurisdiction, these processes should inter alia
involve:
• Evaluation on a more systematic basis of the implications of bad credit
decisions or behaviours for individuals and their relatives, along with
analysis of risks and/or populations that are particularly vulnerable in this
area;
• Evaluation of individuals’ degree of literacy and more or less active
behaviour as regards their credit choices, decisions and exposure to
potential resulting bad consequences;
• Identification and assessment of needs for educating the population with
respect to specific groups, risks, products and players as well as the reasons
for any shortcomings;
• Systematic evaluation of measures and programmes intended to enhance
education on credit-related issues, based on predefined criteria and
including a cost-benefit assessment.
40

41. Worldwide reach"
• Setting up of the International governmental network for
financial education:
• members from more than 150 institutions representing
75 countries and international bodies
• International Meetings in Washington, Bali, Paris, Rio
de Janeiro, Rome, Beirut ; next will include, Canada,
South Africa, Spain and Columbia
• Regional programmes currently under development in
South East Asia, central Europe, MENA and Latin
America
• MoU with countries (for instance Indonesia)

42. INFE Subgroups
!
• The measurement of financial literacy and inclusion
• The evaluation of financial education programmes
– It is important to provide financial education, however it is
essential to provide efficient and effective financial education
programmes.
• Financial education at school
• The development of national strategies and related issues
• New sub group on financial inclusion/access (but avoiding
duplication)
• New sub group on financial education and women
42

43. OECD/INFE work
!
• work on pensions issues, which will be undertaken by the OECD in
co-operation with the IOPS
• work on credit, savings, investment with the objectives to develop
guidelines ; work on the role of financial intermediation in the
financial education process
• work on behaviour economics (essential to develop adequate
financial education strategies)
• Work on communication/awareness campaigns, social marketing
and development of appropriate related tools
• Work on vulnerable groups
• the development of the financial literacy option in PISA 2012
(support through the subgroup on financial education programmes
in schools);
• Review and adaptation of current guidelines
43

44. International dissemination"
• Conferences/presentations all over the world: Brazil,
Columbia, Egypt, France, Hong Kong, Hungary, India,
Indonesia, Malaysia, Mexico, Russia, Singapore, Turkey,
UK, USA
• Issue a newsletter, several publications
• Co-operation with other international organisations
(IMF, EU, IOPS, FinCoNet etc.), including a close co-
operation with the WB
• Setting up of an international Gateway at
www.financial-education.org, (currently in
upgrading phase)

46. Financial education is not enough:
necessary…but not sufficient"
– Other measures are needed to overcome
consumers myopia and passive behaviour
– To deal with fraud, miss-selling
– To protect consumers against bankruptcies
– And more generally to protect consumers’
rights

47. Financial education: part of a system
(pension example)!

48. Financial consumer protection!
• Financial education and financial
consumer protection are closely linked
• OECD 2009 survey on financial
consumer protection
• Policies focus mainly on disclosure (which thus call
for education)
• Need to test relevance of existing disclosure
• Less is more
• Other tools explored in some countries
• Importance of adequate redress mechanisms
48

49. Integrated pillars"
• Access and inclusion
• Prudential regulation and enhanced
governance
• Consumer information and protection
• Competition
• Financial education and awareness
They are interconnected and interactive
49

50. Conclusion "
• In the framework of increasing risks and increasing transfer of risks, of
gaps in coverage and lack of education and awareness; there is a strong
need for improving financial education and awareness
– This process calls for national strategies, public-private partnership and
important role of NGO
– It should start at school
– Is should deal with priority areas such as pensions, credit, savings and risk
awareness
– It should allow for special role by financial institutions whose responsibility
should be encouraged
– it should address vulnerable groups
– It calls for efficient education and methodology to measure both literacy and
efficiency of the programmes
– Financial education is indispensable but financial education alone is not the
panacea; it is part of a wider policy approach, complementing prudential
regulation and calling for consumer protection
– It calls for a worldwide approach
50

51. THANK YOU
more information at:
www.oecd.org/daf/financialeducation
and www.financial-education.org
51