Schoolchildren could start receiving courses on how to use a bank account or buy and sell shares on the stock exchange as part of EU efforts to educate citizens and prevent possible future financial crises.
The issue of financial education was on the agenda of both the European Commission and member states well before the advent of the credit crisis in summer 2007, but has never been addressed comprehensively. Policies have thus far been shaped with more immediately rewarding objectives in mind, such as better financial information for consumers and consumer protection. Not much has been done for the longer term target of education.
However, EU powers in this field are in fact limited. Although the subject has clear financial implications and has a direct impact on the common market, it is still a matter of education and thus a national competence.
Brussels mentioned the key role of education in a range of documents as early as 2005, pushing member states to adopt effective measures to improve financial awareness. On two occasions, in 2006 and 2007, the EU's Ecofin Council stressed "the importance of fostering financial education and awareness of consumers in member states".
The recent introduction of new pension systems in different member states, which makes employees responsible for autonomously investing part or all their retirement money, meant the issue of financial education gained in importance.
Finally, the coming of the credit crisis in the United States and its massive impact on Europe and the wider world prompted a more vigorous approach. Many observers agree that the lack of basic financial understanding among typical US consumers fuelled the current crisis. Informed consumers may have avoided buying risky products assembled by risk-prone managers. It goes without saying, however, that a bad system of information for consumers and primarily an uncontrolled way of selling complex and risky products must first be blamed for the recent turmoil.
Consumer organisations are very keen to underline that while financial education is important, it should not relieve banks of their obligation to provide clear and complete information to their customers. Under EU rules, banks have to properly inform their clients when selling financial products, warning of the risks involved. And consumers should also be able to compare different products easily, even if they lack a deep financial understanding.
In this regard, in April 2008 the EU Council of Ministers approved a revised directive on consumer credit aimed at increasing and harmonising the protection of loan subscribers across the EU. The directive aims at standardising the information to be given when advertising loans to make it easier for consumers to compare different offers (see our Links Dossier).
Citizens lack knowledge of basic financial issues
Various studies show that the vast majority of citizens have close-to-zero knowledge of basic financial issues. According to a survey carried out by Citigroup, two out of three consumers in the UK feel that financial matters are too complicated for them to understand.
Another poll revealed similar results in Italy, France and Spain, while a Hungarian study showed that 70% of the interviewees were not aware of the meaning of inflation. More research funded by the European Commission underlined that, in Eastern Europe, almost half of the population does not have a bank account, which is the basic starting point of any financial operation (EurActiv 29/05/08).
On the other hand, citizens are increasingly aware of the importance of having a financial background. Research carried out by Visa in the US revealed that the vast majority of parents interviewed were in favour of financial education at school for their children. They rank the development of good financial skills second only to personal safety.
Initiatives already launched at national level
European countries have already launched a range of projects to offer financial education to schoolchildren, workers and retired people. Several programmes are aimed at teachers to give them the necessary tools to teach new subjects. An extensive assessment of current initiatives, carried out on behalf of the European Commission, identified 180 financial literacy projects in the EU. Children and young adults are the main target groups for the majority of the initiatives. Many also focus on low-income and low-education groups.
In Austria, a project entitled "debt-free through life" involved around 4,000 young students between 2001 and 2007. Dedicated workshops targeted three groups of students. The youngest (between 11 and 13) were taught basic financial principles, such as where money comes from and the fact that financial resources are limited. The second group, aged between 14 and 15, learned of the concepts of saving, current accounts, cash and payment cards. The third group, featuring participants aged up to 18, focused on life-planning, indebtedness and credit.
In Sweden, a similar project addressed adult workers of close to retirement age, with the aim of giving them the essential information required to invest their retirement money. The initiative was carried out by a national bank, Swedbank, to narrow the information gap that emerged following the introduction of a new pension system for Swedish employees in 2000. The bank offered this service for free, getting an opportunity to train new potential customers in exchange.
The Commission backs initiatives such as these, which recognises that differentiating courses according to different ages and needs is vital.
EU initiatives underway
In 2007, the EU executive intensified its efforts to improve financial education in the member states. After the US credit crisis sent shockwaves through the world economy over the summer, Brussels issued a document in December focusing on financial education and outlining its future initiatives in the field. The principal aim is to promote national actions by identifying and sharing best practices.
As part of the initiative, a network of national experts in the sector was established in 2008 with the aim of spreading best practice across the continent and harmonising teaching methods and curricula as much as possible. The group, which plans to hold its first meeting in October 2008, is composed of representatives of national authorities, financial service providers and consumer organisations. Members of the group are expected to advise the Commission by analysing the European situation and evaluating the application of the measures put in place by Brussels until 2010.
The Commission also launched a website dedicated to consumer education, Dolceta, with two sections, one on consumer rights and a second on financial services. Everybody can freely access the website (available in all EU official languages) and test their knowledge of financial issues, such as mortgages, savings, investments and means of payment.
An updated version of the website is expected soon, to match the specific needs of young people. The new service will target students in primary and secondary schools with simpler language and explanations of basic financial issues, such as using a payment card or running a bank account (EurActiv 17/04/08). The move is in line with the EU's policy of tailoring financial education to different age groups.
Young people are also the target of another Commission initiative, the Europa Diary. In 2008, almost three million students in EU secondary schools began receiving copies of the diary, which contains essential information on the European Union and its policies and basic tips on consumer rights, including financial issues. The 2008/2009 edition explains to students the concept of credit, its advantages and its risks. A tool kit for teachers was also provided to facilitate the task of tutors.
The private sector has also launched its own initiatives to stimulate financial education. Among the most recent moves, Visa Europe launched the "Better money skills" website which freely offers visitors a test of their financial skills.
Harmonising school curricula: the way forward?
But the boldest and probably most controversial proposal is to introduce new school curricula, where financial matters would be taught alongside more traditional subjects like history and geography.
From the Commission's point of view, such an initiative should be applied by all EU countries in a harmonised way. As the US credit crisis showed, the consequences of financial turmoil are felt well beyond national boundaries, the argument goes. Badly educated consumers in Poland might easily damage financial markets in Italy or Slovakia, it said. The same line of thought seems to be emerging in the European Parliament, according to an own-initiative report drafted by Socialist MEP Iliana Malinova Iotova (Bulgaria) and approved by the Assembly in November 2008.
To acheive this objective - the ultimate application of which would continue to rely on national education systems - the Commission has a series of weapons in its policy arsenal. A network of financial education practitioners will start work in October. The experts will be able to rely on a new tool: an online database of financial education schemes and research in the EU. The database will complement the findings of the extensive survey carried out on the EU executive's behalf between January and November 2007 on 180 schemes and initiatives applied throughout the bloc.
In addition, an upgrade of the Dolceta website will involve new educational tools for youth but also a training module for teachers. The objective is to provide teachers with a free, ready-to-use kit to teach their students the basics of finance. The move is supposed to encourage teachers to give lessons on a voluntary basis before official curricula are redefined.
The Commission is also engaged in awareness-raising campaigns about the importance of financial education. Brussels actively encourages national authorities to raise the issue by sponsoring a number of targeted events in member states.
EU Internal Market and Services Commissioner Charlie McCreevy said: "Financial education has been gaining attention, especially in the context of the financial turmoil. It is an important means of enabling consumers to make informed and responsible decisions about their personal finance, which has bearing not only on their lives, but also on society and the wider economy."
"Education is first and foremost a national competence," McCreevy said, nevertheless stating: "I strongly believe that there is also a role for the Commission to promote and facilitate the provision of financial literacy programmes to all consumers in the EU. Efforts at national and EU level should be complementary."
Socialist MEP Iliana Malinova Iotova, rapporteur for the European Parliament on financial education, supports all the main initiatives on the table. But she also calls on the Commission to "develop basic educational programmes at EU level in the field of personal finances, based on common rules and principles which can be adapted to the needs of all member states".
Simon Begley, senior policy advisor at the UK Financial Services Authority (FSA), also stressed the need to provide citizens with better information on financial issues, but underlined that the FSA "is in favour of providing financial education through the existing curricula" rather that offering new specific courses as suggested by the EU institutions.
André Laboul, head of the Financial Affairs Division of the Organisation for Economic Cooperation and Development (OECD), said "financial institutions have an important responsibility to promote the awareness of their clients and must ensure that information given is read and understood". He added that financial education "must complement, but cannot substitute, financial regulation".
Commenting on the draft report by MEP Iotova, the European Savings Banks Group (ESBG) stated: "The role played by financial institutions should be carefully considered when designing programmes or schemes to increase the level of financial literacy. Savings banks are close to their clients and well aware of the areas where the lack of knowledge is most present. Being placed at the 'heart' of financial services provision, the savings banks are therefore well suited to contribute to the content of the programmes."
At the same time, the ESBG stressed the importance of parents for financial education. Regretting that the issue did not receive enough attention in the Iotova report, the ESBG proposed adding the following reference to the text: "Specific schemes should also empower parents to become a positive role model for financial behaviour and literacy."
Massimo Roccia, managing director of the Italian Banking Association and secretary of Patti Chiari, a consumer group, explained how Italy launched an action plan to use media campaigns as a way to achieve better levels of financial education among the Italian population.
Speaking at a conference on financial education and information organised by the European Savings Banks Group (ESBG) in Brussels, Camden Fine, president and CEO of the Independent Community Bankers of America, stressed the importance of early education: "Schools need to educate students at all levels," he said, without forgetting that it is also important to have programmes for adults.
From his point of view, "financial literacy and consumer regulation are two sides of the same coin". According to Fine, the main issues they raise are "what consumers need to know, who should be responsible for telling them, who should regulate, should the requirements be uniform, and can too much information be provided".
BEUC, the EU consumer organisation, agrees that "there is a need to strengthen consumer knowledge in the financial area" and to "reduce to some extent the huge knowledge gap between customers and companies in the financial sector". But it also stresses that "to empower consumers and foster competition, financial education is not a panacea. Priority should be given to clear appropriate, timely information, professional and independent quality advice, as well as simplification of complicated products".
Doug Taylor of Which?, a UK consumer protection organisation, warned of the challenges ahead: "We cannot forget the difficulties in creating learning experiences that are good for all different life periods. Financial education is such a difficult task!"
As for information to consumers, Taylor added: "I do not believe there is a single magic bullet in the area of consumer protection. Rather, it is a patchwork made up of appropriate regulation, suitable information, safe products, sound advice and robust redress mechanisms".
Rob Goedhart of Consumentenbond, a Dutch consumer group, was supportive of financial education but stressed that "we cannot make the consumer a professional".
Hugues Thibaut, European affairs advisor at Test Achats, a Belgian consumer organisation, underlined that "while education is crucial, it will never replace strong legislation on consumer protection".
Kathrin Wirz, project manager at Geld und Haushalt (Money and the Household), an organisation linked to German savings banks, underlined that the responsibility for financial education lies first and foremost with parents.
- Aug. 2007: US hit by massive credit crunch caused by defaults on high-risk ('sub-prime') mortgage loans.
- Dec. 2007: Commission Communication on financial education.
- Oct. 2008: Network of financial education practitioners holds first meeting.
- Nov. 2008: Parliament adopts resolution on improving consumer education and awareness on credit and finance
- 2010: Commission to carry out extensive review of the initiatives undertaken to improve financial education across the EU.
- European Commission:Webpages on financial education
- EU Ecofin Council:Conclusions on financial education (see page 17)(8 May 2006)
- EU Ecofin Council:Conclusions on financial education (see page 10)(8 May 2007)
- European Parliament:Draft report on improving consumer education and awareness as regards credit(5 June 2008)
- European Commission:List of members of expert group on financial education(6 August 2008)
- European Commission:Dolceta website
- European Commission:Europa Diary Webpage
- European Commission:Europa Diary 2008/2009 final report(July 2008)
- European Commission:Europa Diary - Tool kit for UK teachers(2008)
- European Commission:Information note on financial education sponsorhips(June 2008)
- EU Council:Agreement on Consumers Credit Directive(7 April 2008)
- European Commission:Communication on Financial Education(18 december 2007) [FR] [FR] [DE]
- European Commission:Press release on Financial education(18 december 2007) [FR] [FR] [DE]
- European Parliament:Resolution on improving consumer education and awareness as regards credit(18 November 2008) [FR] [FR] [DE] [FR] [DE] Press release on new Expert Group on financial education [FR] [DE] Press release on new Expert Group on financial education [FR] [FR] [DE] Press release on new Expert Group on financial education [FR] [DE]
- European Commission:Commission's proposal for reforming the Consumers Credit Directive(7 October 2005) [FR] [FR] [DE]
Business & Industry
- European Banking Federation:Report on Financial LiteracyApril 2009
- European Savings Banks Group (ESBG):Comments on the Iotova's draft report on financial education(July 2008)
- European Savings Banks Group (ESBG):Conference on optimal consumer information and education(16 April 2008)
- Italian Banking Federation:Views from Patti Chiari(28 March 2007)
- Visa Europe:Visa launches new financial education website(9 September 2008)
- Eurofinas: Financial Education e-publication
NGOs and Think-Tanks
- BEUC:Single Market and Financial Education (see page 8)(20 May 2008)
- Consumentenbond (Dutch consumers' association):Comments on financial education(28 March 2007)
Surveys and data
- European Commission/Evers Jung:Survey of financial literacy schemes in the EU27(November 2007)
- Visa US:Survey on financial education in the US(13 August 2007)
- European Commission/Reseau Financement Alternatif:Financial services provision and prevention of financial exclusion(March 2008)