Financial Literacy: An Essential Tool to Regain Confidence in the Financial Services Industry

7/25/2019 Financial Literacy: An Essential Tool to Regain Confidence in the Financial Services Industry

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BA Financial Services

Honours Dissertation

SESSION 201/2TRIMESTER 2

TITLE

Financial Literacy: An Essential Tool to RegainConfidence in the Financial Services Industry

ATHOR

Stefan Lia40064!

Su"ervisor: #r Les ShortA!stract


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Give a man a fish you feed him for a day. Teach a man to fish and you feed him for a

lifetime. Chinese "rover$%

Follo&ing the 'currently on going( financial crisis &hich started in )00* and hit al+ost every

develo"ed nation, the re"utation of financial services fir+s, es"ecially $an-s, has $een $adly

affected% The ai+ of this dissertation is to identify the role financial education has to "lay in

hel"ing consu+ers to regain confidence in financial services fir+s%

The literature revie& ai+s to analyse ho& the different +ar-ets are tac-ling the financial

literacy deficit and &ho is res"onsi$le for it in different .urisdictions% The revie& &ill identify

the need to increase financial literacy in vie& of research such as that carried out in the /

during )00 and )0!0 $y the Financial Services Research Foru+, 'Enne&, )0!!( &hich

indicates a decline in trust and deteriorating consu+er confidence during the "eriod of study,

al$eit not as large and &ides"read as +ight $e initially "erceived%

S"ecial attention &ill $e given to the #altese +ar-et &here "ri+ary research &ill $e

underta-en in the for+ of a 1uestionnaire to consu+ers and financial services "ractitioners%

2o&ever, the dissertation &ill tac-le a +ore glo$al "ers"ective, &ith 3EC +e+$ers $eing

studied, due to the nature of the glo$alised &orld and the effect events fro+ a$road had on

#altese consu+ers and the financial services industry glo$ally%

The "ri+ary research ai+s to analyse the level of financial education of consu+er $et&een

the ages of !5 and 6, their level of trust and their -no&ledge of current financial education

initiatives underta-en $y the co+"etent authority in #alta%

The dissertation &ill also de$ate &hat needs to $e done in "arallel for the efforts +ade in

financial education to $e successful and e7"ected $enefits are rea"ed% It &ill also identify the

$enefits financial services fir+s &ill get fro+ increased financial literacy &hich e7tends

$eyond an increased confidence $y consu+ers%

Ac"no#le$%e&ents

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I &ould li-e to e7"ress +y gratitude for the hel" and su""ort received fro+ the follo&ing

"eo"le to conduct +y research and &rite this dissertation:

9 #r Les Short for his ongoing su""ort and guidance

9 All the survey "artici"ants &ho sho&ed great interest in +y &or-

9 Fa+ily and friends es"ecially #s A+anda ;uge.a &ho +issed out on a nu+$er of $each

days to su""ort +y &or-

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(ontents

()a*ter 1 + Intro$uction!%! Introduction

!%) Rationale for choosing to"ic 6!%< ;rief $ac-ground on the crisis *!%4 Ai+s and 3$.ectives of the issertation !% #ethodology !0!%6 Li+itations !!

()a*ter 2 , Literature Revie#)%! 2o& large &as the i+"act of the crisis on trust !))%) The i+"act on confidence of different sectors of the industry !4)%< The i+"ortance of education !)%4 Challenges of financial education initiatives !*)% Financial education initiatives $efore the crisis !5

)%6 Initiatives started after the crisis )0)%* The role of co+"etent authorities in consu+er education )!)%5 The role of co+"anies in consu+er education )))% Channels $eing used for consu+er education )uinn, )005(%

Lac- of trans"arency cou"led &ith the colla"se of $an- "erceived as too $ig to fail shoc-ed

the financial +ar-ets% The Financial Crisis En1uiry Re"ort concluded that an e7cess in

$orro&ing, es"ecially su$"ri+e lending $y /S $an-s, +ay have $een the +ain catalysts of

the crisis%

A nu+$er of su$"ri+e loans +ay have $een incorrectly "riced &hen sold to consu+ers &ith

du$ious credit histories% These loans &ere "ac-aged as +ortgage $ac-ed securities and sold

to investors% Rating agencies hel"ed in this $y giving a very good credit rating to these

+ortgage $ac-ed securities 'The Financial Crisis En1uiry Co++ission, )0!!(%

=ith the colla"se of these securities the crisis crossed the "ond to Euro"e% In fact, the first

run on a $an- &as in )00* &hen the / $an- orthern Roc- suffered fro+ a li1uidity crisis,

"ro+"ting the / govern+ent to issue a state+ent guaranteeing the $an-s de"osits% This

&as $efore the colla"se of Leh+an ;rothers $ut trou$le &as already $re&ing%

In other "arts of Euro"e, e7ia, a ;elgianFrench ;an- received an e1uity ca"ital in.ection

fro+ ;elgian, French and Lu7e+$ourg govern+ents in addition to funds fro+ e7isting

shareholders in order to reca"itali?e it and avoid a $an- run% uring the sa+e "eriod, the

utch overn+ent in.ected !0 $illion into I to avoid its $an-ru"tcy and shore u" its

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ca"ital $ase% The AngloIrish ;an- in Ireland &as nationalised in the $eginning of )00 in

order to save it fro+ colla"se%

In order to restore consu+er confidence in the $an-ing syste+, the E/ head of states

agreed to issue irectiveB)00B!4BEC raising the de"osit insurance sche+e li+it to

!00,000B J 5,000% This ca+e into effect on the !st of @anuary )0!0% uring this ti+e, +ost

of the develo"ed countries &ere in recession further under+ining confidence 'E/, )00(%

In )00, seeing no clear resolution to the crisis, +any E/ govern+ents started drafting "lans

for +a.or regulatory refor+s, "ossi$ly on an E/ &ide scale% In the /S, 8resident 3$a+a also

announced "lans for regulatory refor+, increasing the "o&ers of the Federal Reserve as a

su"ervisor% These refor+s, li-e the de"ositor sche+e, &ere given a lot of +edia coverage to

try and instil confidence in the general "u$lic ';an- of England, )00(%

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!%4 Ai+s and 3$.ectives of the issertation

The overall $road ai+ is to identify the role financial education has to "lay to hel" consu+ers

regain confidence in financial services fir+s &hose re"utation has $een $adly affected

follo&ing the financial crisis% S"ecial attention &ill $e given to the #altese +ar-et% 2o&ever, I

&ill also tac-le a +ore glo$al "ers"ective due to the nature of the glo$alised &orld and the

effect events fro+ a$road had on #altese consu+ers%

The o$.ectives &ill $e to:

9 Identify the need to increase financial literacy in vie& of research such as that carried out in

the / during )00 and )0!0 $y Enne& ')0!!( &hich indicates a decline in trust and

deteriorating consu+er confidence during the "eriod of study% 8ri+ary research &ill also $e

carried out to identify consu+er trust%

9 Analyse ho& the different +ar-ets are tac-ling the financial literacy deficit and &ho is

res"onsi$le for it in different .urisdictions% The role that the co+"anies the+selves are "laying

&ill also $e considered% Attention &ill $e given to 3EC +e+$er countries, the E/ and #alta

&ere "ri+ary research &ill try to identify the level of financial -no&ledge of consu+ers%

9 eter+ine, through "ri+ary research, ho& financial literacy can reach a &ider audience

through an analysis of the channels currently $eing used &hich includes a dedicated Internet

&e$sites, infor+ative s, Radio and T "rogra++es and "rinted +aterial% This in addition

to analysing their effectiveness, in vie& of the increased use of the Internet and social +edia%

9 Identify &hat needs to $e done in "arallel for the efforts +ade in financial education to $e

successful and the e7"ected $enefits rea"ed es"ecially in the areas of regulation and

e+"loyee training%

9 Analyse the $enefits financial services fir+s &ill get fro+ increased financial literacy &hich

e7tends $eyond an increase in confidence%

!% #ethodology

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The +ain $ody of the literature revie& &ill focus on analysing the i+"act of the crisis on the

financial services industry and consu+ers% 3ther reasons $ehind the increased +istrust &ill

also $e e7a+ined as &ell as the changing trend in trust $et&een financial fir+s and

consu+ers%

It &ill loo- into the need for financial education follo&ing surveys and researches conducted

$y co+"etent authorities% The effectiveness of current initiatives and future strategies for

financial education &ill $e analysed% The channels used and their success or other&ise

follo&ing the start of their "ro.ects, including "itfalls &hich +ight $e encountered along the

&ay and +ar-eting strategies used &ill $e e7a+ined%

8ri+ary research &ill $e conducted a+ongst 0 "eo"le aged $et&een !5 and 6, s"lit into

su$grou"s &ith !0 "eo"le each, not e+"loyed in the financial sector and never studied

financial su$.ects% It &ill thus include stayatho+e "arents, students, e+"loyees and retired

"ersons% The survey focuses on the efforts $eing +ade $y the #altese authority res"onsi$le

for financial education and +ar-et senti+ents in #alta% The ai+ of the "ri+ary research &ill

$e:

To identify the level of literacy of consu+ers

Analyse effectiveness of current efforts

The individuals "erce"tion of financial services fir+, es"ecially in relation to trust Identify i+"rove+ents in the local disse+ination of financial infor+ation through the

various channels used%

>uestions &ill also $e as-ed on the res"ondentKs current relationshi" &ith financial services

fir+s and their understanding of the "roducts they "urchased% A si+ilar set of 1uestions &ill

$e directed to )! financial "ractitioners, * each fro+ $an-ing, insurance and invest+ent

sectors, in order to o$tain the "erce"tion and co+"are $et&een the t&o grou"s%

!%6 Li+itations

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The +ain li+itation &ith this dissertation &as the difficulty to analyse the real i+"act on

consu+er confidence and the effectiveness of the educational +easures $eing ta-en in

different 3EC countries, the E/ and #alta% 2aving said that, it &as i+"ossi$le to

concentrate on the effects on .ust one country due to the glo$al nature of the crisis as &ell as

the integrated action $eing ta-en $y countries at )0 and 3EC levels therefore a $alance

&as needed &hich at ti+es &as not easy to find%

In addition, the "ri+ary research &as conducted in #alta, &hich contrasts &ith the rest of the

research &hich &as fro+ an 3EC or E/ "ers"ective '#alta is not an 3EC +e+$er

although an E/ +e+$er state(% A lac- of research conducted "rior to the crisis &as also

identified% This +ade it hard to co+"are relia$ly trust levels $efore and after the crisis%

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()a*ter 2 , Literature Revie#

)%! 2o& large &as the i+"act of the crisis on trust

The credit crunch, su$se1uent recession and sovereign de$t crisis have $een $la+ed for a

large "ro"ortion of the "erceived decrease in trust in financial services fir+s% Consu+ers

have co+e out $adly fro+ the crisis% #any thought their invest+ents &ere good as they

diversified in "ro"erty, $an- savings and invest+ents, "ensions etc%, only to discover that

these invest+ents had $een inflated or &orse had $een &rong all along 'ritten, )0!!(%

A Gouov survey "osed the follo&ing 1uestions to consu+ers: Thinking generally, in light of

the recent economic crisis, when it comes to looking after your money do you trust the

following types of company more, less or is there no difference? 'ritten, )0!!(% The results

sho&n in Figure ! $elo& indicate a decline of *M in trust to&ards $an-s &ith


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2o&ever, according to Enne& ')0!!(, consu+ers trusted financial services "roviders +ore

than they trusted other / entities such as the ;;C and 2S% In addition, the distrust &as in

the senior +anage+ent and directors of the co+"anies rather than the front line individuals

or the co+"anies the+selves% A nu+$er of res"ondents also indicated that they had no

choice $ut to trust and use services offered $y these fir+s%

Further+ore, through an analysis of trust according to the length of relationshi", a large

nu+$er of res"ondents indicated significant sta$ility in levels of trust irres"ective of the

duration of the relationshi"% This +ight indicate that although there &as a decline in trust, it

+ight have hit roc- $otto+%

@ohn S"ringford et al%, ')0!!( argue that the financial crisis has no long ter+ i+"act on trust%

2o&ever trust +ight have $een lo& for a nu+$er of years starting fro+ $efore the crisis% The

+ain reason given for this distrust is the lac- of e7"ertise fro+ the average consu+er &ho is

not a$le to ascertain if he or she got a fair deal%

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)%) The i+"act on confidence of different sectors of the industry%

According to research carried out $y Enne& ')0!!( $et&een the end of )00 and )0!0 in the

/, trust varied $et&een the financial services "layers% ;ro-ers and financial advisers &ere

highly trusted although a dro" +ay $e noticed during )0!0>< in Figure )% Invest+ent

co+"anies are ne7t in line &ith $an-s $eing the least trusted financial institutions%

Figure ): 3verall consu+er trust in different financial services "roviders in the / 'Source: Enne& )0!!(%

According to a "ostcrisis survey, carried out $y La+$ert and 8o&ell et% al ')0!0(, $an-s

have ta-en the largest hit on their $usiness and even +a.or "layers are struggling to re$uild

their re"utation a+ongst the general "u$lic% 3n the other hand, insurers have e+erged

relatively unscathed% This highlights the greater distrust to&ards $an-s &hen co+"ared to

other financial services "layers%

A study, co++issioned $y 8itney ;o&es ;usiness Insight sho&s that only 45M of / and /S

consu+ers trust their insurance "rovider% Fro+ the study, it also e+erges that as little as


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)%< The i+"ortance of education

A +eeting of the E7"ert rou" on Financial Education during A"ril )00, suggested that

although financial illiteracy +ay not $e the +ain cause of the crisis it +ay have increased its

i+"act% For e7a+"le, the lac- of a&areness on de"osit "rotection in the E/ could have $een

one of the causes of the $an- runs in so+e #e+$er States, for e7a+"le orthern Roc- in

the /%

In the /S, irres"onsi$le su$"ri+e +ortgage lending "ractices $y the "roviders cou"led &ith

the lo& level of financial literacy of consu+ers +ight have $een one of the triggering factors

of the crisis% In this res"ect, financial education is i+"ortant for financial sta$ility and should

therefore $e given +ore i+"ortance in order to "reserve the sta$ility of the glo$al financial

syste+%

Figure


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confidence to a""ro"riately understand ris-% This included an a&areness of financial ris-s

and o""ortunities and -no&ledge to +a-e infor+ed decisions% It also highlighted the

i+"ortance for consu+ers to -no& &here to loo- for assistance should this $e re1uired

'3EC, )0!!(%

A "recrisis re"ort $y the 3EC ')00(, identified that an increasing life e7"ectancy and

changes in inco+e and "ension arrange+ents re1uire increased consu+er -no&ledge% ue

to these changes, consu+ers are "urchasing +ore "roducts than ever $efore and therefore it

is i+"ortant that they +a-e infor+ed decisions% It is thus clear that the i+"ortance of

education +ay go $eyond restoring trust, $ut +ay have longer ter+ i+"lications on

consu+ers and the industry%

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)%4 Challenges of financial education initiatives

In its Consu+er Education Strategy for )00! )004, the Australian Securities and Invest+ent

Co++ission identified the fact that Nconsumers don(t know what they know as a +a.or

$arrier to "roviding consu+er education +aterial% In addition, consu+ers are unli-ely to loo-

for consu+er infor+ation, and do so only after they +a-e e7"ensive +ista-es, or fall into

so+e sca+ or fraud%

The increasing variety and co+"le7ity of financial "roducts cou"led &ith constant innovation

+a-e the need for education +uch stronger $ut its i+"le+entation +uch harder% In addition,

fe& countries carried out surveys to identify the effectiveness of their education "rogra++es%

This +a-es it +ore difficult for co+"etent authorities to tailor their efforts to the needs of the

consu+ers '3EC, )00(%

ealing &ith "eo"le of different levels of general education, &ho +ay also $e illiterate, +a-es

financial education initiatives +ore challenging% Co+"etent authorities res"onsi$le fro+

education need to cater for a variety of "ersons fro+ all levels of society% In a rsurvey carried

out in 3EC +e+$er countries in )00, it resulted that:

9 In Australia, lo& financial literacy is associated &ith lo& levels of general education,

une+"loy+ent or lo& s-illed &or-, lo& inco+es 'household inco+e under H)0,000(, lo&

levels of savings 'under H 000(, single "ersons, and $eing $et&een the ages of !5 to )4

year old or over *0 years%

9 In the /, individuals in the lo&er social grades and inco+e, as &ell as young "eo"le aged

!5 to )4, are li-ely to $e the least rece"tive consu+ers sho&ing lo& levels of interest% This in

contrast to "ersons in higher social grades, higher inco+e, young cou"les and older

res"ondents &ith no fa+ily &ho are +ore li-ely to $e so"histicated and tend to $e +ore

"roactive and loo- for infor+ation%

9 In the orean and A+erican surveys, scores $ro-en do&n $y de+ogra"hic characteristics

indicated that students fro+ less educated fa+ilies andBor students &ith lo& inco+e and no

"rofessional e7"ectations scored the lo&est%

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)% Financial education initiatives $efore the crisis

Even $efore the onset of the crisis, countries &ere a&are of the i+"ortance of financial

education, and according to findings $y 3EC ')00( they "rovided a variety of financial

education "rogra++es and initiatives, ranging fro+ &e$sites to distri$ution of $rochures,

training courses and +edia ca+"aigns%

For e7a+"le, the #alta Financial Services Authority, through its Consu+er Affairs /nit, is

"resent on various +edia% It has a dedicated Internet "ortal, a +onthly ne&sletter and a

Face$oo- "age% It is also "resent on traditional +edia &ith daily slots on radio and television

"rogra++es% In addition, it has a Free"hone to ans&er consu+er 1ueries 'Consu+er Affairs

/nit, )0!0(%

This in addition to several infor+ative $oo-lets and leaflets covering $an-ing, insurance and

invest+ent "roducts% These &ere ada"ted to the "roducts availa$le on the +ar-et at the ti+e

and are $ilingual, unli-e the "roducts the+selves &hich &ere availa$le only in English%

In Australia, through the Australian Securities and Invest+ent Co++ission considers

financial education so i+"ortant that they develo"ed a national strategy to coordinate and

direct their financial education "rogra++es &ay $ac- in )00! 'ASIC, )00!(%

At E/ level, there &ere several initiatives going on "rior to the crisis such as olceta%eu

&e$site &hich is a consu+er education site, ai+ed at educators% The "ro.ect &as set u" and

financed $y the Euro"ean Co++ission% It offers infor+ation on a range of consu+er issues

in an easily accessi$le &ay and includes interactive 1ui??es to test consu+er -no&ledge

&hilst +a-ing it as fun as "ossi$le 'Euro"ean co++ission, )0!)(%

3n the E/ agenda, consu+er education is discussed through various $odies such as

Euro"ean Insurance and 3ccu"ational 8ensions Authority and the Euro"ean ;an-ing

Authority% The i+"le+entation of "rogra++es falls under the res"onsi$ility of the co+"etent

authorities in the individual +e+$er states, although these &ould usually $e financed $y the

E/ co++ission% This syste+ is still in use today $y +e+$er states% 'Euro"ean Co++ission,

)0!)(%

The /, through the Financial Services Authority &as al&ays a trendsetter &ith regards to

financial education% In) guide to the provision of financial services education for consumers

'ass, !5(, it e+erged that, co+"anies, schools as &ell as trade associations &ere all in

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one &ay or another involved in financial education through various "u$lications and

ca+"aigns ai+ed at consu+ers%

In the /nited States, The Financial Literacy and Education Co++ission &as esta$lished

under Title , the Financial Literacy and Education I+"rove+ent Act &hich is "art of the Fair

and Accurate Credit Transactions 'FACT( Act of )00


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)%6 Initiatives started after the crisis

Follo&ing the financial crisis, there &as a gro&ing recognition of the i+"ortant role financial

literacy needs to "lay together &ith a stronger financial regulatory fra+e&or-% At the sa+e

ti+e, +ore govern+ents and "olicy +a-ers ac-no&ledge that there is a+"le roo+ for

i+"rove+ent in financial literacy, and as a conse1uence, financial education "rogra++es

started cli+$ing u" national agendas%

In Australia, ASIC develo"ed a revised ational Financial Literacy Strategy to "rovide a

national direction for financial education% The strategy &as launched &ith the ai+ of $asic

ai+ of Nenhancing the financial well&eing of all )ustralians &y improving financial literacy

levels. 'Australian Securities and Invest+ent Co++ission, )0!)(%

#any Asian countries, even non3EC +e+$ers, including Indonesia, @a"an, orea,

#alaysia, 8hili""ines, Thailand, Singa"ore, 2ong ong or +ore recently China have also

develo"ed innovative and farreaching initiatives in the area of financial literacy, follo&ing the

crisis 'R;I3EC, )0!0(%

The E/ continued on the sa+e "ath "rior to the crisis, &ith the &or- starting in the tic- of the

crisis &hen it set u" the E7"ert rou" on Financial Education 'EFE( &hich is co+"osed of

financial education "ractitioners% It has the ai+ of "ro+oting the e7change of ideas,

e7"eriences and $est "ractices $et&een +e+$er states% The grou" also acts as financial

education advisers to "olicy +a-ers at the co++ission 'Euro"ean Co++ission, )0!)(%

The E/ also started "rogra++es ai+ed at i+"roving the disse+ination of financial literacy

for different age grou"s% 3ne such "rogra++e is the Financial Education in Secondary

Schools% This is in line &ith reco++endations the 3EC +ade $ac- in )00 "ro+oting

financial education fro+ an early age% The crisis +ight have $een &hat gave the i+"etus for

these "rogra+s to get funding and +ove for&ard 'E;T, )0!0(%

)%* The role of co+"etent authorities in consu+er education

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3EC ')00( suggests that overn+ents and all concerned sta-eholders should "ro+ote

un$iased, fair and coordinated financial education% It also states that financial education

should $e clearly distinguished fro+ any advice $eing given &hen selling "roducts% Thus

govern+ent authorities and agencies +ay $e $est "laced to "rovide un$iased and

inde"endent financial education +aterial in con.unction &ith the "rivate sector%

According to 3EC ')00( +ost countries have an authorityBcentralised institution &hich is

res"onsi$le for the govern+ent de"loy+ent of consu+er education in a centralised

fra+e&or-% For e7a+"le in #alta, the #FSA is the regulatory authority for financial services

and is res"onsi$le for consu+er education and ans&ering 1ueries fro+ the "u$lic on

financial +atters in general '#FSA, )0!)(%

The centrally develo"ed "rogra++e is then disse+inated through regional net&or-s, &ith

local govern+ents such as local councils and "u$lic authorities in the / ad.usting the

"olicies to their s"ecific needs% In the /S, )! Federal entities co+"ose the Financial Literacy

and Education Co++ission &hich develo"ed a ne& /S national strategy to "ro+ote financial

literacy and education 'Financial Literacy and Education Co++ission, )0!!(%

The res"onsi$le authorities e7change infor+ation &ith various agencies or +inistries &ho

&ould +ainly $e res"onsi$le for econo+y, education or finance% For e7a+"le in Australia,

&ere a decentralised syste+ o"erates the #inisterial Council on consu+er affairs co

o"erates closely &ith consu+er organisations and consults &ith a range of sta-eholders on

consu+er related issues '3EC, )00(%

According to its &e$site, the E/ Co++ission is of the idea that the $est &ay to increase the

financial ca"a$ility of consu+ers in the Euro"ean #ar-et is through the develo"+ent of

tailored strategies in individual #e+$er States &hich are coordinated at an E/ level% In

addition, the Co++ission encourages "u$lic and "rivate coo"eration on financial education

+atter 'Euro"ean Co++ission, )0!)(%

)%5 The role of co+"anies in consu+er education

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According to a )00 3EC survey, +any countries es"ecially @a"an and the /S identified

the i+"ortance of service "roviders as channels for consu+er education% This is +ainly due

to the direct contact $usinesses have &ith consu+ers and their vast resources in all delivery

channels% In the /, $usinesses also "lay an active role al$eit the syste+ is not as

develo"ed%

In other countries, $usinesses have a consultation role in develo"ing consu+er education

initiatives, "ossi$ly $y "roviding certain e7"ertise on ne& "roducts and "olicy develo"+ent%

In addition, $usiness +ay also "artici"ate in tas- forces set u" $y govern+ents or

associations and +ay also act through a trade $ody or association '3EC, )00(%

In addition to "ro+oting their "roducts, $usiness +ay develo" related educational ca+"aigns

on consu+errelated to"ics% There are various e7a+"les &hich can $e identified such as a

nu+$er of se+inars carried $y ;an- of alletta, one of the +a.or $an-s in #alta, on

invest+ent "roducts, strategies and "ortfolio +anage+ent ';an- of alletta, )0!)(% 3ther

+a.or initiatives can $e seen in +ost develo"ed countries such as in the / and /S%

An e7a+"le is the initiative ta-en $y ;arclays $an- in the / as "art of its cor"orate social

res"onsi$ility &here they "artner &ith govern+ent and nongovern+ent organisations to

assist in consu+er education &hich they vie& as an i+"ortant long ter+ issue% #ost of their

in"ut co+es in the for+ of funding to "rogra+s such as the #oney Advice Trust hel"line and

consu+er credit counselling ';arclays rou", )0!)(%

Another i+"ortant source of financial education are the insurance industry associations

nota$ly through their &e$sites &hich hel" consu+ers gain a $etter understanding of

insurance and to +a-e infor+ed co+"arisons and choices $et&een "roducts% A nu+$er of

associations in 3EC countries "rovide $asic infor+ation on insurance and also offer

co+"arative ta$les of "rices and "roducts as &ell as interactive calculators for s"ecific

"roducts 'such as life or ho+e insurance( '3EC, )005(%

)% Channels $eing used for consu+er education

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The i+"ortant role of +edia in disse+inating infor+ation and "ro+oting and underta-ing

consu+er education initiatives cannot $e underesti+ated% =ith the increase in delivery

channels, fro+ the "ress and radio to ne& +edia channels such as social net&or-s, +edia

e7"osure needs to $e &ell +anaged%

According to 3EC ')00(, the /nited ingdo+ "ointed out that although there is a great

"otential offered $y these channels, they are not $eing fully e7"loited to their full "otential in

their use to target a "articular audience or to raise a&areness of financial education

initiatives%

S"anish authorities develo"ed their financial education activities in coo"eration &ith +edia

organisations through "u$lishing of "ress releases on educational ca+"aigns, radio and

television "roductions% In 8oland the office of Co+"etition and Consu+er 8rotection has a

television "rogra++e on national television in coo"eration &ith a consu+er association% A

si+ilar coo"eration e7ists in #e7ico &hilst in the /S strong ties e7ist $et&een +edia outlets

and res"onsi$le authorities &hich use $oth online +edia and "rint%

In recent years, the i+"ortance of the Internet has gro&n drastically as one of the +a.or

+edia sources es"ecially for a young audience% #ost sta-eholders have &e$sites es"ecially

dedicated to consu+er education &hich offer infor+ation and advice on a range of financial

"roducts and services as &ell as ti"s on +oney +anage+ent as &ell as infor+ation on

regulation '3EC )00(%

In addition, certain authorities such as the ASIC and the #FSA in #alta o"erate a Face$oo-

"age dedicated to consu+er education &here they fre1uently "ost lin-s related to consu+er

education, 1ui??es, as &ell as serving as a contact "oint for consu+ers%

)%!0 The $enefits of an educated consu+er for financial services "roviders

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Irres"ective of the recent crisis and loss in trust, a financially educated consu+er &ill hel" the

increasingly co+"le7 financial +ar-ets to o"erate efficiently% ;y having a greater a$ility to

co+"are the ris-return characteristics and costs involved of different financial "roducts

offered $y various organisations, consu+ers can +a-e a $etter choice%

Also, financially literate consu+ers enhance co+"etition% ;y de+anding "roducts +ore

res"onsive to their needs, consu+ers encourage "roviders to develo" ne& "roducts and

services, thus increasing co+"etition and innovation% This in turn increases the chances of

"rofits for $oth "roviders and &ithout the reoccurrence of the )00* crisis%

arious studies $y ;ayer, et al%, !6 Clar- and Schie$er, !5 and Lusardi, )00< as

1uoted $y 3EC ')005(, have sho&n that financial education "rogra++es increase $oth the

nu+$er of individuals &ho save and their average savings% Thus, since the financially

educated consu+er is also +ore li-ely to save and to save +ore than their less literate

counter"art, greater financial literacy should have a "ositive effect on $oth invest+ent levels

and econo+ic gro&th '3EC, )00(%

These issues also affect sellers of insurance "roducts% Increased a&areness of ris-s and

-no&ledge of insurance issues $y consu+ers could increase the si?e of their "otential

+ar-et% Failure to address the needs for $asic financial education and understanding of

insurance "roducts &ould theoretically +a-e the +ar-et less co+"etitive, as consu+ers

&ould not $e a$le to co+"are "roducts and choose those +ost a""ro"riate to their situation,

$asing their decision only on "rice%

In addition, inaccurate understanding of insurance "roducts and "olicies could create a

nu+$er of ris-s affecting insurers such as consu+ers &ho have $een sold unsuita$le

"roducts cancelling their "olicies early% Also, it is +ore difficult for insurers to analyse

e7"osure to ris-s of &hich future "olicyholders the+selves have an unclear notion%

In contrast, if consu+ers are alerted and a&are of the ris-s and their res"onsi$ility &hen

"urchasing insurance "olicies and for choosing a""ro"riate "olicies &hich +eet their s"ecific

needs, the insurance +ar-et &ill $e +ore trans"arent and co+"etitive '3EC )005(%

)%!! =hat needs to $e done for the education initiatives to $e successful

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The 3EC council reco++ends that &hen +e+$er countries "ro+ote financial education

and a&areness they should ta-e account and i+"le+ent a nu+$er of "rinci"les and good

"ractice set out $y the sa+e council% This should hel" to +a-e financial education initiatives

+ore successful and full $enefits are o$tained%

Financial education initiatives should $e designed in order to +eet the needs and literacy

level of their target audience, as &ell as reflect ho& their audience "refers to receive financial

infor+ation% This varies &ith age, level of education and ti+e availa$le% In order to ta-e into

account the diverse $ac-grounds of consu+ers, those involved +ay need to set u" audience

s"ecific "rogra++es%

Financial education should $e regarded as a lifeti+e continuous ongoing "rocess%

8rogra++es should ta-e "articular to the increased co+"le7ity of +ar-ets, varying needs at

different life stages, and increasingly co+"le7 infor+ation% In addition, fir+s should $e

encouraged to train their e+"loyees on financial education and develo" codes of conduct for

the "rovision of general advice a$out invest+ent and $orro&ing, in order to co+"le+ent

"rogra++es set $y co+"etent authorities%

Financial education "rogra++es should $e set u" &ithin the regulatory and ad+inistrative

fra+e&or- and considered as a tool to "ro+ote econo+ic gro&th, confidence and sta$ility,

together &ith regulation of financial institutions and consu+er "rotection% The "ro+otion of

financial education cannot $e a su$stitute for financial regulation, &hich is essential to "rotect

consu+ers and &hich financial education is e7"ected to co+"le+ent%

Financial institutions should $e encouraged to clearly distinguish $et&een financial education

and financial infor+ation and Nco++ercialO financial advice% Any financial advice for $usiness

"ur"oses should $e trans"arent and al&ays clearly distinguish if it is also $eing "ro+oted as

a financial education initiative% It should also hel" consu+ers to trust their service "roviders

&hen "urchasing ne& "roducts and +ay also $e used as a co+"etitive advantage $y

institutions '3EC )00(%

()a*ter - , .ri&ar Researc)

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ualitative research

According to Ritchie and Le&is ')00


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()a*ter , Data Analsis an$ Inter*retation

4%! Introduction

The starting "oint of the analyses &ill $e to identify the level of literacy and understanding of

the "roducts used $y consu+ers% This given the i+"ortance of financial education as

discussed in section )%< +ainly due to the increase in co+"le7 "roducts and changing

consu+er trends% Confidence &hen dealing &ith fir+s &ill also $e discussed and co+"ared

&ith "ractitioners "erce"tion%

3ne of the o$.ectives of this dissertation, as discussed in section !%4, is to identify if there

actually is a general decrease in consu+er trust% The results of a direct 1uestion on trust &ill

$e co+"ared &ith "revious trust levels% Several indirect 1uestions related to trust &ill $e used

to gauge consu+ers feelings%

The last "art &ill loo- into consu+er and "ractitioners -no&ledge of current consu+er

education initiatives and discuss any i+"rove+ents suggested $y res"ondents%

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4%) Financial no&ledge

3ne of the ai+s of the dissertation, as noted in section !%4, is to analyse if there is a need for

consu+ers to $e +ore financially educated% Thus, the first thing is to identify if consu+ers

thin- they lac- education and &hat financial services "ractitioners thin- the level of consu+er

education is% 3f course, one +ust start $y identifying &hat "roducts are consu+ers using

and their understanding of such "roducts%

6M have at least a savings or current account &hich is in line &ith the Euro"ean

Co++issions reco++endationsB&ith regards to $asic "ay+ent accounts and access to

financial services% Thus it can $e safely assu+ed that the +a.ority of the #altese "o"ulation

aged $et&een !5 to 6 has contact &ith $an-s in one &ay or another and use de$it or credit

cards '0M( &hich are given free &hen o"ening an account% Figure 4 "rovides a +ore detail

outloo- of results%

Figure 4: 2o& +any consu+ers use a variety of different financial "roducts

The second 1uestion &as a$out the res"ondents understanding &hen dealing &ith insurance

co+"anies, $an-s and invest+ent fir+s res"ectively% *5M of $an- users and 60M of

insurance users understand or +ostly understand so+ething &hen $uying or using these

"roducts% In contrast, only


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Ban"in% Insurance Invest&ents

I al#as un$erstan$ !0 5 4

I $on7t un$erstan$ ant)in% 0 6

I $on7t un$erstan$ evert)in% * 4 !0

I &ostl un$erstan$ ) )) !4

In un$erstan$ so&et)in% 4 !0 !uinn @, @>, ')005(%>arclays considers ehman >rothers &id, The Telegra"h, !< Se"te+$er )005%

online%

>uinn @, @>, ')005(%);G races to raise survival capital, The Telegra"h, ! Se"te+$er )005% online%


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Australian Securities and Invest+ent Co++ission ')0!)(% A$out /s% U3LIEV Availa$le at:

htt":BB&&&%financialliteracy%gov%auBa$outthestrategy% ULast Accessed 0 @une )0!)V%

;an- of alletta ')0!)(% Free Financial Education fro+ ;an- of alletta% U3LIEV Availa$le at:

htt"s:BB&&&%$ov%co+B"age%as"Qnne&sdetailsWn&sid45


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A""endi7 ! >uestionnaire 'Consu+ers(

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A""endi7 ) Survey >uestions 'financial services "ractitioners(

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A""endi7 < Su++ary of re"lies 'consu+ers survey(

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A""endi7 4 Co+"lete su++ary of findings 'financial services "ractitioners(

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Documents

Financial Literacy: An Essential Tool to Regain Confidence in the Financial Services Industry