FINANCIAL EDUCATION FOR LONG-TERM

SAVINGS AND INVESTMENTS

Adele Atkinson, PhDFinancial Education and Consumer Protection UnitOECD

HIGH-LEVEL GLOBAL FORUM ON FINANCIAL EDUCATION

26-27 FEBRUARY 2014, SEOUL, KOREA

• Brief overview of the role of financial education in general

• High-level recognition of the importance of financial education for long-term savings and investments (LTSI)

• Ongoing efforts from OECD and its INFE• Summary of INFE members’ reasons for

focusing on financial education for LTSI• Conclusion and next steps

Outline

“the process by which financial consumers/investors

improve their understanding of financial 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”. (OECD, 2005)

OECD definition of financial education

Financial Education

Financial Consumer Protection

FinancialInclusion

Financial consumer empowerment trilogy

G20 (2010) Principles

for Innovative Financial Inclusion

G20 (2011) High-Level Principles on Financial Consumer Protection developed by the OECD

OECD/INFE High-Level Principles on National Strategies for Financial Education

Global recognition of these 3 components

• G20/OECD High-Level Principles on Long-term Investment Financing by Institutional Investors– 8 Principles addressing

regulatory and institutional impediments to long term investment by institutional investors

– Principle 8 covers financial education, awareness and consumer protection

Long-term Investment: G20 Context

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Image source freedigitalphotos.net KROMKRATHOG

1. Long-term savings (especially for large, anticipated expenses)

OECD/INFE activity

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OECD/INFE formed a dedicated expert subgroup in 2012

Image sources: freedigitalphotos.net Vichaya Kiatying-Angsulee and Poulsen Photo

2. Planning for retirement (including pensions)

Special focus on the role of financial education in:

• G20 High-level principles on Financial Consumer Protection cover responsible business conduct

• OECD/INFE consultation on draft guidelines for the involvement of the private sector and other stakeholders in financial education (including LTSI education)

Creating a responsible private sector

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Many overlapping factors (some are country-

specific) To encourage the population to make or increase savings

and investments

To overcome natural

psychological barriers to long-term planning

To reinforce trust in well-regulated financial service

providers

To overcome low-levels of financial

literacy

To reduce the worrying

(excessive?) reliance on

credit

To help individuals assess and

meet long-term goals

The need for financial education for LTSI

• Countries as diverse as Australia, Denmark, India, Kenya, Mexico and Portugal are worried about low levels of saving among segments of their populations

• In Mexico (49%) and Estonia (27%) adults expect to rely on financial support from their children on retirement

• 69% of Polish adults will not tolerate investment risks, and 50% of total household assets in Poland are in housing

Some examples of the challenges faced

9Image source: freedigitalphotos.net nongpimmy

Align policies

• Co-ordinate incentive mechanisms, regulation, consumer protection, inclusion and education initiatives, be consistent. Provide support and guidance to (would-be) naïve /inexperienced investors

Target

• Identify those most in need of education and increased awareness and target them; encourage long-term planning, increase knowledge of appropriate products, remind consumers to review their strategies

Tailor

• Seek ways of changing their behaviour and attitudes as well as increasing their knowledge. Develop appealing education and tools that address the main issues in a way that is adapted to the target group.

Effective policies: initial observations

Financial education for LTSI: topics

Some ideas:• Understanding that there are risks – such as the

risk of not having enough money to cover a large expense, that can be reduced through long-term planning

• Identifying sources of money to save (by budgeting better, or cutting out certain expenses)

• Understanding the risks inherent in saving/investing and how to manage them

• Knowing how to make an effective strategy• Knowing how to calculate how much to save

given the products available• Knowing when and where to seek help

When LTSIs are inadequate, financial education should be

part of the solution. It complements policies on

financial inclusion and consumer protection

It can increase knowledge and raise awareness of other

initiatives, such as tax incentives, default mechanisms, save-more-

tomorrow savings products, or increased deposit insuranceIt empowers consumers to improve their own future

financial wellbeing

Conclusion

Image source: freedigitalphotos.net Master isolated images

Review the literature on financial education for LTSI

Survey member countries to identify novel case-studies and examples of good practice

Draw policy conclusions on effective practices and gaps in provision

Disseminate findings widely in order to shape future policy

Moving forward ...

Thank you

adele.atkinson@oecd.org

www.financial-education.org