Comments from Professor Janette Rutterford

True Potential Centre for the Public Understanding of Finance

I attended a global conference on Financial Education at OECD headquarters in Paris last week. It was a fascinating insight into the global interest in financial literacy and financial inclusion. 48 countries already have a national strategy for financial education, including the UK, with more, including France, on the way. The OECD viewpoint is that consumer protection is a vital element, together with financial education, towards improving financial inclusion. Some countries are seeking to include particular groups, such as the Maoris in New Zealand or the black community in South Africa. France and Italy, on the other hand, are concentrating on teaching the whole population about economics, to help them understand government policies, such as reducing pensions now for the older generation to alleviate the future burden on the younger generation.

Many countries have conducted research to check on financial literacy and find that many people cannot do simple interest calculations or understand about diversification of risk. For most countries, apart from Eastern Europe (less gender specific education?), women were on average less financially literate than men. Women were on average, less confident, more risk averse and less able to choose between financial products than men. They were more likely to respond “don’t know” when asked a financial question. However, if the “don’t know” option was removed, they answered correctly as often as men. Women were also better than men in household budgeting. If money was tight, women’s preference was to try to spend less, whereas men’s preference was to try to earn more. Other groups with financial literacy problems included the young, those on low incomes, and the elderly. Older people, faced with insufficient income for retirement, were more vulnerable to scams – as has been shown this week with door to door selling in the UK of fraudulent green energy schemes promising 40% returns.

Presentations were made which showed how many countries, such as Indonesia and Russia are putting in place programmes in schools and universities to educate young people before they reach the workplace. In Brazil, private sector organizations have partnered with the central bank to put in place education for 15 to 24 year olds over three semesters, but have found that making the parents financially more capable was more effective in the long run. In Turkey, Visa and other Turkish banks collaborated with the World Bank to put in place peer group education for the 18 to 26 year olds as well as using social media and this has been very effective. Mexico found that bank involvement did not work, nor did bribing young people to attend educational sessions, but using mass media did have some effect. In South Africa, warnings about pay day loans and other financial risks were embedded in a popular TV soap and financial behaviour changed as a result.

The OECD’s role, and that of the World Bank is to oversee national strategies, to measure the impact of financial educational programmes and to facilitate three key areas for the future:
• Leading on research-based diagnosis to evaluate the needs of users of such programmes. For example the OECD is involved in a 2014 survey to be carried out in 18 countries of students’ (aged 15) financial literacy;

• Helping with infrastructure, such as the setting up of national strategies and how best to introduce financial education into schools (by far the most developed element) and also the workplace;

• Identifying effective delivery tools. For example, France is creating a money and finance museum and there is now a group exchanging ideas for such museums in various countries.

In addition, the OECD is encouraging cross-disciplinary research into financial inclusion, including social marketing and history. Social marketing can nudge people to take the “right” decisions by how questions are framed, for example. History, as one speaker showed, can explain why, for example, the US’s much weaker tradition of encouraging small savers through school savings accounts and war-time savings programmes compared to countries such as Germany and France, can help to explain much lower savings ratios today compared with continental Europe.

A really fascinating insight into all the work on financial education around the globe. What was lacking from the speakers was suggestions for educational programmes to help adults now, particularly women, those on low incomes, and older people. This is where the OU’s True Potential Centre for the Public Understanding of Finance can really make a difference.

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