How financially literate are you?
The financial services industry is a rapidly evolving one. Technological advances, new electronic delivery channels and financial market integration have not only increased the range of services offered but also the ways in which they are available.
The financial services industry is a rapidly evolving one. Technological advances, new electronic delivery channels and financial market integration have not only increased the range of services offered but also the ways in which they are available. These changes are leaving an impact all over the globe, especially locally, with the financial services sector emerging as a key pillar of the Maltese economy.
As a result of this, it has become more important than ever to be financially literate, i.e. to be aware of the financial risks and opportunities and be able to make informed decisions on the choice of financial services. However, individuals find financial matters difficult to understand. Surveys carried out in both Europe and the US show that a large proportion of people, especially those in the low-income bands, pay no attention to the difference in costs and terms between financial institutions.
In a survey in Australia, two-thirds of respondents believed that they were financially literate though when asked to explain compound interest, only around a quarter were able to describe it. The current difficulties in the US sub-prime mortgage market, with many consumers taking mortgages beyond their means, can also be seen, in part, to be due to a lack of understanding of financial product features.
In order to address this matter, the European Commission has made financial education an essential component of the single market. In its report entitled A Single Market for 21st Century Europe it upholds that financial education not only enhances the single market by empowering European citizens to shop around for the best financial services, whether in their own member state or cross-border but also to understand some essential basics of personal finance. To complement this, last December the European Commission issued a communication on financial education whereby it established the basic principles to be followed by educators. The Communication also goes into detail on how financial education can bring benefits for individuals, society and the economy at large and outlines eight principles which should be followed for the provision of high-quality financial education schemes.
The supply of information on financial services remains the prime competence of the EU's member states, non-profit agencies and financial services providers. The role of the EU in this area is to coordinate the various policies implemented at national level such as establishing networks, databases and common projects. Indeed, the European Commission has already taken some initial steps to address the current information deficit and has set up a website, entitled Dolceta (www.dolceta.eu), which offers consumer education to adults. One of the site modules is dedicated to financial services, with subjects including budgeting, consumer credit, home loans, payments means and investments. Another initiative is the Europa Diary, a booklet distributed to secondary students to inform them of their rights as consumers including in the area of financial services.
In addition, last week the Commission pointed out that in the coming weeks it will launch a new €1 million project in order to help young Europeans make the right choices for their savings and investments. The project will be directed at young people and teachers. Two million copies of an education kit will be distributed to 18,000 European schools in order to assist teachers explain the basics of finance to their students.
EU initiatives cannot currently go any further than this due to the provisions of the EU Treaties, which, as already maintained, leave education competences to the member states. Whereas the provision of financial education seems to be particularly strong in certain EU member states, including UK, Germany, Austria, the Netherlands and Italy, in many others including Greece, Bulgaria and Latvia there is limited, if any, activity. It is therefore up to the member states to stand up and tackle the issues directly in order to try and prevent a repeat of the financial turmoil generated by the US sub-prime mortgage crisis.
• Mr Cuschieri is an executive at Impetus Europe Consulting Group Ltd. For more information visit www.impetuseurope.com or contact marvin.cuschieri@impetuseurope.com
As a result of this, it has become more important than ever to be financially literate, i.e. to be aware of the financial risks and opportunities and be able to make informed decisions on the choice of financial services. However, individuals find financial matters difficult to understand. Surveys carried out in both Europe and the US show that a large proportion of people, especially those in the low-income bands, pay no attention to the difference in costs and terms between financial institutions.
In a survey in Australia, two-thirds of respondents believed that they were financially literate though when asked to explain compound interest, only around a quarter were able to describe it. The current difficulties in the US sub-prime mortgage market, with many consumers taking mortgages beyond their means, can also be seen, in part, to be due to a lack of understanding of financial product features.
In order to address this matter, the European Commission has made financial education an essential component of the single market. In its report entitled A Single Market for 21st Century Europe it upholds that financial education not only enhances the single market by empowering European citizens to shop around for the best financial services, whether in their own member state or cross-border but also to understand some essential basics of personal finance. To complement this, last December the European Commission issued a communication on financial education whereby it established the basic principles to be followed by educators. The Communication also goes into detail on how financial education can bring benefits for individuals, society and the economy at large and outlines eight principles which should be followed for the provision of high-quality financial education schemes.
The supply of information on financial services remains the prime competence of the EU's member states, non-profit agencies and financial services providers. The role of the EU in this area is to coordinate the various policies implemented at national level such as establishing networks, databases and common projects. Indeed, the European Commission has already taken some initial steps to address the current information deficit and has set up a website, entitled Dolceta (www.dolceta.eu), which offers consumer education to adults. One of the site modules is dedicated to financial services, with subjects including budgeting, consumer credit, home loans, payments means and investments. Another initiative is the Europa Diary, a booklet distributed to secondary students to inform them of their rights as consumers including in the area of financial services.
In addition, last week the Commission pointed out that in the coming weeks it will launch a new €1 million project in order to help young Europeans make the right choices for their savings and investments. The project will be directed at young people and teachers. Two million copies of an education kit will be distributed to 18,000 European schools in order to assist teachers explain the basics of finance to their students.
EU initiatives cannot currently go any further than this due to the provisions of the EU Treaties, which, as already maintained, leave education competences to the member states. Whereas the provision of financial education seems to be particularly strong in certain EU member states, including UK, Germany, Austria, the Netherlands and Italy, in many others including Greece, Bulgaria and Latvia there is limited, if any, activity. It is therefore up to the member states to stand up and tackle the issues directly in order to try and prevent a repeat of the financial turmoil generated by the US sub-prime mortgage crisis.
• Mr Cuschieri is an executive at Impetus Europe Consulting Group Ltd. For more information visit www.impetuseurope.com or contact marvin.cuschieri@impetuseurope.com