Context
The financial crisis of 2008 highlighted the poor understanding of financial products by European consumers and their limited financial literacy. The OECD defines financial literacy as having the awareness, knowledge, skills, attitude and behaviour necessary to make sound financial decisions and achieve financial wellbeing. Financial literacy benefits both individuals and the wider society. Individual benefits of financial literacy include making more informed decisions on saving for a pension or taking out a mortgage. Financially capable individuals are more likely to save, reduce problem debts, and invest in the financial market, strengthening the overall financial system.
Research suggests it is difficult to determine whether greater financial literacy causes people to engage in financial activity or whether the experience of engaging in financial activity teaches people financial literacy. However, it is clear that enhancing individual financial capability leads to more balanced consumer behaviour and better financial decision-making. This increases the stability of the overall economic and financial system.
The study
This policy briefing outlines the history of measures taken by the European Union (EU), European Commission and European Parliament to improve the financial literacy of its consumers.
EU legislation on consumer protection related to financial services:
- A resolution in 2008 noted that raising financial literacy levels among consumers should be a priority for policy-makers, and requested an increase in the EU budget for consumer financial education.
- A resolution on financial services in 2008 called on Member States to raise financial literacy among its citizens, and develop consumer organisations to empower consumers to make better financial decisions.
- The European Parliament passed a resolution in 2010 to promote financial literacy among women and girls.
- A European Parliament resolution in 2012 stated that given the financial crisis, the EU needed to eliminate barriers to the smooth running of the Single Market, including access to finance and financial literacy.
- In 2013 a resolution on credit agreements on residential property highlighted the importance of sustainable lending and borrowing, as well as financial inclusion.
- In 2014 the European Parliament adopted a directive on payment accounts, emphasising that Member States should implement measures to develop the financial capability of its most vulnerable customers.
- An EU regulation on retail and insurance-based investment products was introduced in 2016. This included a notice to investors stating that financial products may be difficult to understand.
European Commission financial education initiatives. EU member states are responsible for legislating on financial education, therefore action at EU-level can only take the form of incentive measures. The European Commission’s education initiatives include:
- The Dolceta online education tool (content is now available on the Consumer Classroom website https://www.consumerclassroom.eu/resources/theme/financial-literacy, providing consumer information, including modules on financial services, for adults).
- An Expert Group on Financial Education, established in 2008 to provide policy advice.
- A Financial Services User Group, set up in 2010 to inform policy work.
Recommendations
To improve financial literacy among consumers, the European Commission made three recommendations:
- A training programme for charities providing financial advice should be established.
- Educational materials on financial literacy should be housed on the ‘Consumer Classroom’ website for teachers, financed by the Commission.
- The European Consumer Centres should assist individuals who have cross-border problems with credit and online payments.
The European Economic and Social Committee called for:
- Compulsory financial education on the school curriculum.
- A European day for financial education.
- Establishing a European agency to protect the consumers of financial products, supervise banking practices and to tackle fraud.
The European Consumer organisation (BEUC) proposed several policy actions including creating national registers of independent financial advisors, and improving the governance of financial products.
In 2005 the OECD published recommendations on principles and good practices for financial education and awareness. These included:
- National awareness-raising campaigns.
- Beginning financial education at school.
- Incorporating financial education into welfare programmes.
- Promoting websites providing relevant, user-friendly financial information.
- Developing warning systems on high-risk financial issues.
- Considering the diversity of investor and consumer backgrounds, to inform the development of financial capability programmes for different target groups.
- The European Banking Federation launched the first European Money Week in March 2015 to promote financial literacy and financial education for young people.
Points to consider
Relevance:
- The findings are relevant for policy makers and providers interested in improving consumers’ financial literacy in the European context
- However, with the uncertainty caused by the United Kingdom attempting to leave the European Union, many of the recommendations may lose impetus and relevance in a UK context.
