Promoting Better Lifetime Planning Through Financial Education

Naoyuki Yoshino, Flore-Anne Messy, Peter J Morgan

• Publisher: WSPC
• Year: 2016
• eBook ISBN: 9789814740036
• Topic: Personal Development
• Subtopic: Personal Finance

Surveys show that financial literacy levels are typically low around the world, despite the widening access to financial services and the increasing financial risks borne by households in many countries. This suggests that there will be mounting challenges for households and SMEs to invest wisely and effectively as societies age and governments shift away from defined benefit to defined contribution pension schemes. Individuals will increasingly have to make complex financial decisions to plan for their retirement and for a range of foreseen and unforeseen expenditures. All of these developments suggest that financial education should be part of a lifetime process that starts at an early age and is pursued throughout adulthood.

The contributions in this book came from a symposium titled, Promoting Better Lifetime Planning through Financial Education, organized by the Asian Development Bank Institute, the Bank of Japan, the Japan Financial Services Agency, and the Organisation for Economic Co-operation and Development, held on 22–23 January 2015 in Tokyo.

Amongst the topics discussed were: effective pension management, financial education curricula in schools, training for teachers of financial education, internationally comparable data on financial literacy and the evaluation of the effectiveness of financial education programs. There are also case studies on financial inclusion, regulation, and education in Indonesia, Pakistan, Philippines, Viet Nam, Thailand, and Japan.

Surveys show that financial literacy levels are typically low around the world, despite the widening access to financial services and the increasing financial risks borne by households in many countries. This suggests that there will be mounting challenges for households and SMEs to invest wisely and effectively as societies age and governments shift away from defined benefit to defined contribution pension schemes. Individuals will increasingly have to make complex financial decisions to plan for their retirement and for a range of foreseen and unforeseen expenditures. All of these developments suggest that financial education should be part of a lifetime process that starts at an early age and is pursued throughout adulthood.

The contributions in this book came from a symposium titled, Promoting Better Lifetime Planning through Financial Education, organized by the Asian Development Bank Institute, the Bank of Japan, the Japan Financial Services Agency, and the Organisation for Economic Co-operation and Development, held on 22–23 January 2015 in Tokyo.

Amongst the topics discussed were: effective pension management, financial education curricula in schools, training for teachers of financial education, internationally comparable data on financial literacy and the evaluation of the effectiveness of financial education programs. There are also case studies on financial inclusion, regulation, and education in Indonesia, Pakistan, Philippines, Viet Nam, Thailand, and Japan.

Readership: Intended for policy makers, financial market regulators, and academics researching financial literacy through a pedagogical pathway.

Session 1

Financial Education: What Can It Achieve?
Research, Good Practices, and Evidence

Jae-Ha Park, Deputy Dean, ADBI: Good morning, everybody. As Mr. Tamaki and Mr. Ochi nicely explained, we now understand clearly why this topic is very important. Many people wondered why this topic was selected through the G20 forum in 2010. But this topic is becoming more and more important in relation to fiscal sustainability, long-term planning, pension reform, etc., of many countries. So, financial education is not only important for individuals, but also for the fiscal and monetary policies of many countries.

Mr. Ochi explained how this topic is even related to Abenomics. So, this topic is really important. Also, Mr. Tamaki very nicely explained what the Organisation for Economic Co-operation and Development (OECD) has done so far relating to this topic. I did not know that the OECD had already organized similar events—one in India two years ago and one last year in Seoul. This is the third time for the OECD to present such an outcome. So, we are expecting a lot from the OECD presentation on this topic.

Overview of International Good Practices and Effective Approaches to Financial Education

Flore-Anne Messy, Deputy Head, Financial Affairs Division, OECD: Thank you very much. Good morning everyone. I would like to start by thanking our co-organizers—first the Asian Development Bank Institute (ADBI) for hosting us and, of course, the Financial Services Agency (FSA) of Japan and the Bank of Japan for being such great cohosts. It is a real pleasure for the OECD to organize this meeting with you all again.

It is a privilege to be the first speaker on the first day of this symposium. So I believe my task is relatively important, but I do not want to take too much of your time. I would like to provide you first with a quick snapshot of the global context and explain why we believe at the OECD that financial literacy is a life skill; a life skill for this century. Then I would like to provide you with a summary of what we call the enabling framework for effective financial education, which is the national strategy for financial education that many countries are now developing, including Japan, of course.

Thirdly, and this will be the core of my presentation, I want to have a look at the barriers to financial education or to effective financial education, and I especially want to highlight approaches to financial education that have proved to be effective. I say have proved because it is either based on research, evidence, or both. Or these are practices that have been implemented in countries and have been successfully evaluated.

The fourth part I think I will leave for tomorrow, for a session where we will wrap up the day, because I do not want to conclude too soon. I would like to hear from you before concluding on this topic.

First, this is a classical way to start: why do we need financial education? Again I want to emphasize, after Mr. Tamaki’s speech, that we believe that financial education should not come in silos, but that it is really a complement of financial inclusion; appropriate access to financial products, and, of course, financial consumer protection.

But first let us have a look again at why we believe empowering financial consumers is becoming a necessity in an evolving societal and financial context. Of course, the good news is more consumers now have access to financial products. But this is not only good news, because we also know that more than 2 billion people remain outside the financial system. There have been improvements and there is also room for further improvement. It also means that new consumers with little familiarity with financial products now have access to financial products. If the regulation, the financial consumer protection landscape, is not appropriate, they may find themselves in a difficult situation. This is the first issue.

In addition to that, we know that there is an increasing transfer of risk, for example, life expectancy; as highlighted by Mr. Tamaki, we live longer. We are all happy about that, but it also means we will have to support ourselves with resources that will not necessarily expand for a longer period of time. Most of the risks are now borne by individuals, because of the change in pension systems, typically the change from defined benefit to defined contribution schemes. In some countries, not only do people have to figure out how much they should contribute to their pension scheme, but they should also manage their investments, which, as you know, is a great responsibility as many people are not well informed or sophisticated about financial issues.

Innovation and technology provide us with access to financial products in a diversity of ways—increasingly through the Internet and through mobile phones in some countries. This means there is a growing coverage of financial systems, but at the same time these financial products are becoming more and more complex, especially investment products.

We could be in a good situation if financial regulation and financial consumer protection could cope with this sophistication and this complexity. But we have learned from the financial crisis and from the experience of countries that financial consumer protection is necessary, while appropriate disclosure and access to investment mechanisms that are functioning well are not sufficient by themselves. People need to be equipped with financial skills to be able to make the right choices, to make the appropriate choice for a pension for example, to invest their money appropriately for their future, for their pension, for their retirement income.

This is not always the case, partially because we see that levels of financial literacy are low everywhere, and I will come back to this later in my presentation.

Of course this situation, the complexity of the financial system, the fact that the environment is becoming riskier for individuals, the low levels of financial literacy, and the fact that financial consumer protection is sometimes inadequate mean some negative spillover effects for all stakeholders involved. For consumers, of course, who may find themselves financially and socially excluded, but also for the industry, which is quite often missing important market opportunities. Of course, ultimately, for governments that often have to cope with the fact that consumers are not sufficiently protected in their retirement or, for example, lack adequate health coverage. So, it is really important to recognize that there is a gap and this gap should be filled by empowered financial consumers. Again this means financial education, but also financial consumer protection and financial inclusion.

As mentioned by Mr. Tamaki, three sets of high-level principles have been endorsed by G20 leaders since 2010 on these three issues. I will now only focus on financial education, which is at the top here. I would like to start by defining what we mean by financial education. I know that this is familiar for many of you, so let me be brief on that.

It is really a capacity building process and potentially a long process. It involves information, but also instruction, objective advice, and a variety of means to improve the skills, confidence, and awareness of consumers and individuals, so that they can make financial decisions to improve their financial wellbeing. The goal is not only to change their behavior; the ultimate goal is really to improve their financial wellbeing in the long term.

Now let us turn to the enabling framework, what we call National Strategies for Financial Education. At the OECD, and within the International Network on Financial Education (INFE), we realized that, just after the financial crisis, countries were not only trying to develop more effective financial education programs and initiatives, but they were trying to make financial education a national policy. They were trying to make sure that initiatives, many different initiatives, were better coordinated at the national level, and were, above all, based on evidence. So we surveyed countries around the world and saw that they were developing national strategies for financial education.

We tried to figure out what were the main elements of the national strategy, based on the belief that no one size fits all in terms of the national strategy. Basically, the idea of a national strategy is to understand the context and the situation of a country, and to develop a national plan that is adapted to the stakeholders in the country, and also to the needs of the population in a particular country.

I will be very brief on that, but if you should remember only one thing it is that a national strategy is understanding what financial education means for a country. Understand who are the stakeholders that are active in the field and try to come up with common objectives among the stakeholders and an action plan with clear objectives.

Having said that, we developed the high-level principles on national strategies back in 2012. As mentioned, they were approved by G20 leaders. The following year, for the Russian G20 Presidency, we published a book with G20 Russia on the stages of national strategies in G20 economies. And since last year we have been in the process of producing a policy handbook with the goal of helping countries implement these national strategies; so they do not only have the high-level principles, which is providing a step-by-step approach on how to build a national strategy, but they also have some concrete information on what other countries have been doing each step of the way.

I just wanted to flag that the number of national strategies has been increasing tremendously in the last few years. In 2011–2012 we counted 25 countries that were either developing or implementing a national strategy. If you look at the situation in 2014, it is not only different in terms of the number of countries. I think we are now at 55 countries, but, of course, it is a moving target. So, as I speak, another country may have decided to either develop or implement a national strategy.

What is also interesting is that we have added a third category—the countries that are not only implementing a national strategy, but revising a national strategy. This means that they had one and they evaluated it and now they are proposing a revision to this national strategy. Clearly we have a lot to learn from these countries, because they may already have made mistakes, they know what is working well, and they are building on that to develop a new national strategy.

Just a few key figures on that: if we look at the G20 level, Australia, Japan, South Africa, the United Kingdom (UK), and the United States (US) are in the process of revising their first national strategy. In the policy handbook we rely a lot on the experience of these countries. But, of course, there are other countries that are in the process of developing a national strategy.

I have to note here, and it is important, coming back to the beginning of my presentation, that most of the countries are not developing a national strategy for financial education in isolation. They are developing it as an integrated approach, as a complement to consumer protection and financial inclusion in countries where financial inclusion is a policy priority.

So this is the framework for the national strategies for financial education. As I said, I do not want to be too long, especially since we have all the material available on our website. Basically the framework consists of three pillars, and a basis that is very important; this is the first step. We do not believe that there is a unique model to develop a national strategy. Therefore, the preparatory and diagnosis phase is very important. In t...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• Preface
• About the Contributors
• Abbreviations
• Opening Session Welcoming Remarks
• Session 1 Financial Education: What Can It Achieve? Research, Good Practices, and Evidence
• Session 2 Financial Education for Effective Pension Management: Challenges and Solutions
• Session 3 Target Audiences for Effective Financial Education
• Special Address Financial Education in Japan: Challenges Presented by the Aging Population and Declining Birthrate
• Session 4 Financial Inclusion, Financial Regulation, and Financial Education in Asia
• Session 5 Wrap-Up 183
• References