|EU Parliament Hearing on Financial Education - Who should educate whom in financial services? Bob Schmitz from ULC Luxembourg testifies.
|Find annexed the paper Bob Schmitz from the Luxembourg Consumer Association a partner of ECRC has presented to the European Parliament with regard to the efforts of the Eu-Commission in Financial Education or as officials and some banks prefer Financial Literacy or even Financial Capability:
1. Consumer empowerment via information and education – serious limits
We are concerned that the financial education initiative is but a further element of the self-help philosophy pursued at EU level ( “ caveat emptor” principle). “Was it truly a question of uninformed choice that UK and American or German borrowers accepted usurious credit products which were at the basis of the credit crisis ? Banks explore the opportunities for marketing flipping models, secured credit cards, extremely costly and useless credit insurance and revolving systems which shift all risks to the consumers leaving research on over-indebtedness to the public sector….. Better choice is the only answer which we get from Brussels at a time where we would have sufficient empirical evidence that choice is not only insufficient but often a mere excuse where the wrong people are blamed for the asocial outcomes of untamed market forces…” ( European Coalition for Responsible Credit ).
Evidence shows that sales and marketing practices of increasingly complex and varied financial products often cause consumers to experience the greatest detriment.
“ Problems arise in the sale, administration and enforcement of credit agreements ” according to the leading UK consumer organizations. The UK example merits particular attention since the “ UK is by far the most advanced Member State in terms of financial literacy activities ” while it is at the same time the Member State with the highest consumer over-indebtedness. Doesn’t this illustrate the limits of financial education to prevent consumer misfortunes ?
3. Some key objectives of financial education
- Experts insist on the fallacy to believe that consumers can simply learn “financial services” and that bankers are the born teachers. If financial education is taken seriously to prevent adverse effects on weak consumers, both sides must be educated. Responsible financial institutions should extend their research to sociological issues concerning needs, social risks and income. It should allow that consumers who deliver their personal information get an adequate evaluation instead of obscure scoring points.
- Consumer financial education should include financial counseling. We suggest that counseling is indispensable for consumers, especially vulnerable groups, to help managing financial crisis situations which are often due to unexpected personal difficulties ( job losses, health problems, divorce,…). It should help preventing the worst such as loss of home by mitigating the impact over time and avoiding a debt spiral. Support ( e.g. financial) and networking of grass-root initiatives should become a prime target. Presently these groups are mostly disconnected from EU initiatives.
- “ Schools provide a unique opportunity to reach all sections of society, including many individuals who may later become far harder to reach. Providing personal finance education in schools is the best opportunity to embed a basic understanding of financial matters when young people are most receptive to learn.” ( UK Financial Services Authority). There appears to be consensus that no specific curriculum on financial services is needed. Education at schools should include critical thinking about the influence of financial services on specific household situations. Financial education responds to the following question : How and how far can consumers, under market conditions, satisfy their needs to allocate their income adequately by making a productive use of professionally offered financial services ?
For the whole paper see annex
Created: 03/06/08. Last changed: 03/06/08.
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