The European Fund and Asset Management Association (Efama) has published a report on financial education across Europe. Mona Dohle reports on the results
The European Fund and Asset Management Association (Efama) has published a
report on financial education across Europe. Mona Dohle reports on the results
The European Fund and Asset Management Association (Efama) launched a sweeping report last month, stating that Europe “faces a crisis of financial literacy”.
The report, entitled Building Blocks for Industry Driven Investor Education Initiatives highlights the urgency of pushing financial literacy to the top of the public policy agenda as well as the responsibilities of governments and
industry to do so.
With changes in the pension landscape and the growing complexity of mortgages, the number of households facing complex financial decisions has increased markedly over the last 20 years.
Yet when asked basic questions on interest rates, financial risk and inflation, only a minority of individuals were able to answer correctly. Peter de Proft, director general of Efama, highlights the importance for asset managers, who are not frequently in touch with end investors, to contribute
towards investor education: “There is a lot of talk about consumer confidence and measures have been taken to enhance trust in the industry.
“But this also requires a sufficient level of knowledge amongst consumers. Gaining consumer confidence is a two way street and the building block is financial literacy.”
The report includes expert analysis from academics, regulators and investors. Among others, it features a qualitative research conducted across
12 countries by Annamaria Lusardi, Professor at the George Washington University School of Business.
She highlights: “Low levels of financial literacy are not specific to a given country or stage of economic development. They are found everywhere.”
While the knowledge of inflation varied significantly across countries, the questions on risk diversification received a relatively high percentage of incorrect, or no answers.
The findings also indicate gaps in age, gender and socioeconomic background, with financial illiteracy being relatively more prevalent amongst
those younger than 36 or older than 65.
Lusardi stresses the link between financial knowledge and financial decisions, resulting in significant differences in terms of retirement savings
or personal debt.
Guillaume Prache, CEO for the European Federation of Financial Services Users, highlights that most consumers tend to be educated about finance at the point of sale, rather than at school.
At the same time, the complexity of financial products has increased significantly.
Prache points out that four decades ago, households held directly about
40% of European equities, but nowadays they hold just 13%. Consequently,
they are more likely to engage with packaged investment products rather than specific shares or bonds.
Prache argues that this process has led to a decline in consumer confidence
and emphasises the need for simple performing long term products for individuals.
TAKING UP THE CHALLENGE
The challenge to improve financial literacy is now being addressed by the
industry as well as respective governments. The report concludes with an
overview of initiatives taken by key public policy actors such as Beama in
Belgium, AFG in France, ALFI in Luxembourg or Inverco in Spain.
Meanwhile, companies such as BlackRock, Henderson Global Investors
and AXA Wealth have teamed up with the UK-based consultancy Redington in order to provide financial education at schools.
However, this initiative has been criticised as a “marketing exercise” by Christine Blower, general secretary of the National Union of Teachers.
Looking ahead, de Proft highlights the positive long term impact of financial education: “We would like to prevent individuals ending up facing difficulties due to irresponsible financial behaviour. In the long run, this should be in the interest of asset managers and the industry as a whole.”