Compendium 2.3.2 Financial literacy
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2.3.2 Financial literacy & capability
Recent studies show that effective approaches to financial inclusion result from a combination of three factors: a certain degree of governmental action plus commitment from both the banking and the social sectors. Although different countries require different approaches, the experience of successful initiatives allows conclusions to be drawn on effective policy approaches.
 Habschick, Seidl, et al. (2007), Survey of financial literacy schemes in the EU27. Evers and Jung. 
Financial exclusion is defined as a process whereby people encounter difficulties accessing and/or using financial services and products in the mainstream market that are appropriate to their needs and enable them to lead a normal social life in the society in which they belong. The degree of financial exclusion among the EU population differs depending on:
- the country: 1% or fewer people are financially excluded in Denmark, Belgium, Luxembourg, and the Netherlands, while 40% are in Poland and 48% are in Latvia;
- the product (transactional account, access to credit, savings account): at the end of 2003, 10% of adults aged 18 and over in the 15 existing EU countries, and 47% of adults in the 12 countries that were about to join, had no bank account at all.
Financial exclusion is linked to social exclusion and over-indebtedness, which makes certain groups more likely to be affected: low income groups (unemployed, lone parents, people unable to work due to disabilities etc.), migrants and ethnic minorities, elderly people and young people.
The causes that facilitate or hinder financial fall into three categories:
- societal factors, such as liberalisation of markets, labour market changes, money laundering rules, fiscal policy, social assistance systems, demographic changes, income inequalities;
- supply factors such as geographical access, risk assessment, price, product design, service delivery, complexity of choice and marketing;
- demand factors, such as lack of financial education, beliefs on the use of banking services, fear of loss of financial control, mistrust of providers, concerns about costs, preference for alternative providers and cultural factors, religion, and resistance to use.
The consequences of financial exclusion arise from:
- Lack of access to bank accounts may cause difficulties in cashing cheques, difficulties in paying bills, higher costs of banking services, and difficulties in taking paid employment when wages are paid by electronic transfer; furthermore it may impact on self-esteem, self-isolation, deprivation of social connections and social relationships;
- Lack of access to credit may drive borrowers to use credit with higher interest and fees, and worse terms and conditions; family budgets lack flexibility and have difficult management; informal borrowing may cause conflict with family and/or friends; borrowing from illegal lenders exposes borrowers to the risk of violence and intimidation by debt collectors;
- Lack of access to savings and asset building may cause difficulties in coping with small financial shocks or unexpected expenses, increased risk of theft and robbery if savings are kept in cash, poor incentives to save and inability to create a banking history that enables the evaluation of creditworthiness.
 Anderloni, L., Bayot, B. et al., 2008, Financial services provision and prevention of financial exclusion. Réseau de Financement Alternatif, for European Commission. 
 Eurobarometer Survey 60.2 and Eurobarometer 2003.5
How EQUAL has approached the issue – examples
Financial capability has a similar type of outreach problem to other services that EQUAL projects have been able to address. Much of the support needed to increase financial capability is focused on training and mentoring. Both are expensive for organisations to deliver. Building financial literacy and capability has gone alongside considerable innovation in opening up banking to excluded groups.
This diagram below shows how financial literacy is linked to social exclusion and sub-optimal economic performance for society as well as the individual.
In France, the non-profit association Finances & Pédagogie founded by the Caisse d’Epargne, a French banking group with around 4,700 branches in the country, works with the objective of providing financial education to a broad audience.
Finances & Pédagogie intervenes at three levels: the social sector – one of their priorities – the education sector and the workplace, with partnerships at each of these levels. It provides free training modules lasting one or two hours with an option of further follow-up sessions to organisations working with various target groups such as disadvantaged people, care organisations and women. The association also provides chargeable training courses to enterprises, public bodies, human resource departments and social action/company benefit committees. It also offers courses which are adapted to the specific needs of start-up entrepreneurs.
This multichannel approach allows Finances & Pédagogie to deliver training to approximately 70,000 people each year, of whom 30,000 participants were from the social sector with 300 interventions during 2006. The issues highlighted in the interactive group sessions and lectures range from over-indebtedness to credit and savings, money issues in daily life, insurance and family, dealing with banks, etc.
In Germany, the objective of the ‘(f)in-fit’ Fit for Finance pilot project aims at improving the financial education of migrant citizens of the Offenbach region (338,000 inhabitants) which is home to 55,400 citizens with a foreign nationality.
In Hannover a project called Ramazan Salman is tailored to the specific needs of the Russian and Turkish communities. It has been carried out by a partnership of public and private actors including the Hannover Ethno-Medical Centre, the specialist consulting company Evers & Jung and the local authority of Offenbach. The rationale behind the project is that most financial education programmes fail to reach migrant groups although they are exposed to higher degrees of financial exclusion.
The key innovation is that it is based in the recruitment and training of motivated migrants as intercultural mediators. They in turn educate their fellow citizens in financial matters through: mediator-led community-based group sessions with young migrants in their own environment, assessment of financial learning outcomes in community groups of young migrants educated by mediators, and involvement and sensitisation of regional financial service providers, businesses and banks.
The contents of the training include: managing within one’s means; daily money matters; how to raise one’s income; insurance; old-age provision; credit; and becoming self-employed. An initial pilot project evaluation showed that the mentors’ motivation was strong, providing the basis for the project’s effective outreach, and its being extended into other regions.
In the UK, the Financial Services Authority (FSA) is the regulatory body for the financial service sector and the UK’s largest provider of financial education. It defines financial capability as “being able to manage money, keep track of your finances, plan ahead, choose financial products and stay informed about financial matters”. It runs a comprehensive programme called Make the Most of your Money. This is aimed at employees in their place of work, and comprises accessible resources and seminars, delivered by experienced and specially trained professionals from the financial services industry and elsewhere. There are free printed materials to read and seminars to attend. The materials include a detailed booklet containing useful facts and information and a useful list of contacts should the employee need further help. The seminars cover areas of interest to everyone, from day-to-day money management to planning for retirement, including budgeting, borrowing, insurance, savings and investments. In the pilot stage eight employers took part and 20,000 booklets were issued. By the end of its first year of full operation the programme had reached 220,000 employees throughout the UK. By late 2007, 325,000 employees had received the booklets, more than 16,000 people had attended a seminar and around 290,000 CDs have been issued. The total number of employees reached with a Make the Most of Your Money product exceeds 600,000.
The FSA also has a National Strategy for Financial Capability. The other programmes that make up the strategy cover school-based learning about money, work with young adults on making sense of money, work with new parents and money advice. The FSA has also developed online tools and a communications strategy for consumers purchasing financial products.
 In Survey of financial literacy in EU27, Evers and Jung, 2007, p.53
Local financial counselling
Operating at local level in East London, Fair Finance runs financial counselling alongside its personal and business lending operation. It aims to increase the confidence and competence of its clients by providing this support alongside its lending activities.
Targeted financial literacy programmes
Specific programmes have also been developed for key target groups. Let’s Talk About Money is an ESF-funded financial literacy programme aimed at ex-offenders. It combines a research element with development activity designed to support offenders, ex-offenders and their families in meeting their financial needs, and will help support the National Reducing Re-offending Action Plan.
EU web site for financial literacy
At EU level, Dolceta is the acronym for Development of Online Consumer Education Tools for Adults. Between 2003 and 2006, universities, higher education institutes, consumer associations and other stakeholders in the Member States developed two web-based consumer education modules for adults. Supported by the Health and Consumer Protection DG (SANCO), the Dolceta website has been completed for 25 countries, and is currently being adapted to include Romania and Bulgaria. The website carries information, advice and training that gives consumers the skills they need to compare products and services on the market, to decide on purchases and to protect their rights. The information on the site is adapted to the characteristics of each country.
Recommendations for mainstreaming policies
Effective policy design and implementation should take a number of key aspects into account:
- While each country faces particular needs and priorities regarding financial exclusion, related on the one hand to the maturity, structure and institutions of the market, and on the other to the degree of social diversity, certain groups are constantly at a higher risk of financial exclusion: those on a low income, single parents, migrants and ethnic minorities, the young and the elderly;
- As information on the degree of financial exclusion is still limited in most European countries, a needs assessment is necessary before a financial inclusion policy is designed;
- While access to credit tends to be overemphasised when approaching financial exclusion, effective policies also take into account the adequate development and provision of savings products, financial education and other relevant factors;
- For effective outreach and product / service design (basic accounts, savings, credit and insurance products and financial education), partnerships among banks, social service organisation and government are recommended.
Habschick, Seidl, et al. (2007), Survey of financial literacy schemes in the EU27, Hamburg, Evers and Jung. http://ec.europa.eu/internal_market/finservices-retail/docs/capability/report_survey_en.pdf
Anderloni, L., Bayot, B. et al. (2008), Financial Services Provision and Prevention of Financial Exclusion, Brussels, Réseau Financement Alternatif for European Commission http://ec.europa.eu/employment_social/spsi/docs/social_inclusion/2008/financial_exclusion_study_en.pdf
EU Financial Inclusion Observatory http://www.fininc.eu/
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