A financial education (and consumer protection) perspective - - PowerPoint PPT Presentation

Flore-Anne Messy Deputy Head of DAF/FIN Division Executive Secretary

• f the International Network on Financial Education

OECD Financial Affairs Division

Applying Behavioral Insights to Public Policies A financial education (and consumer protection) perspective FINANCIAL EDUCATION AND INVESTOR EDUCATION CONFERENCE HOSTED BY CVM 7-8 December 2015

1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION

• 2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL

CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE CHALLENGING

• 3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE

EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER PROTECTION) POLICIES

• 4. A PLAN TO MAKE FINANCIAL EDUCATION

MORE EFFECTIVE

1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION

• 2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL

CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE CHALLENGING

• 3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE

EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER PROTECTION) POLICIES

• 4. A PLAN TO MAKE FINANCIAL EDUCATION

MORE EFFECTIVE

INFE

113 economies 260 public authorities A technical committee An advisory board Outreach to other communities through INFE Research Committee Partnerships with IOs, NGOS and the private sector Global and regional policy platforms and roundtables Asia Latin America

MENA

OECD/International Network on Financial Education (INFE) : A broad project with wide outreach and partnerships Work started in 2002! serviced by 2 OECD Committees

→ International Gateway for financial education For more search : www.financial-education.org

OECD/INFE main work directions Framework : National Strategies

(high-level principles, publication, policy handbook) Evidence & tools Financial literacy indicators adults youth (PISA)

Evaluation Benchmarks : Core competencies

Effective delivery

INFE Research Committee Peer review Practical guidance Partnership & capacity building

Target audiences Youth Women Migrants SMEs Vulnerable groups Sectoral issues Credit Saving & investment Pensions Insurance

The Overall Framework (2012)

OECD/INFE High-level Principles and Policy handbook (NEW!)

• n National Strategies for Financial Education

General instruments

• 2005

Principles and Good practices on Financial Education and Awareness

• 2014

OECD/INFE Guidelines for private and civil stakeholders in financial education

Sectoral Good Practices

• 2008

2 Good Practices for Financial Education relating to Private Pensions & for Enhanced Risk Awareness and Education

• n Insurance issues
• 2009

Good Practices on Financial Education and Awareness relating to Credit

Methodological tools

• 2011

High-level Principles for the Evaluation of Financial Education Programme

• 2013 & 2015

Toolkit on measuring Financial Literacy and inclusion

• 2015

Core competencies on financial literacy for youth

Target Audiences

• 2012

OECD/INFE Guidelines for Financial Education in Schools

• 2013

OECD/INFE Policy guidance on addressing women’s and girls’ needs for financial education

OECD/INFE policy and practical instruments

1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION

• 2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL

CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE CHALLENGING

• 3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE

EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER PROTECTION) POLICIES

• 4. A PLAN TO MAKE FINANCIAL EDUCATION

MORE EFFECTIVE

Why Financial Education and Consumer Protection Matters

A changing financial landscape

• More inclusive :

but with some room for improvement !

• More risky :

uncertain future and more individual responsibilities

• More innovative :

increasing role of technology

Without proper public policies:

Negative spill over effects for all !

• Individuals and small businesses:

Exclusion, overindebtedness, lack of savings for short & long term needs lack of trust, fraud & misselling

• Financial Industry:

Missed market opportunities

• Governments :

Remedy is more costly than prevention

Financial empowerment policies trilogy can help.. Global recognition

Financial Education

Financial Consumer Protection Financial Inclusion

G20 (2010) Principles for Innovative Financial Inclusion G20 (2011) High-Level Principles on Financial Consumer Protection developed by the OECD OECD/INFE(2012) High-Level Principles on National Strategies for Financial Education

On the demand side

• Low level of financial literacy in all

parts of the world

• Overconfidence in once abilities

and in the environment

• Different needs of individuals
• Lack of appetite for financial

issues

• Difficult to change behaviors in

the short term and to obtain lasting effects On the practitioner/policy side

• (Still) limited expertise and relevant

research

• Not enough rigorous evaluation :

uneasy and costly measure of

• utcomes
• Financial education (especially) like

all education policies is a long term process while

• Resources and commitment at the

policy level are often short term..

But may be challenging…

• This goes for both financial education and consumer protection
• The ultimate goal of both policies is to improve

individuals’ financial wellbeing... but this is hard to define. … and there are a number of operational issues

Low knowledge of key concepts and

• verconfidence

Limited understanding of :

• the concept of compound

interest

• Importance of risk

diversification Consumers overestimate their knowledge : 75% of US citizens have positive perceptions of their own financial knowledge, only 14% are able to answer all 5 simple financial literacy quiz questions correctly.

Difficulty in several areas

• f financial behaviours

Use of formal services Planning ahead for unexpected life events as well as important one such as retirement Responsible use of credit

Groups at risks and in need

young elderly population women low income Migrants MSME

Still low and uneven level of financial literacy

(OECD/INFE 2012 survey, OECD PISA, 2014)

Low level of adult’s financial knowledge worldwide :

The example of the concept of compound interest (OECD, 2010, 2014) → More data at www.financial-education.org Next OECD/INFE survey in 2015

15% 23% 30% 22%

10%

OECD average-13

Distribution of student performance

625 and above 550 to <625 475 to <550 400 to <475

Less than 400 points

PISA financial literacy (OECD, 2014) Gaps in financial literacy performance among 15-year-old students

Top performers Baseline

More data at : http://www.oecd.org/pisa/keyfindings/pisa-2012-results-volume-vi.htm Next exercises in 2015 & 2018

1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION

• 2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL

CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE CHALLENGING

• 3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE

EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER PROTECTION) POLICIES

• 4. A PLAN TO MAKE FINANCIAL EDUCATION

MORE EFFECTIVE

• Policy handbook on national strategies for

financial education, G20, OECD, 2015 (based on INFE member contributions and accumulated research)

• Review of research on what works on financial

education for long-term saving and investments, OECD/INFE, 2015

• Behavioral economics and financial consumer

protection, 2015, G20/OECD Task Force on Financial Consumer Protection

• Can behavioral economics be used to make

financial education more effective? In Improving Financial Education Efficiency, OECD, 2011

• Global database of financial/investor education

initiatives : www.financial-education.org

Selected (OECD) sources :

Individuals’ biases (Della Vigna’s taxonomy, 2009)

Non-standard preferences Time inconsistency

Present bias

Problems with self control

Reference dependence

Statu quo bias

(loss aversion & endowment effect)

Mental accounting

Social preference

Non-standard beliefs

Overconfi dence and over-

• ptimism

Non- standard probalistic thinking

Non-standard decision making processes

Limited attention Emotions and Affect

Behavioral economics: the basics

Bounded rationality – we are not homo economicus… Use psychology, cognitive and social sciences to identify :

Public interventions are needed if the situation is :

Significantly harmful for either consumers, the market (unfair competition) or the overall economic situation Due to non-standard consumer behaviors (or biases)

Different possible levels of (cheap) intervention :

Framing information to induce a particular behavior Change the choice environment (limited, auto-enrolment, default option) Control product marketing to avoid competition based on consumers biases rather than their interests Control/ban of unsuitable products (or require to include special features)

Behavioral findings and public interventions

Nudging

Before intervention

Overcome limited attention & present bias : easy access (e.g use of digital tools) Address ambiguity aversion → single source of info Make programme salient : young more present-biased → focus on benefit of FE Provide FE at adequate time: Teachable moments, life-stages approach Debiase perception : through a test to address

• verconfidence

Appeal to social preferences to stress the programme popularity

During intervention

Limited attention : narrow the scope, focus on key concepts, repeat interventions, provide information for later Make programme salient by segmenting the audience and tailoring initiatives Debiase individuals by making them aware of their “’mistakes” Provide “rules of thumbs” and build skills (including basic probability) Harness environment conducive to learning (schools, workplace) Use individuals social preference (peer pressure)

After intervention

Address procrastination : connect financial education programmes to immediate possibility to take action Provide a toolbox for (step by step) action with regular reminders and recognition

• f achievements

Encourage people to use self- commitment devices (when aware of their biases) Directly design and implement commitment devices using digital technologies Harness peer pressure (savings clubs, social media)

How these findings (can be) are used to improve financial education outcomes

• Less can be more.. But is not easy to put in place

(complexity of products) – a few tips :

• Absolute figures rather than percentage
• Past returns should be used with caution especially when

planning for retirement is involved

• Key information underweighted by consumers : fees, likely

insurance losses

Improving disclosure

• Auto-enrolment
• Smart default options

(adapted to beneficiaries ages)

Limiting and framing choices

• Cooling-off periods
• Explicit consent of consumers

Requesting specific features

How this findings (can be) are used to improve financial consumer protection

BE is a (relatively) new area of research when applied to financial policies (quite often run in lab and need to be confirmed by field RCT experiments) To improve individuals’ wellbeing, such interventions have to take into account that :

• Population’s interests are not homogeneous
• Regulators may have limited capacities and have their own biases towards the short term

Nudging is not education - The financial system evolves faster than choice architecture and regulation : people will need to adapt to take financial decisions Other types of research are needed : including those aiming at determining what is financial wellbeing and how to improve it

A word of caution

Behavioral insights are useful and used to improve FE and FCP policies – as they improve our understanding of individuals, But : → Focusing solely on behaviors may narrow down the reality to normative approaches which may not be suitable to all and may become outdated.

1.THE OECD/INFE PROJECT ON FINANCIAL EDUCATION

• 2. WHY FINANCIAL EDUCATION (COUPLED WITH FINANCIAL

CONSUMER PROTECTION) POLICIES MATTERS .. BUT MAY BE CHALLENGING

• 3. HOW CAN BEHAVIORAL ECONOMICS SUPPORT MORE

EFFECTIVE FINANCIAL EDUCATION (AND CONSUMER PROTECTION) POLICIES

• 4. A PLAN TO MAKE FINANCIAL EDUCATION

MORE EFFECTIVE

Identify barriers and challenges to financial education Know and segment the audience Develop regulators capacity but also train trusted partners Design & implement interventions to address individuals’ and their communities contexts and biases Monitor and evaluate interventions

Effective Approaches to Financial Education

A building-up cycle

Effective Approaches to Financial Education

Know your audience : one size does not fit all!

Use smart ways to segment the audience according to their needs Quantitative surveys on investor/consumer financial literacy levels, but also.. Qualitative information to understand where the problem(s) are using complaints (ombudsman and mediators), focused groups and research (UK anthropological and community survey) Simple indicators of financial behaviors to monitor changes Go beyond and understand : How to prioritise audience : e.g TARPARE model (using findings from health field) : population at risks but also populations more receptive to interventions (low-hanging fruits) and accessible – while keeping in mind equity criteria How different audiences would like to receive the information/education

Effective Approaches to Financial Education Develop regulator capacity and train trusted partners

Regulation ≠ Education : to be effective education requires specific capacities

• Independence in

communicating important messages

• Credibility/Brand to reach out

to investors/consumers

• Expertise in communicating

(and financial issues) with and educating different target audiences

• Proper research and

evidence to design initiatives

• Means to implement policies or

sound ways to delegate implementation to partners

Harnessing the role of partners allows to reach out to a wider & hard to reach audience Why ?

• Regulators may not

have the resources to efficiently

• utreach the whole

population

• Some NGOS and

networks have particular expertise and know-how to

• utreach particular

groups

• Some segments of

the population may prefer to receive education from people they know and trust

In doing so, it is important to :

• Identify adequate

and trusted stakeholders

• Provide on going

and appropriate training as well as incentives

• Monitor the process

to ensure quality delivery

Effective Approaches to Financial Education Monitor and evaluate interventions

Report results and draw lessons from monitoring & evaluation to fine-tune interventions’ design and tools depending on the audience Interventions should be monitored during and after to understand why they worked ( and for whom) or why they did not (and for whom). Test/pilot interventions with focused groups before scaling them up Robust quantitative and qualitative evaluation methods should be used and adapted to interventions’ goals, scope, audience and resources Monitoring and evaluation designed with the intervention and the setting of its main objectives

Global set of policy instruments on financial education and methodology Global matrix of evaluated programmes and initiatives

• For adults : New OECD/INFE survey in 2015/2016
• For youth : Release of the 2015 PISA financial literacy results in 2017 and new

exercise in 2018

• Core competencies on adults’ financial literacy

Cross-comparable evidence on financial literacy and inclusion & benchmarks

• Continue to learn from behavioural economics & social marketing
• Explore other education fields which aim to change behaviours : e.g health
• Assess impact beyond behavior : financial wellbeing definition, scope, approach

More academic research needed to inform policies : INFE Research Committee & Academic Journal

• Work on women, youth, migrants, MSMEs

Refined analysis and tools to address the needs of specific subgroups

OECD work ahead

27

OBLIGADO MUCHAS GRACIAS THANK YOU MERCI

?

Flore-Anne.Messy@oecd.org

www.oecd.org/finance/financial-education www.financial-education.org