Financial Inclusion as a Statutory Duty

During Global Money Week, the Financial Inclusion Commission released an in-depth report confirming that financial inclusion is still an issue, even in the United Kingdom, a country leading the world in financial services.

The report finds that nearly two million adults in the UK do not have a bank account, up to 8.8 million people are over-indebted and 13 million people do not have enough savings to support them for a month if they experienced a 25% cut in income. Cause for these issues is a lack of financial capability among consumers, the fact that financial services are still not meeting the needs of low income consumers as there are not enough suitable savings and insurance products for consumers. Based on these findings, the FIC advises, among other things, to “place a statutory duty on the Financial Conduct Authority to promote financial inclusion as one of its core objectives” and to provide a comprehensive “model of financial skills training from primary school through to retirement, including at key life stages and events, and covering cultural as well as technical aspects of money management”.

The issue of suitable products is particularly key for young people’s financial capability. Recent research on financial capability shows that by the age of seven years, several basic concepts relating broadly to later ‘finance’ behaviors will typically have developed.“ They go on to outline those behaviors and discuss counting, conservation, the ability to plan ahead and choice architecture. They conclude that a familiar habit or the feeling of mastery in participating in “adult” activities such as going to the bank, provides sufficient motive for young children, and interventions to introduce or change young children’s financial behaviors should take advantage of such motivations. This is also based on the generally excepted premise that children learn from observation, instruction, and practice. Other research has suggested that “children develop financial and economic understanding when they have ‘‘personal economic experiences’’ as results show that children learn from observation, instruction, and practice. Moreover, Sherraden & Johnson propose that financial capability results when individuals develop financial knowledge and skills, but also gain access to financial instruments and institutions.

Awareness on these issues for young people specifically, is raised during Global Money Week, when a variety of different stakeholders such as NGOs, ministries and central banks are engaging children worldwide on topics such as financial literacy and entrepreneurship. The financial sector has also been actively involved in such campaigns, through organizing different activities, such as schools visits and workshops. Despite this, the issue of suitable financial products and low financial capability is still very current: financial inclusion is low even for adults. Financial institutions therefore should increase their efforts on the creation of true financial inclusion both for adults (and in line with the European Commission’s recommendation) and for young people (by developing and rolling out of “child-friendly” banking products). Comprehensive models for increasing financial capability, focused both on financial literacy and financial inclusion should be coordinated with national authorities and civil society, especially for children and youth (both for in-school and out-of-school programs).

In line with this model, the OECD encourages the partnership between private and other stakeholders in financial education either by providing in-kind resources and advice or dedicated financial support, or, in some cases, by becoming an implementing partner, such as the successful case in the Netherlands where the Ministry of Finance involves the private sector and civil society. However, as instructed also by the OECD, the private sector contributing to financial education should at the same time be monitored and guided in order to manage potential conflicts of interests. Dedicated standards for the development and implementation of financial education programs by the private sector should be developed. More generally, the development of financial education programs by the private sector should not involve the promotion or marketing of specific financial products or services. They therefore strongly encourage the involvement of national organizations or civil society programs.

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Thursday, 18 July 2019