As financial markets become increasingly sophisticated and as households assume more of the risks and responsibilities of complex economic decisions, personal financial education for individuals is increasingly necessary. Education will not only ensure their own personal financial well-being, but is essential in keeping the wheels of the economy and financial markets turning effectively.
Financial education should be made available to all sections of society to provide people with a basic knowledge of how the financial world works. Education in this vital area will give people the tools to avoid the debt trap, and to use the financial resources available to achieve their financial goals.
The Organisation of Economic Cooperation and Development (OECD) has published a set of recommendations on the Principles and Good Practices of Financial Education and Awareness. The recommendations include the following:
- Financial education should be provided in a fair and unbiased manner. Programmes should be co-ordinated and developed with efficiency
- Financial education should be considered as a tool to promote economic growth, confidence and stability
- Financial education should be regarded as a life-time, on-going and continuous process
- National campaigns should be encouraged to raise awareness of the population about the need to improve their understanding of financial risks and ways to protect against financial risks
- Financial education should start at school. People should be educated about financial matters as early as possible in their lives
- Consideration should be given to making financial education a part of state welfare assistance programmes
- Financial education provided by financial institutions should be regularly assessed to ensure it meets consumer needs
- Financial institutions should be encouraged to clearly distinguish between financial education and financial information and “commercial” financial advice.
- Financial education should be related to the individual circumstance, through financial education seminars and personalised financial counselling programmes
These principles are a good starting point for an all-encompassing financial literacy programme which would be available to all. While the Government should take the lead with financial education, the financial sector could complement these efforts. It is through a combined effort that financial literacy can start to bear fruit; an approach which includes all financial education stakeholders financial literacy is the way forward.
The financial markets work best if participants are fully informed and able to correctly interpret available information to their advantage. Consumers will benefit from improved financial literacy by being in a position to make better informed decisions; and indirectly by adding to competitive pressures faced by financial service providers.
The role of financial institutions in providing financial education, not only to clients but also to their own staff, needs to be better defined and further promoted. More information is needed at both national and international levels on good practice, and on ways to promote access to financial services.
A society with a knowledgeable, confident and financially literate population is far more likely to prosper than a society which overlooks the value of financial education. The economic benefits of developing a financially literate society will then flow directly into further societal aspects, enhancing and enriching the overall quality of life.