Most people struggle with the basics of retail finance. Many financial products are constantly evolving and getting increasingly complex. Decisions like taking a mortgage or investing in a pension product have a massive impact on our financial lives, and on our children’s. The answer, many bankers and some public authorities say, is to throw education about financial services at consumers in adult classes or even at school. But does it really work?
In 2014, Guillaume Prache, Managing Director at BETTER FINANCE contributed to a report published by EFAMA on Investor Education. In his article entitled “The Fall of Financial Literacy”, Prache highlights the fact that there are two opportunities in life when people have potentially easy access to financial education: in school and at the point of sale. He suggests that the low level of financial literacy justifies promoting a range of simple financial products that can be easily understood by European citizens.
In turn, in a blog post, BEUC proposes some simple remedies to improve the financial decisions consumers take.
Simpler financial products – instead of trying to educate consumers about the market, wouldn’t it make more sense to simplify the products offered? Too many financial products have been designed in a way that understanding and comparing them is as difficult as nailing jelly to a tree;
Default products – there should be a default option for the consumer in case of hesitation in categories of products that are now considered essential, like pension products;
Banning toxic products – products where consumers are likely to suffer considerable detriment, such as mortgages in foreign currency, should be banned. This would avoid people buying bad products in the first place;
Affordable and quality independent advice – just as we seek advice from doctors for health problems, consumers would benefit from a system of independent, quality advisers at key financial stages in life, like when they are buying a home, planning for retirement, or receiving an inheritance. These advisors would provide advice, not education. For this to happen, the EU and national authorities should ban commissions in order to prevent biased advice.
Please read BEUC’s blog post for more information.