Brussels bids to improve citizens’ financial savvy

EU officials hope that boosting financial literacy will have an economic and social payoff, after a landmark survey found many lag behind in basic budget knowhow.

Ministers gather this week in Ghent, Belgium to discuss financial education – but critics worry it’s a distraction from their main task of ensuring a safe financial system.

“Financial literacy skills are just about OK, they’re not great,” the European Commission’s Mairead McGuinness told Euronews.

She’s still digesting a 2023 study which found just 18% of EU adults have high financial literacy. Scores, based on a basic finance test and budgeting practices, were lower for women, the young and the poor.

Just one in five Europeans were able to correctly identify the relationship between interest rates and bond prices, though it was a multiple-choice question with four answers.

Improving financial literacy will improve social resilience, McGuinness argued, because those savvier with their money are more likely to have an emergency financial cushion. But she’s painfully aware that performance is mixed across the bloc.

“Some member states like Denmark do a lot, others not so much,” she said, and she hopes EU talks will put the issue on the political radar. “I hope they’ll link up with neighbours and others to build on a framework that they don’t have at the moment.”

Ministers won’t actually agree anything at their informal discussion this Friday, noted Belgian finance minister Vincent Van Peteghem, who will chair the meeting as EU Council presidency.

But there’s also a potential economic benefit, Van Peteghem noted, if he can persuade the risk-averse populace to dabble in financial markets.

“Financial literacy is a key lever to stimulate people to act, to invest themselves with their household savings,” he told Euronews.

Start simple

Belgium last year opened up government bond sales to individual investors – something he said stimulated a lot of household savers to reconsider their options.

The EU could offer people better information on investments, price comparison sites, and consistent financial products that are consistent across the bloc, he added.

But the key is to start simple, according to Belgian financial regulator Jean-Paul Servais, who boasted of teaching materials downloaded 180,000 times, and a Wikifin website that’s proved a hit.

“The reason why we are successful: we are providing information which is needed by John and Mary for their day-to-day activities,” looking at basic budget management rather than bandying fancy financial terms like collective investments or structured products, said Servais, who chairs Belgium’s Financial Services and Markets Authority.

For McGuinness, promoting financial literacy is about connecting her normally abstruse day job – often complex laws on financial trading and infrastructure – to the lives of ordinary people.

Victim blaming

Yet for others, like Finance Watch’s Peter Norwood, it’s just transferring the responsibility.

Education is important, he said – but the focus should be on stopping financiers from hawking unsafe products, not blaming the buyers who fall victim to them.

In his characterisation, the financial services industry tells policymakers “all you need to do is build up financial literacy, and then in return what you can then do is to water down financial regulation,” Norwood told Euronews.

That squares with recent experience – where McGuinness’ efforts to improve consumer protection for retail investors have indeed hit a wall. A plan to ban financial intermediaries from accepting financial incentives for sales have met a barrage of industry criticism and now seem in jeopardy.

People who feel bamboozled by complex financial products shouldn’t blame themselves, Norwood argued: it’s not by accident but by design.

“Simple products would not be very profit-generating: that is the issue,” he said.

“It’s in the interest of the financial services industry to design complex products that people cannot fully understand,” he said – when, in his view, they should be forced to offer easier and better-adapted investment plans.