Ireland’s approach to financial educationIADI conference – Washington, October2008

Presenter:Mary O’DeaConsumer DirectorFinancial Regulator (Ireland)

Now more than ever…

Recent events in international markets have focussed everyone’s minds on money

It is clear that much of the language being used is confusing (even for those using it) and scary for consumers Liquidity, capital, toxic debt, sub-prime write-downs,

bail-outs, inter-bank loans etc. Most consumers have a limited understanding of how

these markets operate and an even more limited understanding of how things could impact on them.

It is against this back-drop that we are talking here today about confidence in the financial system

Clearly we cannot expect consumers to have confidence in the financial system if commentators are publicly questioning confidence?

Is financial education important?

We think so – individuals have had to take on more risks but it is not clear whether they understand these risks or what they can do to mitigate them

Some level of financial capability is necessary for full participation in society

Initial results from our financial capability study shows a correlation between financial capability and: financial product ownership – with a bank account a

key product income; and housing tenure

Financial exclusion can have negative consequences for individuals and can both exacerbate and embed social exclusion

Financial education and what it means

Borrowing from the OECD definition: a process by which consumers improve their

understanding of financial issues and through information, instruction and objective

advice, develop the skills and confidence to become

more aware of financial risks and opportunities.

Consumers can then make informed choices, know where to go for help, and to take other effective actions to improve their financial well-being.’

Financial education and what it means

But remember that: for adults education is a choice; providing education directly is expensive and

resource intensive most regulators do not have a competence in

education – other stakeholders must be involved; and

it is vital that the importance of financial education is fully appreciated by the education sector

consumer education is not a magic formula – it will not necessarily create confidence in the financial system by itself

Financial education in a wider consumer protection framework.

Consumer Protection

Prudential supervision

for a safe market

Conduct of business

for afair market

Informed consumers

forinformed decisions

We will need to consider the balance of our structure and depth of supervision for the future

What is the Financial Regulator (Ireland) doing in the area of financial education?

Statutory role in ‘raising awareness among consumers of the costs, risks and benefits of financial products and services’.

National Steering Group on Financial Education comprising key stakeholders in the area of financial education.

Money Advice and Budgeting Service –MABS

These three strands make broadly meet the elements of the OECD definition of information, instruction and generic advice

Financial Capability Research Study

As is the experience internationally – school curricula are crowded and part of our role with our stakeholders is to raise awareness among policy makers of the need for enhanced financial education

Information - raising awareness of the costs, risks and benefits of financial products

The Financial Regulator has a personal finance information service for consumers comprising: Suite of publications on financial products

Guides on mortgages, savings and investments, personal loans, pensions and insurance.

Contact points for information and helpFor consumers to contact us and ask questions or seek

guidance, we have a personal finance telephone help-line and an Information Centre in Dublin city centre.

Personal finance website for consumers itsyourmoney.ieFeatures include, generic information on a range

financial products, cost comparisons, tools such as a budget planner and loan / mortgage calculators.

Dynamic information as people want it (especially in recent months!)

Using itsyourmoney.ie as a key channel

Getting the word out

Social marketing We use traditional marketing techniques to communicate

with consumers. As we do not sell anything this can be called ‘social marketing’

As with traditional marketing if you do not give people what they need – they will not be interested

We analyse what people needWe design solutions to meet these needsWe let people know what we have and how they will

benefit We use traditional marketing channels such as mass media

(TV and radio advertising) PR, and on-line / viral marketingObjective is to get a message acrossMessage must be relevant and useful – if you want

people to engage – credit crunch / jargon buster

Credit Crunch – Jargon Buster What is the ‘credit crunch’?

Credit crunch is a general term used to describe a situation where bank credit is less available than before and/or credit becomes more expensive. This applies to credit between banks and from banks to their customers.

What does ‘liquidity’ mean? The term ‘liquidity’ refers to how easily an investment can be turned into cash. For you, your most liquid investment is probably your current account because you have almost immediate access to your cash. An example of a less liquid asset would be your car because it takes time to sell your car and turn it into cash. If you needed to sell your car to raise money quickly, you would be under pressure and might not get the best possible price for your car.

What is solvency? A bank is considered solvent when the value of its assets is greater than the value of its liabilities. Part of our job as the Financial Regulator is to set and closely monitor rules for banks so that their assets are enough to cover their liabilities with some room to spare.

Instruction – supporting and advocating for the teaching of personal finance

We have produced (in partnership with MABS) a teaching resource for 16-17 year olds called ‘Get smart with your money’ and have this year participated in the training of teachers and on classroom visits.

Generic advice

We offer generic advice in a one-to-one setting – on the phone, face-to-face and in writing

Our objective is to give people the right information on which they can act and make informed decisions

We offer information seminars to employers and community groups on personal finance issues

We attend public events and shows where we talk to consumers about their personal finance issues and offer out publications

This does not constitute product recommendations but might include:- Dos and don’ts Questions to ask Plain English explanation of financial terms and

concepts; and Support and guidance on how to complain.

Stakeholder co-ordination

The Financial Regulator (Ireland) established and chairs a National Steering Group for Financial Education comprising key stakeholders from; Government; the financial services industry; voluntary/not for profit groups; and the education sector.

The aim of the Group is to direct and co-ordinate financial education based on best international practice

The Group is due to produce a report by the end of the year. The report will be based on the output from a number of working groups

The focus of the group is expected to be on the development of standards for financial education

National Steering Group for Financial Education

One key innovation will be a new financial competency framework which lists all the learning outcomes (over 420) needed for a person to become financially capable The learning outcomes are divided into 4 levels

corresponding with the levels in Ireland’s national framework for qualifications

The framework is intended as a tool to assist those developing financial education resources and to allow for the development of standards and awards in formal education

The framework contains learning outcomes that relate to basic economic principles

Sample extract from competency framework – focus on credit

Areas of learning

Foundation knowledge, skills and concepts

Researching and evaluating information and advice

Coping with problems and the unexpected

Social and personal issues about finance

Broad learning outcomes

Budget for daily spending

Critically evaluate and compare information

Plan for changes in their personal circumstances

Analyse their own financial needs and wants

levels leading to specific learning outcomes

Understand the basic types of borrowing

Manage an appropriate level of debt

Plan to absorb rising interest rates

Understand the consequences of defaulting

Access information provided by firms and other sources

Compare costs and benefits

Compare how different forms of credit affect the ownership of assets

Prepare for a loss in income

Anticipate and plan for growing expenditure

Understand that options for dealing with debt problems

Prioritise needs over wants

Explain life events that lead to the need for planning

And finally…..(TV ad)

Thank you