Abstract
Abstract Financial literacy is a core life skill for participating in modern society. But how many of us have been educated about money; the importance of budgeting and saving for a rainy day; how bank accounts and debt work and when it makes sense to save for a pension? Our brief research to date indicates a shockingly low level of financial literacy in the general population. And, it does not look like this will get better soon; regarding improving financial literacy, the Financial Services Authority stated in 2003 that “Never has the need been so great or so urgent”. And yet many children will go through school without an hour spent studying financial literacy. Furthermore, efforts to improve financial literacy at older ages are either non-existent or piecemeal at best. The consequences of poor financial literacy are especially damaging for vulnerable people. Vulnerable groups of people are most at risk of making poor financial decisions throughout their lives, which has negative consequences for saving, home ownership, debt levels, retirement and financial inclusion. In this paper, we consider various mechanisms to protect such financial customers, whilst recognising that improving financial literacy is not a silver bullet to improve customer outcomes from financial products. Financial literacy cannot be brought to a point where the public can understand many financial products without support and advice. But surely, awareness of basic financial literacy principles can be raised, including the most important: when to seek support and advice before undertaking important financial decisions. The paper suggests some key principles for financial literacy and will also consider methods and tools to allow the public to access much-needed support and advice.
Highlights
How many of us have been educated about money; the importance of budgeting and saving for a rainy day; how bank accounts and debt work and when it makes sense to save for a pension? Our brief research to date indicates a shockingly low level of financial literacy in the general population
Research by the Money Advice Service (MAS, 2016) indicated that, despite financial education being on the school curriculum at least at secondary level across the UK, only 40% of children aged 7–17 say they have learned about managing money at school or college, and this is consistent across all age groups
The eventual aim, we suggest, would be a document that is consumer-friendly, interesting and engaging whilst remaining compliant, reflects the unique contribution that actuaries have to offer in this area and enables the Institute and Faculty of Actuaries to engage with like-minded individuals and organisations sharing a common ambition to improve basic financial literacy
Summary
Ensure products are designed for a specific target market and customer need FCA should explore greater use of early intervention procedures. We propose additional methods of improving financial literacy and protecting vulnerable consumers. These methods include special treatment for complex products, product certification, introduction of a fiduciary rule for advisers and introducing a duty of care on financial firms. We note that the last area on the responsibility for financial security being increasingly shifted to consumers is a separate IFoA topic under the banner of The Great Risk Transfer project.
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