Monday, August 20, 2012


The next step in Financial Literacy

Fortunately Financial Literacy is becoming ever more central. People often think that it’s only an issue for developing countries with a primitive payment infrastructure and a general lack of knowledge on how to handle money. Yet attention is also being increasingly drawn to the situation of consumers in more prosperous nations. It would seem that Financial Literacy is a major concern for these more affluent countries too. Driven by the ongoing financial crisis, more and more people are being forced to take active control of their personal finances. The years of 'pampering' by governments, employers and other institutions are well and truly over. As a result, the public are being increasingly exposed to risk. Consumers need to focus on budgeting, planning and book keeping. And take more control of their personal financial affairs, which requires enhanced knowledge and insight in the short, medium and longer term. Many, however, are too "caught up in their daily financial reality" to be able to effectively plan ahead.

"Financial Literacy" should begin with (primary) school education, under the subject of "personal economy." That knowledge will act as a potential stimulus to greater discipline in finance, budgeting and financial planning later on. Unfortunately though, I still see too much 'rumour around the issue." Many organisations and governments launch purely promotional schemes, such as "Money Week" and brief courses for schools, covering only savings and payments (often sponsored by financial institutions). This might increase young peoples’ knowledge levels to some extent. But structural "repair" doesn’t come from well-meaning PR. That’s way too optional!

The market requires a much more intensive intervention. The current crisis could be the perfect trigger for a far more structured approach to Financial Literacy. Naturally, with a sustained focus on providing a suitable curriculum during the entire educational process. But also with the aim of developing universal, standardised reporting from all of the 'financial players' active in the market. Banks and insurance companies often provide position information (budget info) from their own, individual systems and package these as unique propositions (USPs) in order to bind customers to their brand. You only have to look at the confusing selection of budget planning programs from banks, pension statements, investment reports etc that are available today.
A central aggregation of this information and a standardised reporting format from all of the Financial Services providers involved, is essential for everyone. After all, this consumer data is "non-competitive". The (commercial) decisions are made​​, the only requirement is that these institutions deliver the correct information in the right format, as part of a collective "planning & budget control" program. This information could become real-time input and might be offered as an additional service (tab) on the various web banking programs or via a direct governmental channel. This would create standardisation and clear, uniform reporting on key financial information for all. An end in other words, to the plethora of different reports from banks, pension funds, mutual funds, insurers, employers, pension fund administrators and payroll administrations etc. Standardised reports would offer direct insight into both the consumer’s current and future financial state. Eventually planning tools could also be incorporated. This way it becomes an immediate and permanent benchmark for providers and consumers, in the context of a balanced duty of care. After all, every individual can and must be able to account for their true financial position at all times. Customers and financial institutions know what’s possible, both financially and technically ... I therefore urge the Ministries of Finance to take the appropriate initiative on this. Look to countries such as Singapore and Canada. Think about efficiency too, the 'win-win' for the processing of financial data (e.g. for the tax authorities) and for the financial sector (through the elimination of countless administrative silos and duplication of reports).


harry@smorenberg.nl




Harry Smorenberg (harry@smorenberg.nl) is a strategic advisor for the Financial Sector and Chairman of www.WorldPensionSummit.com.