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					                                               SPEECH/07/202




Charlie McCreevy


European Commissioner for Internal Market and Services




Increasing Financial Capability




Increasing Financial Capability Conference

Brussels, 28 March 2007
Good afternoon, Ladies and Gentlemen:
It is a pleasure to bring to a close this conference on Increasing Consumer Financial
Capability. The discussions you have had today, and the fact that so many of you
have gathered to address this issue, speaks volumes about the importance that this
topic has gained. These are subjects that I am personally very interested in.
As has been mentioned many times today, the market for financial products is
highly varied, and often complex. As we know from demographics, the laws of
economics and the Maastricht Treaty, individual consumers and their families will
have to take on more and more responsibility for their financial futures, and in doing
so, have to deal with managing risk, including longevity risk. In this context,
consumer information, education and empowerment are essential. Not just for the
benefit of our citizens. But to balance the supply and demand sides of financial
services. Good, knowledgeable consumers will help improve quality. Chase out the
sharks. Strengthen due diligence. Reinforce regulatory quality.
It is easy to forget just how much has changed in recent years. When I was a young
graduate starting out in the professional world in the early 1970s, the financial
landscape was a lot simpler. I only had a handful of banks to choose from. There
was no question of being feted with a wide choice of student loans or credit cards,
much less incentives and freebies to take them out. And many of my peers
considered that hiding money under the mattress was a secure way to provide for
the future.
Now, all of us have to make frequent and complex financial decisions. An
equivalent young person starting out in life today can be expected to juggle the
repayment of student loans, manage day-to-day consumer credit, seek out a home
loan to get himself on the first rung of the property ladder and have to think early on
about pension arrangements. And this isn't even his full time job! In addition,
people are bombarded with a wide variety of sophisticated financial products for
saving and investment that contain embedded derivatives and often risks that are
not readily apparent to the investor.
People often ask why the Commission is interested in financial capability. My
answer is that improving people's ability to make financial decisions is in everyone's
interest, and goes hand in hand with our wider financial services policies.

Benefits of financial capability
Greater financial capability helps citizens to save money, time and worry. They are
more likely to use a range of financial services that can make their lives easier.
Long-term benefits should include reducing levels of problem debt, potentially
increasing savings and making appropriate use of insurance products. People who
understand their financial circumstances, and the options or advice available to
them, are more likely to make sensible choices and make adequate provision for
the future. They are less likely to have purchased products that they don't need, be
tied into services that they don't understand, or take on risks that have the potential
to drive them towards insolvency.
It benefits Member State governments and, ultimately, taxpayers. After all, people
who make informed financial decisions are less likely to experience financial
difficulty and have to rely on State benefits.




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It is beneficial to employers and educational institutions, as employees and students
who are not preoccupied with financial problems can focus better on the job in
hand.
It is beneficial to financial services providers. Consumers who are able to select
products confidently and competently make far better customers, as they choose
products and services in line with their needs, are less likely to default, and are
more likely to maintain good savings rates. Active consumers drive competition and
help firms to become more efficient, innovative and globally competitive.
And last but not least, from my perspective, it helps to drive the Single Market, as
informed consumers do not shy away from shopping around, even cross-border.
I believe wholeheartedly that these are goals worth striving for.

Consumer protection vs consumer empowerment
Some people fear that by devoting our attention to financial capability, the
Commission wants to draw away from core consumer protection. Nothing could be
further from the truth. The provision of high-quality financial education is a key
element of consumer protection. This is not an “either/ or” situation. The best way
to protect consumers' rights is to empower them to make appropriate financial
decisions. Break down the asymmetric information barriers.
If you look at the range of our financial services policies, consumer protection,
consumer empowerment and consumer choice is at the very core.             From life
insurance to payments. From consumer credit to investment services. From
prospectuses to capital markets, with market abuse rules. Consumer and investor
welfare are our top priority. If we see that existing legislation is not working for
consumers, we go back to it to see how we can make things better. This is what we
are doing with investment fund information disclosure and the distance marketing
directive, for instance. Across the policy spectrum.
And when we are developing these proposals, we make considerable efforts to
bring in the viewpoint of consumers and users of financial services. The Fin-Use
expert group provides us with very useful input from a consumer and user
perspective. We receive helpful advice from consumer and retail investor
representatives in our many specific expert groups. And we are enhancing our
dialogue with consumers further through our consumer-oriented newsletter, Fin-
Focus, and the Financial Services Consumer Group.
The Commission will shortly come forward with a Green Paper on Retail Financial
Services in which we will outline our objectives in moving forward to create a real
Single Market for retail financial services, and the actions we are taking to meet
these objectives. In consolidating our existing and planned initiatives in this area, we
want to make sure that consumers can get a better deal; enhance consumer
confidence in financial products and services; and empower consumers to make
appropriate financial decisions. The Green Paper will be open for consultation and I
invite you to let us know your views.




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The need for empowered consumers
As I mentioned, one of our key objectives going forward is to empower consumers –
whether they are engaged in the market via investing, borrowing, saving or insuring.
 Financial products are inherently complex. The long-term nature of products such
as mortgages means that people don’t get very many chances to make repeat
purchases, to make mistakes and ‘learn by doing’, as you might do with other items
such as buying a car. Equally, it can take many years to establish how a pension
or long-term savings product is performing and whether it is meeting expectations.
New and innovative products are appearing all the time. Developments in
technology give wide access to a wide range of complex financial products and
services. A single European market in financial services increases the range of
products on offer. The degree of choice can be overwhelming.
Numerous studies have shown that many people find personal finance difficult, and
are not able to assess the risks that they are taking on. They find it difficult to read
and understand the information provided to them.
By helping to develop better informed, better educated and more confident citizens
we can enable them to take better responsibility for their financial affairs and play an
active role in strengthening the consumer demand side of financial services
markets.

Financial education: State of play
If we look at the current state of play in efforts to increase financial capability, it is
obvious there is a lot of work to do. As you have heard today, financial education is
delivered through a variety of channels in EU member states. In order to have an
overview of what is available, the Commission has recently contracted an external
study to map out financial education schemes in the EU member states, and to
analyse the functioning of these schemes. We look forward to seeing this overall
picture when the report is ready by September 2007.
However, we already have a general picture of the different types of financial
education provision.
Some national public authorities, including financial regulators, are delivering
strategies to improve financial capability.
In others, financial industry associations have developed financial education
schemes together with other relevant stakeholders such as consumer associations
or community groups.
In many cases, individual financial institutions provide some kind of education
scheme, from the development of explanatory brochures or websites through to
offering their staff to deliver information sessions in schools.
These are all valiant and significant efforts. I applaud all of you here today that are
involved in such important work. I would particularly like to thank today’s speakers
for their contribution and insights on what has been achieved to date.
However, there are clearly some gaps left to fill. For instance, there is a distinct
lack of financial education in the school curriculum in most jurisdictions, and I would
call on Member States to consider this. Has the time not come to teach finance to
our children – alongside cooking, maths, Latin and gymnastics? Surely, yes.




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Role of European Commission
So where does the European Commission fit in when it comes to financial
capability?
As I have stated in the past, I see the primary responsibility as resting with Member
States and with the financial industry. I see the Commission’s role as twofold. 1:
Raising awareness of the issue and 2: encouraging best practice.
In developing our policy on financial capability, we will draw on both the feedback
you have given us today and on the findings of the study on financial literacy
schemes I mentioned. Some of the options that we could consider include the
development of best practice guidelines, bringing practitioners together as we have
today or backing an awards scheme for successful financial education programmes.
I must tell you I have far more confidence in the benefits of good financial education
than I have in the effectiveness of some of the copious pages of risk and health
warnings we see on financial product literature that is required by regulators. It
would be interesting to do a study on how many consumers actually read and
understand such regulatory impositions.

Final Thought
We hear a lot about "Social Europe". I think the subjects discussed today are one
of the key futurist elements of a real Social Europe that serves its citizens. And I will
be even more provocative. Those Member States that decide to take consumer
financial education really seriously – from the classroom to the grave – will be the
ones that carve out a real competitive advantage in the medium term.             These
policies are not add-ons. They are essential.
So let me thank you once again to all those who have contributed to making today
possible – not least to those who have given us some excellent and thought-
provoking presentations.
Let's all make a real difference to empowering European consumers. Together, let
us make financial literacy a reality. The sooner the better.




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