OECD/INFE Webinar: Financial resilience and financial literacy: challenges and lessons beyond the Covid-19 crisis 2 December 2020 FINANCIAL RESILIENCE AND FINANCIAL LITERACY: COVID-19 CRISIS AND BEYOND Flore-Anne MESSY Opening Remarks 2 December 2020 | 10 a.m.-12:30 p.m. CET PRESENTATION OVERVIEW 1. Challenges to financial resilience and literacy 2. OECD/INFE policy tools and guidance 3. Webinar series and today’s agenda 2 1. CONTEXT LIMITED FINANCIAL LITERACY AROUND SAVING AND PLANNING Active saving: Percentage of adults who responded they were Long term financial goals: Percentage of respondents who actively saving money suggested they have a long-term financial goal towards which they plan and save OECD-11 Average OECD-11 Average Indonesia Poland Indonesia Korea Malta Thailand Malaysia Malta Colombia Czech Republic Peru Austria Slovenia Malaysia Thailand Hong Kong, China Russia Bulgaria Hong Kong, China Slovenia Germany Germany Moldova Austria Moldova Portugal Croatia Poland North Macedonia Korea Romania Georgia Georgia Bulgaria Portugal Estonia Hungary Romania Montenegro Croatia Peru Hungary Estonia Montenegro Italy North Macedonia Russia Czech Republic Colombia Italy 0 20 40 60 80 100 120 0 10 20 30 40 50 60 70 80 Source: OECD (2020), OECD/INFE 2020 International Survey of Adult Financial Literacy 1. CONTEXT LIMITED HOLDING OF SAVING AND INSURANCE Product holding: Percentage of respondents holding each type of product Payment product Insurance products Savings / investment / retirement products Credit products 0 10 20 30 40 50 60 70 80 90 Average (OECD-11) Average (total) Source: OECD (2020), OECD/INFE 2020 International Survey of Adult Financial Literacy 4 1. CONTEXT LIMITED KNOWLEDGE AND AWARENESS AROUND SAVINGS, INVESTMENTS, PENSIONS Adults: Percentage of adults who gave correct Students: Percentage of students who reported that they answers to each financial knowledge question had learned this term in school over the previous 12 months and know what it means; OECD average-13 80 Terms related to savings, Understanding risk and return 70 investments and pensions 60 50 40 Understanding risk 30 diversification 20 10 0 Understanding correctly both Wage Budget Dividend Bank loan simple and compound interest Debit card Income tax Depreciation Central bank Pension plan Entrepreneur Diversification Shares/stocks Exchange rate Interest payment 0 10 20 30 40 50 60 70 80 90 Compound interest Return on investment OECD-12 Average-26 Boys Girls Source: OECD (2020), OECD/INFE 2020 International Survey of Adult Financial Literacy Source: PISA 2018 financial literacy assessment. 10 20 30 40 50 60 70 0 Korea Austria ECONOMIES ACROSS RESILIENCE LIMITEDFINANCIAL 1.CONTEXT Source: OECD OECD Source: Poland shortfall financial Experiencing Germany (2020), (2020), Czech Republic OECD/INFE 2020 Survey OECD/INFE of International Adult Financial Literacy Hungary Hong Kong, China Malaysia were higher than income) in the 12 months before the the before 12months in the income) than were higher Italy : Percentage Percentage Estonia Slovenia Croatia (expenses shortfall financial experiencing reported who of respondents Malta Russia Portugal North Macedonia Romania Montenegro Thailand survey Bulgaria Georgia Colombia Indonesia Moldova Peru Average OECD-11 6 1. CONTEXT LIMITED FINANCIAL RESILIENCE ACROSS ECONOMIES Coping with financial shortfall: Percentage of respondents who reported their ways of dealing with a financial shortfall. The graph reports responses grouped into (i) Borrowed formally, (ii) Borrowed informally, (iii) Delayed payment. Other responses were possible. Respondents could provide more than one answer and percentages do not add up to 100%. 90 80 70 60 50 40 30 20 10 0 Italy Peru Malta Korea Russia Austria Poland Croatia Estonia Georgia Bulgaria Average Portugal Hungary Moldova Slovenia Thailand Malaysia Romania Germany Colombia OECD-11 Indonesia Montenegro Czech Republic North Macedonia Hong Kong China Delayed payments Borrowed formally Borrowed informally 7 Source: OECD (2020), OECD/INFE 2020 International Survey of Adult Financial Literacy 100 10 20 30 40 50 60 70 80 90 0 Austria NEGATIVE IMPACT ON WELL IMPACT NEGATIVE 1. CONTEXT I tend to worry about paying my normal living expense Germany Czech Republic Korea Percentage of adults who agree with the statements of financial of Percentage who agree adults with statements the of financial stress and concern Hong Kong, China Indonesia Hungary Slovenia Bulgaria Estonia I amI concerned thatmoneymy won’t last Poland - BEING AND HEALTH BEING AND HEALTH Romania Italy Portugal Croatia Georgia Peru Moldova I amI justgetting by financially Montenegro North Macedonia Colombia Average OECD-11 8 2. CURRENT AND FUTURE OECD/INFE TOOLS TIMELY GUIDANCE and LONG-TERM JOURNEY to support FINANCIAL RESILIENCE… Since 2008 - OECD/INFE work on how financial education can support financial resilience, including on savings, investments, insurance pensions and retirement 9 2. CURRENT AND FUTURE OECD/INFE TOOLS TIMELY GUIDANCE and LONG-TERM JOURNEY to support FINANCIAL RESILIENCE… 2020 – OECD Recommendation on Financial Literacy adopted by the 37 OECD Governments and Brazil addresses how financial education can support resilience in the areas of saving/investment, insurance, retirement and pensions Promote awareness Promote awareness on Empower and understanding of risk diversification, individuals to the characteristics & balance of risk and evaluate products/ risks products /services reward, etc services Provide unbiased Implications on generic advice to guide society and the Promote informed and individuals through active choice environment, and complex systems and sustainability decisions considerations 10 3. AGENDA WEBINAR SERIES | Financial resilience and financial literacy: immediate needs and long-term approaches 1. 5 November : Financial resilience and financial literacy during the COVID-19 crisis 2. Today: Challenges and lessons beyond the COVID-19 crisis How to help households foster financial resilience in the long term through savings, insurance and pensions? How to reduce the negative consequences of limited resilience on mental health? . Session 1: Protect what you have: financial education for long-term saving, pensions and insurance . Session 2: Lack of financial resilience: financial difficulties and mental health 3. 19 January 2021: Digital financial literacy & financial resilience 11 Further resources SAVING, INVESTMENTS, INSURANCE COVID-19 RESPONSES (DIGITAL) FINANCIAL INCLUSION Financial Education, Savings and Investments: An Supporting the Financial Resilience of Citizens Policy Guidance on Financial Empowerment for Overview throughout the COVID-19 Crisis Vulnerable Groups Financial Education for Long-term Savings and Financial Consumer Protection responses to COVID- G20 Fukuoka Policy Priorities on Aging and Financial Investments 19 Inclusion Global Financial Markets policy responses to COVID- The role of financial education in supporting decision- G20/OECD INFE Policy Guidance Digitalisation and making for retirement 19 Financial Literacy Strengthening Seniors’ Financial Well-being throughout OECD/INFE policy framework for investor education the COVID-19 Crisis and its Aftermath Advancing the Digital Financial Inclusion of Youth Improving Financial Education and Awareness on Insurance and Private Pensions CORE COMPETENCIES FRAMEWORKS OECD/INFE Core Competencies Framework on financial literacy for Youth WOMEN AND GIRLS YOUNG PEOPLE G20/OECD INFE Core Competencies Framework on OECD/INFE Policy guidance on addressing women’s PISA 2018 Results Are Students Smart about Money? and girls’ needs for financial awareness and education financial literacy for Adults Policy handbook on financial education for young IOSCO-OECD Core Competencies Framework on Women and Financial Education: Evidence, Policy people in the Commonwealth of Independent States Responses and Guidance financial education for investors OECD/INFE Core Competencies framework on Financial Literacy for MSMEs 12 Life Insurance: Decision States, Financial Literacy, and the Role of Personal Values Hazel Bateman, Paul Gerrans, Susan Thorp and Yunbo Zeng Professor of Finance, the University of Sydney Business School, Australia Life Insurance: A product we don’t want to buy for an event we don’t want to think about... But the ability to absorb financial shocks is a key part of financial well-being. Most working-age people should take life cover. Stronger demand from people with: • Higher risk aversion • Stronger bequest motives • Dependents • Higher human capital (earnings potential) • Higher financial literacy Weaker demand from people with: • Longer life expectancy • Older age • Impatience • Higher net assets Underinsurance and disengagement persist => social security costs and personal hardship Decision States Model breaks the insurance purchase decision into stages. Model of market evolution, deriving from “consumer funnels” Role of variables (e.g. financial literacy) may be lost if we focus on one state We take a closer look at the demand for life insurance to better understand low engagement. • Use a structured survey of 2000+ Australian consumers to study the decision process in detail: • What explains how consumers move through the stages of deliberation over life insurance? • Can we predict who becomes capable of making a choice? • Test the importance of financial literacy and personal values to the stages of insurance choice. Personal Values are motivational life-goals that transcend situations. (Schwartz) 1. Benevolence