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Financial Education and Consumer Protection
~ Measuring Effectiveness
3rd International Forum on Financial Consumer Protection and Education15 December 2005, Kuala Lumpur
Christina TanDeputy Director & Head, Consumer Issues DivisionMonetary Authority of Singapore
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Outline
Common Threads in Consumer Protection and
Financial Education Tools to Measure Effectiveness of Financial
Education Sharing Singapore’s Experience
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Common Threads in Financial Education & Consumer Protection
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Common Goals
To enable consumers to achieve fair dealing
To enable consumer make more informed and effective financial decisions
To enable consumers to resolve disputes with financial institutions
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Complementary Approaches
Regulatory Framework
On-going Supervision
Enforcement & Remedial Action
Financial Education
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Regulatory Framework
General consumer protection laws
Industry specific requirements / standards that promote fair and transparent markets
Industry codes and best practices
Consumer panels that provide feedback on financial services regulations and policies
Complementary Approaches
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On-going Supervision
Proper approval / licensing and supervision of industry players to ensure that prudential and conduct standards are met
Enforcement & Remedial Action
Effective enforcement against industry players who breach regulations
Consumer compensation mechanisms
Complementary Approaches
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Common Yardsticks
Regulatory Framework
On-going Supervision
Enforcement & Remedial
Action
Mostly indirect indicators
Examples:
Number and nature of complaints
Inspection findings
Number of institutions operating without required license
Errors or omission of information in sales materials / offer documents
Enforcement actions
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Complementary Approaches
Regulatory Framework
On-going Supervision
Enforcement & Remedial Action
Financial Education
Focus of this presentation
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Financial Education
Empower consumers to make informed and effective financial decisions
Equip consumers with knowledge and ability to resolve disputes with industry players
Complementary Approaches
More regulators are taking on the role of financial education. Why?
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Move towards disclosure-based regime
Ageing populations
Increasingly more complex products
Consumers have greater access to variety of financial products.
Larger number of consumers are involved in financial markets
Consequences of poor financial decisions
Trends Underscoring Need for Financial Education
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Benefits of Financial Education
Empower consumers to make more informed investment decisions
More sophisticated investors help the market grow in depth and liquidity
Less reliance on the state
But does financial education really work?
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Studies Show That Financial Education Makes A Difference
USA - 1.5%1 increase in average savings rates among adults who attended high schools in states with financial education requirements in public schools.
USA - Availability of retirement-focused financial education in the workplace increased average savings rates by 1.65%2.
Source: 1) Bernham D., Garret D., and Maki, D “Education and Saving: The Long Term Effects of High School Curriculum Mandates”, National Bureau of Economic Research, USA, July 1997; 2) Bernham, D. and Garret, D. “The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households”, National Bureau of Economic Research, USA, June 1996
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Studies Show That Financial Education Makes A Difference
Australia - The lack of financial education costs the average wage earner $790,0003 over their lifetime.
Source: 3) Study by government taskforce on financial literacy, Australia October 2005
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Tools to Measure Effectiveness of Financial Education
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Common Threads in Financial Education
Provide information to help consumers make informed decisions
Seminars, talks, publications, portals, helplines, investor alert lists
Focus on retirement planning / pension plans
Start financial education in schools
Provide information on channels to resolve disputes
Close collaboration with industry and consumer associations
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Variety of Yardsticks
Outreach Statistics
Feedback Forms & Surveys
Complaints (e.g. nature of complaints, percentage of complaints resolved)
Economic & Social Indicators (e.g. credit card rollover statistics, household debt statistics, bankruptcy rates, number of individuals on financial assistance schemes)
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Common Finding: Room for Improvement in Financial Literacy
Japan – 71% lack knowledge of equities and bonds; 57% lack knowledge of financial products in general; 29% lack knowledge of insurance and pensions
Korea – High school students had failing scores in test measuring ability to choose and manage a credit card, to save and invest for retirement, and awareness of risk and insuring against it.
Source: Findings on financial education compiled by OECD, Oct 2005
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Australia – 37% of those with investments did not understand that investments can fluctuate in value
United States – 50% of adults and 66% of high school students fail basic economics test.
United Kingdom – fewer than 40% of respondents are confident about making financial decisions
Many consumers overestimate their knowledge of financial issues
Source: Findings on financial education compiled by OECD, Oct 2005
Common Finding: Room for Improvement in Financial Literacy
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Challenges in Measuring Effectiveness
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Key Challenges in Measuring Effectiveness
Experience & circumstances
Knowledge & understanding
Skills
Personality
Confidence & attitudes
BEHAVIOUR
Many Factors Influence Consumers’ Behaviour
Source: Adult financial capability framework developed by UK FSA and Basic Skills Agency, 2004
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No One Perfect Tool
Key challenges:
Understanding consumer attitudes and behaviour in making financial decisions
Identifying cause-effect relationships between financial education and making of financial decisions
Monitoring long term effect of consumers’ financial decisions
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Sharing Singapore’s Experience
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Approach to Empower Consumers to Achieve Fair Dealing
Enhancing Disclosure, Market
Conduct & Professional Standards
Facilitating Consumer Redress
Enhancing Financial Education
Financial Advisers Act (FAA)Securities & Futures Act (SFA)
Financial Industry Dispute Resolution Centre
MoneySENSE national financial education programme
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Enhancing Disclosure, Market Conduct & Professional Standards
Examples of requirements under FAA / SFA:
Disclosure requirements for investment products
Market conduct requirements (e.g. financial advisers need to have reasonable basis for product recommendations)
Minimum professional standards for representatives conducting regulated activities
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Approach to Empower Consumers to Achieve Fair Dealing
Enhancing Disclosure, Market
Conduct & Professional Standards
Facilitating Consumer Redress
Enhancing Financial Education
Financial Advisers ActSecurities & Futures Act
Financial Industry Dispute Resolution Centre
MoneySENSE national financial education programme
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Facilitating Consumer Redress
Financial Industry Disputes Resolution Centre (FIDReC) is a one-stop centre for all financial sector retail disputes
Covers banking, insurance and capital markets disputes
Dispute Resolution Scheme is an alternative to the court process, affordable
2-staged process (mediation & adjudication) Decisions are binding on financial institutions,
but not on consumers
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Success of Previous Dispute Resolution Schemes
Consumer Mediation Unit (Banking)
376 Complaints, Enquiries and Feedback in 2004
97% Resolution Rate
Insurance Dispute Resolution
1,022 Complaints and Enquiries from Feb 03- Mar 2004
100% Resolution Rate
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Dispute Resolution Process
2 Stages
Mediation Case Manager
AdjudicationPool of Adjudicators
Most Cases resolved at this
stage (95%)
Monetary Awards can be
made at this stage.
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Approach to Empower Consumers to Achieve Fair Dealing
Enhancing Disclosure, Market
Conduct & Professional Standards
Facilitating Consumer Redress
Enhancing Financial Education
Financial Advisers ActSecurities & Futures Act
Financial Industry Dispute Resolution Centre
MoneySENSE national financial education programme
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Enhancing Financial Education To Develop Well-Informed Consumers
In a disclosure-based regime, consumers bear the principal responsibility for protecting their own interests. MAS cannot protect consumers from investment risks.
Disclosure-based regime cannot work if consumers do not know how to make use of the information disclosed to them.
Financial education helps to empower consumers to make informed choices.
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MoneySENSE Industry Working Group (MIWG)
Financial Industry Assocns
Consumers Assocn
MoneySENSE Structure Rests on Partnerships
MAS
MCYS MOM CPF Board
MOE
People’s Assocn
Financial Education Steering Committee (FESC)
- Feedback- Conduct activities- Report on industry
initiatives
Funding, Endorsement, Overall Policy
Direction
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Structured Approach Helps Us Focus Our Efforts Systematically
Tier II : Financial Planning
Tier III : Investmen
t Know-How
Tier I : Basic Money Management
Three tiers of financial literacy
Priority: Build Strong Foundation First
No endorsement or promotion of specific organisations, associations or products
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Variety of Channels & Yardsticks
Target Audience YardsticksChannels
Interactive Skits
Seminars / Talks /
Workshops
Games / Contests
Media Articles
Consumer Guides / Website
Families
Low-Income / Financial Assistance
School-children
Retirees / Pre-retirees
Working Adults
Housewives
Outreach Numbers
Feedback Forms
Webpolls / Survey
Contest Participation
Website Hit Rates
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Seminars: Are They Effective?
Tools Used to Measure Effectiveness:
Quiz questions to test understanding
Forms to get feedback on content, speakers, materials, etc
Request participants to list 3 things they learnt
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0 10 20 30 40 50 60 70 80 90 100
Basics and features of ILP
Questions to ask a Financial Adviser before buying
Various charges of an ILP
Disputes resolution available at FIDReC and CASE
Interpreting annual statements of an ILP
Personal responsibility to regularly review own ILP
Investment risks of an ILP are fully borne by the policyholder
Invest in different funds to achieve desired degree of diversification
Allocation rates
Free look period
Difference between an SP and an RP policy
Seminars: Are They Effective?
Request Seminar Participants to List 3 Things They Learnt
Some participants could list quite detailed areas
Source: Above chart based on analysis of feedback forms received at a MoneySENSE seminar on Investment Linked Insurance plans in 2005
High recall for general messages
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Workshops: Are they Effective?
Most effective when there is follow-up action
E.g. Workshops for low income families where volunteers follow up with attendees on targets set for savings and expenditures. “Graduation” ceremony is held for workshop participants.
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Learning thru Play: Is it Effective?
Concepts include:
Money management
Business cycle changes
Job changes / upgrade skills
Risk mgt (Insurance)
Investments
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Learning thru Play: Is it Effective?
Sample Feedback Analysis
94% felt that they can understand more about the subject matter.
89% felt that the game board is a useful tool to learn about financial life skills.
83% felt that they have learnt new skills which they can apply in real life situations.
5% felt the game board is not relevant to them
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Media Columns: Are they Effective?
0% 10% 20% 30% 40% 50%
Cheque
CPF
Insurance Stm
Insurance BI
Credit Card
ILP BI
SMS entries
SMS Contests to Gauge Readership & Knowledge
Simple documents attracted most readers.
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Newsletters: Are they Effective?
Visit MoneySENSE website for more tips and download a budget template
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29
Surge in website hit rates when newsletters are published. 15% of visitors clicked on budget template.
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Newsletters: Are they Effective?
SMS Poll: Make a Commitment
1. Check how much savings you have
2. Set a target for saving for emergencies
Rule of thumb: 3-6 months income
Findings• Poll attracted people who are already saving (average 3
months’ income)• Participants aim for higher end of recommended range
(average 6 months)• Participation rate is a fraction of quiz questions. Could be
due to unwillingness to divulge personal information.
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National Financial Literacy Survey
Objectives
Measure current levels of “financial literacy” among different segments of Singaporeans.
Gauge Singaporeans’ attitudes towards financial matters.
Identify gaps in financial knowledge and actions.
Identify areas where more consumer education is needed & the most effective channels for delivery.
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Defining Financial Literacy
“the ability of individuals to make informed judgements and take effective decisions in
managing their finances”
Actions Knowledge
Key attributes:
• What steps Singaporeans have taken to manage their money.
• What active plans Singaporeans have made to plan for their future / retirement.
• For Singaporeans who invest, what steps they have taken to understand what they invest and monitor investment performance.
Key attributes:
• What level of understanding do Singaporeans have of the risks and implications of common financial products:
• - Loans.
• - Life insurance policies.
• - Investment products.
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Research Methodology
External research consultant commissioned to undertake this survey.
Face-to-face interviews with a representative sample of 2,023 persons aged 18 to 60 years old.
Research covered only analysis of findings based on the responses of those surveyed. Does not include analysis or comparison with findings of other studies.
While any scoring system has its limitations, we considered it useful to construct a Financial Literacy Score to provide a basis for benchmarking.
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Survey Findings are Encouraging
AC
TIO
NS
Generally good money management habits.
Singaporeans recognise the importance of planning for their finances and have taken some basic steps in financial planning.
Singaporeans who invested take a considered approach in their investment decisions.
KN
OW
LE
DG
E
Generally knowledgeable about their loans.
Understand risks inherent in investments & importance of diversification.
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Areas for Improvement
Inadequate Savings for Emergencies Only 32% of Singaporeans have cash savings of at least 3 times their monthly income.
Inadequate Retirement Planning Only 24% have actually calculated how much they would need when they retire.
Inadequate Understanding of Common Financial ProductsSingaporeans are not aware of basic features of common financial products such as life insurance, unit trusts and structured deposits.
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Developed a Financial Literacy Score
Financial Literacy Score
X 100
(Adjusted aggregated score for Action + Adjusted aggregated score for Knowledge)
(Score range value for Action + Score range value for Knowledge)
=
Scored questions which test Singaporeans’ financial actions and knowledge.
Weighted score assigned for each response.
Scores were aggregated and normalised across a 0 – 100 scale to derive a Financial Literacy Score.
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Total Singapore Population
Action Knowledge Financial Literacy Score
Tier I Basic Money Management
72 76 74
Tier II Financial Planning/Retirement Planning
64 61 62
Tier III Investment Know-How
67 59 58
TOTAL 70 65 67
Financial Literacy Scores By Tiers
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Financial Literacy Score by Education(Total Financial Literacy Score)
73
72
70
70
73
64
56
76
70
71
63
59
51
41
0 20 40 60 80 100 120 140 160
UniversityDegree/Postgraduate
(75)
Polytechnic/Diploma(71)
JC/Pre-U/A-Levels(71)
Secondary (66)
ITE (65)
Primary (56)
No formal education(47)
Action
Knowledge
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Financial Literacy Score by Monthly Household Income(Total Financial Literacy Score)
72
72
70
70
71
70
69
62
80
77
74
70
66
62
56
52
0 20 40 60 80 100 120 140 160
> $10k (77)
$6k - $9,999 (75)
$5k - $5,999 (72)
$4k - $4,999 (70)
$3k - $3,999 (68)
$2k - $2,999 (65)
$1k - $1,999 (61)
<$1k (56)Action
Knowledge
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Main Survey Findings by Segments
807266
Mean
55
Moderately Low
Average Moderately High
High financial literacy
Low financial literacy
27% of Students25% of Housewives33% of Unemployed
40% of Retirees
34% of Working Marrieds
All other segments:•Students
•Working Singles•Working Marrieds•Working Parents
•Pre-retirees•Housewives•Unemployed
•Retirees
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Financial Literacy Scores by Segments
Tier 1 (Basic money management)
Tier 2 (Financial planning)
Tier 3 (Investment know-how)
Overall Mean Score
Retirees 65 55 50 59
Unemployed 68 53 58 61
Students 71 51 57 62
Housewives 72 60 51 64
Pre-retirees 73 63 58 67
Working Singles 77 64 62 70
Working Parents 77 68 63 71
Working Marrieds 80 71 65 74
Total Population 74 62 58 67
E.g. Need initiatives to educate retirees how to manage their
retirement funds
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Identify desired outcomes (e.g. x% increase in financial literacy scores)
Set measurable outcomes (e.g. x% with at least 3 months savings for emergencies) for each segment
Implement programmes to achieve desired outcomes for each segment
Conduct next financial literacy survey in 2 to 3 years’ time
Conduct dipstick polls in the interim
Next Steps
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~ Thank You~