By Geert Van Campenhout
The evolution of the financial system has created more opportunities for people to access finance, manage risk and take control of their money. While overall this is positive, it’s important that people develop the skills and habits needed to take financial decisions that will contribute to their financial well-being. For some however, navigating the financial landscape in an increasingly digital and complex financial system can be challenging.
The importance of financial resilience
According to a recent Eurobarometer survey, about one fifth of the EU population has a low level of financial literacy, and certain segments of society – including young people and those with lower incomes – are particularly vulnerable. The cost-of-living crisis and the COVID-19 pandemic showed that an individual’s financial health can quickly come under pressure, highlighting the need to increase people’s ability to become financially resilient so that they are better able to deal with such events. At the moment, some 16% of the EU population do not have any emergency savings, while 18% would only be able to continue covering their living expenses, without borrowing money or moving house, for a period of three to six months if they were to lose their main source of income.
It’s important that low levels of financial literacy be improved because they can have a negative effect on an individual’s personal and financial well-being and increase the risk of social exclusion, especially for vulnerable groups. Doing this requires a holistic approach and must go hand in hand with strong consumer protection measures and fair advice. It also requires good regulatory measures for financial markets, so EU citizens feel they can have trust in the financial system. And engagement by Member States and stakeholders is also vital.
What the Commission is doing
Financial competence frameworks: the EU has made financial literacy a priority action in its 2020 Capital Markets Union action plan, focusing on empowering consumers through developing financial skills from an early age. Against this background, the European Commission and the Organization for Economic Co-operation and Development (OECD), in close collaboration with Member States, have developed two financial competence frameworks to establish a shared understanding of relevant skills. The frameworks – one aimed at adults and another for young people and children – are voluntary. Member States and stakeholders can use them to design, coordinate, and evaluate financial literacy policies and initiatives, which will make these measures more effective.
Retail Investment Strategy: the strategy covers many areas, including financial literacy. The proposal aims to encourage Member States to promote learning measures that support the financial literacy of (prospective) retail investors. Understanding investment products and being able to assess the risks and benefits of such products is essential if people are to invest responsibly in capital markets.
Eurobarometer, support to Member States and EFSIR: the Commission has also taken other measures to promote financial literacy and support Member States in their efforts to raise levels of financial literacy. The 2023 Eurobarometer on financial literacy, for instance, can help Member States to monitor and assess financial competence. Support to implement financial literacy policies is available through the Technical Support Instrument. In addition, the 2023 European Financial Stability and Integration Review also addresses the issue of financial literacy.
Conferences: The Commission also tries to encourage the exchange of best practices and discussion around the opportunities and challenges in this area. Looking ahead, the Commission and the Belgian Financial Services and Markets Authority (FSMA) will organise a high-level conference on financial literacy, resilience and inclusion on 20 February 2024. Bringing together relevant stakeholders, experts and Member States is important because commitment and effective action from the bottom up can contribute significantly to creating a more financially literate society.
Read more about what the Commission is doing in this area, and get more information about the upcoming conference
Geert Van Campenhout is a policy expert on economic analysis for retail finance and capital markets union at the European Commission
