OECD Recommendation on Financial Literacy
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The Recommendation on Financial Literacy was adopted by the OECD Council on 29 October 2020, during the OECD Ministerial Council Meeting. It presents a single, comprehensive, instrument on financial literacy to assist governments, other public authorities, and relevant stakeholders in their efforts to design, implement and evaluate financial literacy policies. It is part of a holistic approach to financial-consumer issues, where financial literacy, together with improved financial access, adequate consumer protection, and regulatory frameworks, are expected to support financial resilience and well-being. Find out more about OECD work on financial literacy at www.oecd.org/financial/education
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OECD Recommendation on Financial Literacy
- 1. OECD RECOMMENDATION ON FINANCIAL LITERACY Adopted by the OECD Council on 29 October 2020
- 2. PRESENTATION OVERVIEW OECD RECOMMENDATION ON FINANCIAL LITERACY 1. Context and rationale of the Recommendation 3. Implementation and engagement 2. Content and aims of the Recommendation 2
- 3. Availability of a financial cushion in case of income loss: Percentage of people who could continue to cover living expenses for a given period of time if they lost their main source of income, without borrowing or moving house 0 10 20 30 40 50 60 70 80 90 100 One week or less Savings between 1 month and 6 months Six months or above Don’t know Source: OECD (2020), OECD/INFE 2020 International Survey of Adult Financial Literacy 1. CONTEXT AND RATIONALE LIMITED FINANCIAL RESILIENCE ACROSS ECONOMIES 3
- 4. 0 5 10 15 20 Italy (11.1) Romania (11.2) Colombia (11.2) Montenegro (11.5) North Macedonia (11.8) Georgia (12.1) Peru (12.1) Bulgaria (12.3) Croatia (12.3) Hungary (12.3) Russia (12.5) Malaysia (12.5) Moldova (12.6) Czech Republic (13.0) Korea (13.0) Poland (13.1) Portugal (13.1) Indonesia (13.3) Estonia (13.3) Germany (13.9) Austria (14.4) Slovenia (14.7) Hong Kong, China (14.8) Average (12.7) OECD-11 (13.0) Knowledge Behaviour Attitude Source: OECD (2020), OECD/INFE 2020 International Survey of Adult Financial Literacy Financial literacy score (out of 21) 1. CONTEXT AND RATIONALE LIMITED FINANCIAL LITERACY ACROSS ECONOMIES 4
- 5. 1. CONTEXT AND RATIONALE LOW FINANCIAL LITERACY AMONG STUDENTS 15% of students did not attain Level 2 proficiency in financial literacy i.e. cannot apply knowledge of common financial products and commonly used financial terms to situations that are immediately relevant to them 10% of performance differences in financial literacy could be explained by socio-economic status Socio-economically disadvantaged students less likely to be included in the financial system and have access to a bank account, a payment card or have made transactions online Source: PISA 2018 financial literacy assessment. Average across OECD countries 5
- 6. 2.CONTENT AND AIMS AN UPDATED AND GLOBALLY RELEVANT INSTRUMENT 1. Present a single, comprehensive, instrument on financial literacy To assist governments, other public authorities, and relevant stakeholders in their efforts to design, implement and evaluate financial literacy policies 2. Drive a holistic approach to financial-consumer issues Where financial literacy, together with improved financial access, adequate consumer protection, and regulatory frameworks, are expected to support financial resilience and well-being 3. Consolidate existing OECD Council Recommendations Consolidates and is expected to replace four instruments developed between 2005-2009 4. Leverage recent OECD work on financial literacy e.g. new and recent work recognised in global fora such as the G20 and APEC 6
- 7. 2.CONTENT AND AIMS SCOPE AND RELEVANCE 1. National strategies for financial literacy Including how to address the needs of vulnerable groups and support financial resilience 2. Financial literacy and the various sectors of the financial landscape Especially on saving, pensions, investments, credit and insurance Taking into account the increased digitalisation of finance 3. Effective delivery of financial literacy programmes Including digital delivery, the use of behavioural insights and the evaluation of such initiatives Covid-19: Strong relevence in meeting challenges to financial well-being and resilience Key areas within the Recommendation: 7
- 8. 2.CONTENT AND AIMS A COMPREHENSIVE AND ITERATIVE PROCESS Developed by the International Network on Financial Education, under the aegis of the Committee on Financial Markets (CMF) and the Insurance and Private Pensions Committee (IPPC) Shared for consultation with the Committee on Consumer Policy and the Education Policy Committee, as well as public consultation Adoption by the OECD Council during the Ministerial Council Meeting 2017-18 2019-20 October 2020 Extensive consultation process and reflects a whole-of- government consensus in OECD Member countries 8
- 9. Reports to Council on implementation in no later than five years 3. IMPLEMENTATION AND ENGAGEMENT IMPLEMENTATION CMF and the IPPC will monitor implementation… INFE …in consultation with INFE. Serves as forum for exchanging practices in using the Recommendation, develop guidance to support implementation 9
- 10. 3. IMPLEMENTATION AND ENGAGEMENT NON-MEMBER ADHERENCE Dissemination and impact will be deepened through non-Member adherence, underscoring the global relevance of the OECD’s work on financial literacy For example, Brazil has adhered to the Recommendation at the time of its adoption 10
Notes de l'éditeur
- Secretary General, ambassadors, colleagues. The OECD’s work on financial literacy is an important element of our work on supporting financial inclusion, on improving financial resilience, and ultimately on fostering financial well-being. The Draft Recommendation of the Council on Financial Literacy represents a significant step forward in this work, and will use this presentation to highlight 3 key elements of the draft Recommendation: Its context and rationale. Its Content and aims. Plans for implementation and engagement.
- First on context and rationale. Results from the 2020 OECD/INFE financial literacy survey show the scope of the challenge facing households when it comes to financial resilience. This slide shows one key indicator, the availability of a financial cushion in case of income loss – that is, the percentage of people who could continue to cover living expenses for a given period of time if they lost their main source of income, without borrowing or moving house. What we can see is that on average in the participating OECD countries: About 25% of adults would be able to support themselves for just one month if they lost their main source of income The same survey also shows that 31% of adults worry about paying normal living expenses. Let me stress that this is pre-crisis data, and that the COVID-19 pandemic has weighed on the already fragile situation for households in in many countries.
- The survey data also shows how large groups of citizens are lacking the necessary financial literacy to deal effectively with everyday financial management, with financial literacy scores shown on this chart. We found that, in participating OECD countries: The average financial literacy score was 13 out 21, or 62% of the maximum possible score – which is not high. On average, individuals who report availability of savings of more than three months have consistently and significantly higher financial literacy scores – that is to say that financial literacy is associated to financial resilience.
- Similar observations hold for younger generations. The PISA 2018 financial literacy assessment revealed that, on average across OECD countries: Some 15% of students did not attain Level 2 proficiency in financial literacy, meaning that these students cannot even apply their knowledge of common financial products and commonly used financial terms to situations that are immediately relevant to them, such as recognising the value of a simple budget. 10% of performance differences in financial literacy could be explained by socio-economic status – so there is an inclusion issue here as well. Moreover, socio-economically disadvantaged students are less likely than advantaged ones to be included in the financial system and to have access to a bank account, a payment card or have made transactions online.
- Moving now to the content and aims of the draft recommendation. This slide shows four key goals: To present a single, comprehensive, instrument on financial literacy to assist governments, other public authorities, and relevant stakeholders in their efforts to design, implement and evaluate financial literacy policies. To drive a holistic approach to financial-consumer issues within government policy, where financial literacy, together with improved financial access, adequate consumer protection, and regulatory frameworks, are expected to support financial resilience and well-being. To consolidate existing OECD Council Recommendations – and this draft recommendations consolidates and is expected to replace four instruments developed between 2005 and 2009. To leverage further OECD work on financial literacy and capture this in guidance, including new work recognised in global fora, such as the G20 and APEC.
- This slide shows the three key areas covered by recommendation: Establishing and implementing national strategies for financial literacy as a long term approach to address limited financial literacy and resilience. This includes tailoring strategies to the needs of specific groups such as young people, women, elderly and SMEs. Currently more than 70 countries around the world are developing or implementing a national strategy based on OECD principles. Financial literacy and the various sectors of the financial landscape – especially on saving, pensions, investments, credit and insurance, and taking into account the increased digitalisation of finance. Effective delivery of financial literacy programmes – including digital delivery, the use of behavioural insights and the evaluation of such initiatives, and assessing the impact of programmes. And when you consider the impacts of Covid-19 on household finances, it’s clear that these are all highly relevant in addressing the challenging the pandemic is creating to financial wellbeing and resilience, and so should for an important part of governments’ response.
- The draft Recommendation has undergone an extensive consultation process and reflects a whole-of- government consensus in OECD Member countries: It was first developed by the OECD International Network for Financial Education, or INFE, in 2017. In 2018 the draft was the reviewed by the Committee on Financial Markets and Insurance and Private Pensions Committee It was transmitted to the Committee on Consumer Policy and the Education Policy Committee for consultation, as well as shared for public consultation in 2019. A revised draft reflecting these comments was finally approved for transmission to the Council via written procedure on 25 September 2020 – which brings us to this session today. I would also like to take this opportunity to acknowledge the role of the OECD’s Legal Department in supporting the Recommendation’s development as a legal instrument, with particular thanks to Gita Kothari and Lawrence Pacewicz.
- I will finish with a brief word on implementation and outreach. Going forward, it is proposed the CMF and the IPPC, in close consultation with the INFE, will monitor implementation of the Recommendation and report to Council in no later than five years. INFE will continue to serve as a forum for exchanging practices in using the Recommendation and will develop practical guidance to support Adherents in its implementation.
- The dissemination and impact of the Recommendation will be deepened through non-Member adherence, supported by the INFE which counts public institutions from over 130 countries in its membership, thereby underscoring the global relevance of the OECD’s work on financial literacy. Notably Brazil, which was actively engaged in the development of the draft Recommendation in the INFE, as well as in the CMF and IPPC, has already submitted a request to adhere to the Recommendation at the time of its adoption. I will leave it there with a final word of thanks to DAF’s Insurance, Private Pensions and Financial Markets Division, and in particularly Flore-Anne Messy and Chiara Monticone who have joined us today, and Adele Atkinson who retired from the OECD last year, for their efforts in driving this important work towards such a strong outcome over the past few years.