Financial literacy is a hot global policy potato that emerged as the flavor of the month for October 2016, according to the taste buds of the Organization for Economic Development and Co-operation (OECD) and a publication by the Association of Banks (ABL) in Lebanon.
“Financial literacy, financial capability and consumer protection have been in focus for the past few years in most countries around the world,” the ABL said in a recent brochure. While the claim to this topic being hot in “most countries” is a bit daring (there are over 180 member countries in the United Nations), Lebanon is one of over 60 countries around the world that is currently developing or implementing a national strategy for financial education, according to the OECD.
The intent to forge such an initiative under participation of different stakeholders in economics, finance and education was evidenced by ABL’s publication, which was exactly titled “Towards a national strategy for financial education and literacy.” It envisions the development of such a strategy during the years 2016 through 2019, which would suggest that Lebanon is among the five countries out of 64 that are still planning their national strategy (the brochure isn’t clear on this point), but this would still be a timely schedule if any element of credence could be attached.
“Overall levels of financial literacy, indicated by combining scores on knowledge, attitudes and behavior are relatively low,” the OECD concluded in its first multi-national survey of adult financial literacy competency, which was based on surveys commissioned by various national financial authorities over the past few years. The survey results included 30 countries (13 of them non-OECD members) and were published in October 2016.
This conclusion of course begs the question in relation to what standard or historic finding are the overall levels “relatively low,” seeing as a comparable international survey does not exist. This, and the fact that our country is not part of the survey, should not deter policy makers in Lebanon from perusing the study’s detailed findings when designing their own national strategy for boosting financial literacy.
According to views quoted by the OECD study, financial literacy is a complex phenomenon, made up of a combination of knowledge, attitudes and behaviors. The study regards financial well-being as primarily the result of positive (long-term-oriented) behaviors and argues therefore “that financial education needs to ultimately change behavior.”
This contrasts with prevalent behavior found today. “Relatively few people reported that they have long-term financial goals and strive to achieve them, which suggests a tendency to focus on the short term,” the OECD found. This may only come as a surprise to people (like researchers and communications experts based at OECD headquarters) who fall into an income bracket that is more comfortable than 40 to 50 percent of the world population, who have no assets worth mentioning. Nonetheless, financial literacy is an increasingly important issue when one considers that global asset ownership has been on the rise. According to the recently published Global Wealth Report by Allianz Group, the world’s population now holds more than $100 trillion in net financial assets. The Allianz report is not preoccupied with waxing endlessly about the concentration of wealth in the hands of the “one percent.” However, it emphasizes that there is a paradox between excess savings capital on the macroeconomic side and a very different situation on the level of the individual. “Faced with over-indebted governments and aging societies, each individual is being called upon to do more, not less, to make provisions for his or her own future,” Allianz says. This dichotomy between growing aggregate savings and increasingly stressed fortunes for the average man or woman, in conjunction with demographic trends toward increased longevity and the socio-political quest to achieve a lowering of inequality, strongly supports a rising need to move attitudes and behaviors from their focus on the short term towards the long term.
Jordan, the country closest to Lebanon among surveyed economies in geography but perhaps not in terms of financial knowledge, behaviors and attitudes, stood out against other countries described in the OECD survey by having a very strong short-term orientation and aversion to long-term financial planning (i.e. fewer people in Jordan than in any other surveyed country disagreed with the view that they “tend to live for the day”). The Jordanian participants in the survey also showed particularly strong gaps between the two genders (in favor of males over females) in financial knowledge and behaviors thought to be expressions of advanced financial literacy.
Financial literacy, propped up by powerful consumer rights, and financial inclusion, meaning promotion of access to a wide range of financial services and broadening their use by all segments of society, are vital to the overall stability of the financial system. “It is therefore valuable for policy makers to have information about the levels of financial inclusion of consumers alongside a measure of their financial literacy,” the OECD study argues.
The organization – offering a strong dose of patrimonial “nudging” toward the kind of financial literacy that it promotes – suggests starting financial education early and ideally in school, strengthening basic financial knowledge across the population, and encouraging behaviors to improve financial resilience and reap long-term rewards.
These recommendations are indeed applicable to Lebanon, and there is evidence to support this. While the Lebanese authorities did not take part in the surveys that were commissioned by local institutions in the 30 participating countries that were represented in the recent OECD analysis (one wonders whether the local decisionmakers lack the political will and clout or the funds to commission a survey), the country participated in an earlier pilot survey of national financial literacy conducted in 11 countries for OECD’s International Network for Financial Education (INFE), which was sponsored by the World Bank.
According to the results of this pilot survey, as cited in the new ABL brochure, more than one in every five Lebanese are unaware of the fact that state budgets entail both revenues and expenses, whereas one in four hold a savings account and another 23 percent have a current account. However, a majority did not correctly grasp the concepts of inflation and compounded interest. Most concerning, only about one in every ten workers will potentially benefit from a pension, while end-of-service indemnities provided through the National Social Security Fund (NSSF) are “judged not to be sufficient to ensure a decent life for the retiree.”
Widen the net
The draft recommendations for a national strategy for financial education and literacy in the Lebanese brochure are obviously inspired by the OECD points of view. The OECD perspectives are expressed in all descriptions of financial literacy in the brochure and have found entry into the five “priority pillars” that are outlined at the end.
There is nothing to say against these pillars: starting financial education at an early age, improving consumer protection, enhancing the pension system, strengthening citizens’ knowledge of fiscal and tax policies and increasing financial inclusion. Each of these five objectives is indeed commendable. Many of these financial knowledge and policy targets have been repeatedly called for in this magazine.
What is surprising, however, is that the list of stakeholders (on page 18) for participation in a higher council of financial education – while mentioning institutions such as the Capital Markets Authority, insurance companies and media in passing at different points in the text – puts emphasis on five public sector entities (four ministries and the central bank) and highlights exactly one private sector stakeholder by name – the Association of Banks in Lebanon.
In Lebanon, the initiative toward creating a higher council for financial education and literacy is clearly a reflection of the international push toward financial literacy, and the welcoming of the initiative of the central bank and the banking industry.
It takes just a few minutes to devise a list of other entities, from the public but especially from the private sector, which should be mentioned as stakeholders or candidates for involvement in a higher council, without giving them the same weight as ABL. Even if one leaves out international electronic payment facilitators such as Visa and MasterCard, the stakeholders to consider would be, besides the CMA and the BSE in the public domain, from the private sector: insurance and pension consultants; the insurance association (ACAL); Fintech companies and entrepreneurs; funds operators; financial intermediaries; experts in compliance; lawyers and specialist media.
The fact that these stakeholders are not included in the top-level list shows that Lebanon has still to cover some distance before one can expect to see a holistic national strategy and an authoritative higher council for financial education that is not biased in favor of the banking industry, at the expense of financial markets.