Financial education and consumer protection for all in the digital age

1. Context
2. The study
3. Key findings
4. Points to consider

• Context
• The study
• Key findings
• Points to consider
• Full report

Context

As the economy and financial markets grow increasingly digitalised, financial education and consumer protection become even more important. They are seen as essential for the financial empowerment of individuals, as well as for the overall stability of the global financial sector. This has been recognised and endorsed by G20 leaders through a series of high-level principles. These include:

• Innovative financial inclusion (2010);
• Financial consumer protection (2011); and
• National strategies for financial education (2012).

Recognising the increasing digitalisation of the economy, further G20 high-level principles were released in 2016, committing to taking positive action towards advancing digital financial inclusion.

The study

The Organisation for Economic Co-operation and Development (OECD) produced this report in 2017. The report is based on an overview of worldwide trends, and discusses the implications of the digitalisation of finance for financial education and consumer protection issues. It explores the challenges and opportunities for consumers, small businesses and self-employed ‘start-ups,’ as well as vulnerable groups. It also highlights the pressing need to improve existing financial education and consumer protection policies, concentrating on digitalisation. The report then discusses financial literacy initiatives and policies that can help consumers overcome potential problems posed by the digitalisation of the financial market.

The report is based on:

• An extensive literature review looking at issues consumers face from the digitalisation of the financial markets, as well as the regulatory environment surrounding financial education and consumer protection issues.
• Institutional responses to a ‘stocktaking’ questionnaire on the implications of digital financial services for financial education and consumer protection issues. This questionnaire was distributed through the OECD and the International Gateway for Financial Education (INFE) in 2015/16. A total of 38 institutions in 36 countries replied to the request to complete the survey, although the UK is not included in the responses.

Key findings

• Digital financial services offer numerous possibilities , particularly for the poor, unbanked and financially excluded populations, by:
  • Extending access
  • Lowering costs associated with financial products
  • Offering more convenient and faster transactions
• Global trends in the expanding digital economy:
  • In three years time global mobile connections could reach 8.9 billion and the number of smartphones could double to 5.8 billion.
  • Digital financial services (DFS) are currently available to over 60% of the world’s population, though there are still over two billion adults without a financial account today.
  • DFS do not only include payments and transfers of money, but more complex products such as insurance, credit and savings
• Threats presented by the spread of digitalisation:
  • Market driven risks: New types of fraud and mis-selling of products; security; confidentiality risks surrounding data; rapid and unregulated access to high cost credit; and questionable digital practices.
  • Regulation and supervision driven risks: Uneven consumer protection within and between countries.
  • Consumer driven risks: Increased digitalisation is often compounded by low levels of financial/digital literacy.
• These risks can have a negative impact on consumers by encouraging more precarious financial practices , leading to problems such as:
  • Lack of trust in DFS
  • New types of exclusion for certain groups (older people, small businesses, etc)
  • Over-reliance on digital credit by vulnerable groups
  • Vulnerability to online crime (hacking, phishing, etc)
• Helping consumers make the best of DFS : further action is needed, and policymakers and stakeholders should consider the following:
  • Reassess existing consumer protection frameworks to safeguard consumers
  • Have flexible financial education strategies that can address new and developing issues and challenges presented from DFS
  • Increase levels of financial literacy from a younger age
• More targeted financial education guidance may be needed to develop initiatives that are aimed at:
  • Expanding awareness and understanding of digital finance
  • Empowering individuals with financial skills through school and workplace programmes
  • Alerting customers to the potential risks of DFS through information security workshops
  • Developing competencies through easy-to-use digital training and online toolkits
• Technology can help achieve financial education outcomes by:
  • Improving access to financial information, advice and training
  • Developing competencies and confidence
  • Enhancing money management skills
  • Addressing consumer bias

The report states that a key priority for policymakers is to monitor the development of new digital tools and initiatives focused on DFS, and to research and evaluate the impact of DFS on consumers overall financial wellbeing.

Points to consider

• Relevance:
  • This report is relevant to all stakeholders and policymakers with an interest in developing policy frameworks concerning financial education and financial literacy in a digital financial environment.
• Generalisability/ transferability:
  • While the UK is not included in this research, many of the findings are transferable. However, because the report deals with a range of economies, some of the findings and advice from this report may seem quite dated and self-evident in the UK.

Full report

Financial education and consumer protection for all in the digital age - full research