Tuesday, 14 April 2009

Financial Literacy - important points to think about

by Christina Laskaridis

Provision of services to enable consumers to handle money, debt and their overall finances better has expanded considerably in recent years. In the UK the FSA are leading initiatives in financial capability and literacy e.g. spending £90m on it’s National Financial Capability Strategy, in conjunction with government, the financial sector and a multitude of non-profit organisations. This follows the discovery that the UK’s population has a low level of financial literacy, manifested as money and debt mismanagement, little planning, limited shopping around for alternative financial products and low product awareness. In 2006 an estimated 10.5 million people around the UK were experiencing difficulties in at least one of these areas, a figure which has probably risen since. The campaigns aim to improve personal financial administration through better budgeting and debt prioritisation and improved maths’ skills.

Despite the belated effort to address a serious problem by introducing such support, the strategy raises a few points of contention. Firstly, it focuses on debt prioritisation but leaves unaddressed the choice this will leave for the most vulnerable between rent and food. The National Strategy does not encompass food support for those in such a position, as has been proposed for example in Canada’s financial capability raising programmes.

Secondly, if the National Financial Capability Strategy is taking the form of a larger scale social welfare programme should the responsibility of leading it lie with the FSA – the financial services ‘regulator’, a body that is not subject to the public’s scrutiny, or should it lie with the government – through the Departments with the capability in providing social and education services? Given the experience and access to provision channels would it make more sense for this to be publicly provided?

Thirdly such a strategy implicitly accepts without argument that households have and should accept these responsibilities. Arguments focusing on the recklessness of consumers and home-buyers evade the discussion about the structures that cause oppression through finance. Households are now burdened with a much greater individual responsibility of financial risk management as finance has expanded into ever more areas of everyday life, e.g. the decline in public welfare policies and wide-spread privatisations, which means a precarious balance of risks are transferred and borne by the household.

The debate on raising financial literacy and capability – the crux of this financial education approach - does not ask what the institutional factors that have led people to find themselves in the situation they do and, as corollary why others do not. Without addressing the inequality within the financial system, the whole debate on financial capability resigns those deemed financially incapable to being seen as irresponsible and out of date – quite ironic as concurrently masses of analysts highly specialised in finance are also defamed for irresponsibility. Should we all be learning the theories which have guided us into the current crisis?! The focus of the National Financial Capability Strategy is in educating the innumerate, financially incapable segments of the population, rather than identifying let alone re-arranging the provision of financial services as a cause of the problem to start with. It orientates itself around educating the public about becoming better consumers, evading altogether the content of economic and financial relations that people are in.

Lastly, an entirely different model of education about finance and economics could be put in place, in which adult education is not used as a disciplinary mechanism to assist conforming and adapting to society. Community-wide education in economics and finance can be work by looking at one's own position and linking it to others; by connecting knowledge and action, education can lead to a critical assessment of one’s situation. Education fostering critical thought in the sphere of economics and finance can lead to comprehending a historical specific situation which is susceptible to change. Financial capability need not be only about better budgeting support but a wider and deeper awareness raising programme to assist people in demanding more equal treatment in the sphere of finance.

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