Financial education refers to the process by which consumers improve their understanding of financial products and concepts and, through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being (OECD, 2005).
Financial education empowers consumers to exercise their rights and responsibilities in the consumer protection equation.
Financial education is an important tool to achieve greater financial access as it helps consumers both accept and effectively use the products to which they increasingly have access. Financial education empowers consumers to exercise their rights and responsibilities in the consumer protection equation.
What programs and policies are likely to be effective to increase financial education? How do we measure impact? What is an appropriate role for financial institutions? What are the models that are cost-effective, can reach scale, and keep the client at the center? Who should bear the costs?
Recent research has tried to provide answers to such questions, in search of the most effective models to promote financial education at scale. For example, Citi Foundation’s 2012 “Bridging the Gap” report, Microfinance Opportunities’ (MFO) collaboration with Consumers International, and the Russia Financial Literacy and Education Trust Fund have generated useful tools, research, and metrics for financial education. The private sector is also engaged. Financial institutions around the world are piloting financial education programs with their clients.
Financial education is on the agendas of governments and nongovernmental organizations (NGOs). It is also mandated by some central banks and financial-sector regulators and increasingly tied to consumer protection frameworks. Governments and other stakeholders engage actively to implement the Organization for Economic Co-operation and Development’s International Network on Financial Education (OECD/INFE)‘s “High-Level Principles on National Strategies for Financial Education,” which were endorsed by Group of Twenty (G-20) leaders in June 2012.
Financial education initiatives are backed by increasingly rigorous evaluation research. The Russia Financial Literacy and Education Trust Fund has developed an evaluation toolkit for financial capability programs.
Financial education is an important tool to address the imbalance between the consumer and the provider and help consumers access, use, and benefit from products and services.