Improving the financial literacy of European consumers

The 2008 financial crisis highlighted consumers’ low level of understanding of financial products, which they often deemed too complex. It therefore exposed the lack of financial literacy among consumers, financial literacy being a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and achieve financial wellbeing. Earlier this year, the Swiss National Bank decision to discontinue its currency ceiling, leading to the sudden leap in value of the Swiss franc (CHF) – with a direct impact on all CHF-denominated loans in the European Union – again revealed a persistent lack of financial literacy among certain consumers, as they were unable to predict this financial risk and consequently to fulfil their loan obligations. A 2012 Eurobarometer survey showed that many consumers do not receive advice when purchasing financial product or services and that 52% of them tend to opt for the first product they see when obtaining a current bank account or a credit card. Major hurdles to financially sound behaviour appear to lie in individuals' psychological habits, culture, social and economic background. Levels of financial literacy can be improved directly through financial education, as well as indirectly by ensuring a good level of consumer protection in the financial sector and enabling consumers to make informed choices with appropriate advice, standardised information and comparison tools for financial products. Research shows that most people seem to learn through experience (or even more through adverse experience), but consumers also have a tendency to forget fast, making it necessary to repeat lessons in various forms.