Promoting financial education to prevent risky situations
Amongst all factor likely to lead to over-indebtedness, a common denominator is the taking out of loans from banks or credit agencies. The lack of financial education thus plays an undeniable role in situations of financial difficulty; working on this challenge represents a key lever for policies to fight over-indebtedness. Leading the committee for consumer protection founded in 2012, the Commission for the Surveillance of the Financial Sector (CSSF) is a vital actor on the issue of indebtedness and over-indebtedness in Luxembourg. Interview with Danielle Berna Ost, Secretary General of the Commission for the Surveillance of the Financial Sector (CSSF).
INTERVIEW
Sustainability MAG: What is the role of the committee for consumer protection, and specifically of the working group “Credits and over-indebtedness” led by the CSSF?
Danielle Berna Ost: The Committee for the protection of the financial consumer has elaborated a national strategy for financial education, which was approved by the Minister of Finance in July 2017. On this occasion, the latter mandated the CSSF to develop and coordinate Luxembourg’s financial education initiatives. Following discussion within the committee, working groups were established around three key issues; one of them focuses on “Credits and over-indebtedness”. This group handles questions linked to consumer loans and mortgages, as well as the risk of over-indebtedness.
For consumer loans, some intermediaries, mostly foreign ones, offer “easy” loans to individuals that are unable to obtain more credit from banks in Luxembourg. The intervention of the latter carries the risk of aggravating the financial situation of these individuals, and to push them into a situation of over-indebtedness. Regarding real estate mortgages, Luxembourg’s current situation carries its share of risk. A raise in interest rates could pose reimbursement problems for many households.
According to you, how can this risk be prevented?
The best protection against over-indebtedness is financial education. Unfortunately, the greater share of people does not dispose of even the most basic financial and economic knowledge; despite Luxembourg’s renowned financial sector, the issue of over-indebtedness is also present in the Grand-Duchy. Without pretending to cure all financial ills, financial education however represents an important addition to the protection of consumers. Access to credit is easier today than it was in the past. The acquisition, or even the improvement of citizens’ knowledge about the management of their personal finances has become an inevitable prerequisite to allow them to develop a responsible financial behavior.
The CSSF believes that each individual should have the basic knowledge of the financial world that allow him/her to manager his/her money and to evaluate related financial risks in an effective and responsible manner.
Are other stakeholders involved?
The topic of the protection of the financial consumer concerns several sectors: the CSSF thus deemed it useful to gather the main actors within one committee, so as to discuss the different approaches and to coordinate actions.
The committee includes representatives from several ministries (Finance, Economy, Family, Education), public organisations (Luxembourg Central Bank, Chamber of Commerce, Statec, University of Luxembourg), professional associations such as ABBL or ALFI, as well as several associations with an expertise on the issue (European Center for Consumers, Ligue Médico-Sociale and Inter-Actions, Jonk Entrereneuren, Investas).
A mere of 53% of adults have financial skills in Luxembourg, compared to 71% in Norway.
(Global Financial Literacy Excellence Center, 2014)
What initiatives have been developed in the framework of the national financial education strategy?
The strategy targets the population as a whole, regardless of age. It not only provides an overview of existing financial education initiatives, but also lists a range of proposed projects aimed at given target groups. The goal is to develop the financial knowledge of consumers, to promote responsible financial behaviors and to prepare the youth as early as possible to an increasingly complex economic environment. One of the targets to reach is thus the integration of financial education in academic curricula to reach all students. We have started to develop an independent website solely dedicated to financial education. Another idea is to develop a mobile application to encourage and support young people to manage their own budget. In the framework of the co-creative workshops organized by IMS Luxembourg on the topic of over-indebtedness, a working group in which the CSSF was involved worked on the content of such a tool.
Sustainability MAG: What is your opinion on Luxembourg's national financial education strategy?
Sarah Mellouet: The public strategy approved in 2017 is a first step in the structuring of an approach to the financial education issue in Luxembourg, complementing several private initiatives. The main objective should be to ensure that growing numbers of students gain access to trainings currently dispensed ad hoc by organisations like Jonk Entrepreneuren, familiarizing them with basic financial knowledge.
According to you, which country should Luxembourg look up to when it comes to financial education?
Taking into account results from the PISA test, which amongst others measures students’ financial literacy, young Flemish students (Belgium) rank second behind those from the Chinese cities of Beijing, Shanghai, Jiangsu and Guangdong. The Belgian Authority for financial services and markets has indeed developed learning materials and support teachers through programs such as Wikifin.be in order to contribute to making financial education a basic skill for the youth.
To be read also in the dossier "Lives on Credit":