Why better financial competence is in everyone’s interest – including for banks

A friend of mine once said that he didn’t bother reporting his credit card theft because the thief was spending less than he was.

Like all good jokes, there is a grain of truth in it.

But money is no laughing matter, especially these days as households grapple with the cost of living crisis while still recovering from a once-in-a-century global pandemic.

With energy bills and food prices soaring, people are really feeling the pinch when it comes to managing their personal finances and household budgets.

It doesn’t help that Ireland’s financial literacy was already low and lagging behind in comparison to so many of our closest neighbors and global peers.

A recent survey commissioned by the Bank of Ireland assessed people’s knowledge of a number of basic financial concepts such as compounding, tax breaks and credit card interest.

The results are impressive.

Ireland’s financial literacy score is 54 percent, well behind the UK at 67 percent, Germany at 66 percent and Australia at 64 percent.

On average, women in Ireland perform almost 10 percentage points worse than men

In an increasingly complex financial landscape with numerous financial products and services, individuals need to feel empowered to manage their financial well-being.

Without financial knowledge, this is a challenge.

People with low levels of financial literacy are more likely to be concerned about finances, are at greater risk of being exposed to online scams and are less sure where to go for information about financial products.

Of course, financial education alone will not solve the cost of living crisis.

But in a situation like this, everything helps.

And if the events of the last three years have shown us anything, it’s the value of building financial resilience to prepare for financial shocks, of which this one will not be the last.

Financial literacy is also a gender equality issue, as our research shows.

On average, women in Ireland underperform men by almost 10 percentage points – and age does not matter, as women are less financially literate than men across all age groups.

Close the gap

So how do we close the financial literacy gap?

We can – and must – start talking about it.

Finance ranks alongside sex and religion—and only surpassed by death—on the list of things people find difficult to talk about, our research has shown.

Nearly 10,000 customers typically made minimal monthly repayments on their credit card balances

Three out of four people do not talk about finances at all or only in an emergency.

It’s hard to see any progress without first breaking that taboo.

But moving the dial requires more than just a conversation.

Creative solutions are required.

For its part, Bank of Ireland has been trying to bridge the gap by turning to behavioral research to encourage customers to adopt healthier financial habits, and early results have been very encouraging.

For example, we identified nearly 10,000 customers who typically made minimal repayments on their credit card balances each month.

This debt can grow and spiral without customers realizing the long-term adverse effects this can have.

To address this, we reached out to these customers directly and suggested alternative ways they could manage and reduce that credit card debt.

Those customers who received this targeted advice were twice as likely to improve their finances.

In a separate study, we focused on households that lacked short-term savings to cushion them from unexpected financial shocks.

Good financial habits, like all good habits, start at an early age, so our schools are ideally placed

The study, conducted jointly with the Competition and Consumer Protection Commission (CCPC) and ESRI, showed how the provision of behavioral notifications could increase savings account utilization by 25-40 percent, with particular resonance among low-income households.

The banking sector certainly plays a key role in our national financial literacy journey, but this issue requires a societal response.

Our education system would be the obvious place to start.

Good financial habits, like all good habits, start at an early age, so our schools are ideally placed to give tomorrow’s consumers a head start in developing good financial habits for life.

The Bank of Ireland has developed successful programs for Irish primary and secondary schools that have delivered over 290,000 hours of financial literacy since 2019, with over half of secondary schools participating.

Financially conscious customers are becoming more demanding when purchasing financial products.

The appetite of teachers from all parts of the country for these resources suggests that there is a strong desire to firmly integrate everyday, real-world financial literacy into the curriculum.

Good for business

So why should a bank empower its customers in this way?

Financially conscious customers are becoming more demanding when purchasing financial products.

You’ll ask more questions—and harder ones, too.

All of that would make life harder for a bank, right?

Not correct. It’s actually a win-win situation for banks and for our customers.

Financially conscious consumers are better able to manage their financial affairs and improve their financial well-being.

This, in turn, makes for a financially healthy nation that positively impacts individuals, their families, businesses, communities, and the broader economy.

In the long run, that has to be good for business because it means more opportunities for everyone.

Dawn Bailey is Head of Financial Wellbeing at Bank of Ireland

https://www.independent.ie/business/irish/why-better-financial-literacy-is-in-all-of-our-interest-including-the-banks-42138335.html Why better financial competence is in everyone’s interest – including for banks

Fry Electronics Team

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