Financial literacy education edu regulating our saving and spending habits

FINANCIAL
L I T E R ACY
E D U C AT IO N
Edu-Regulating our
Saving and Spending Habits

Asta Zokait yte


Financial Literacy Education


Asta Zokaityte

Financial Literacy
Education
Edu-Regulating our Saving
and Spending Habits


Asta Zokaityte
University of Kent
Canterbury
UK

ISBN 978-3-319-55016-9
ISBN 978-3-319-55017-6
DOI 10.1007/978-3-319-55017-6

(eBook)

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To Will


Preface

This project started 7 years ago as part of my Ph.D. thesis. The project’s
initial aim was to explore the causes of the global financial crisis and its

impact on and restructuring of the national and international financial
architecture. I was particularly intrigued by popular discussions about the
role that consumers played in the financial crash. Specifically, discussions
and regulatory discourses about how consumers were seen increasingly as
integral parts of the financial system and as significant for its “proper”
function. As such, there was a growth in calls to regulate consumer
behaviour in the financial services market.
In the course of my research, I have discovered that such calls resulted
in and often manifested themselves through the proliferation of consumer financial education programmes. Consumer education in prudent
and measured risk-taking and risk management became one of the most
popular regulatory responses in dealing with increased household vulnerability to and dependence on financial markets.
However, that is not to suggest that other regulatory measures were
not considered or indeed adopted. In the UK, for example, in addition to
financial education programmes, financial regulators deployed different

vii


viii

Preface

regulatory tools aimed at strengthening consumer ability to navigate
financial markets safely and effectively.
For example, measures such as the law authorising automatic pension
enrolment were passed to address some well-documented behavioural
heuristics that affect consumers’ ability to save enough for their retirement. Also, financial advice given to consumers when entering into
major financial transactions (such as getting a mortgage) was made
mandatory. The UK financial regulator believed that this would protect
consumers from aggressive selling practices employed by some financial

institutions and curb consumer excessive risk-taking. Even consumer
access to credit was tightened to make sure that those who lacked
financial resilience would not expose themselves to additional financial
risks and strains. All of these measures were quite popular not only in the
UK but also internationally.
Yet, such measures did not seem to address the very foundations of
consumer vulnerability—the increasing consumer dependence on highly
unstable and volatile financial markets and consumer individualisation of
financial risk-taking (the problems that were so insightfully documented
and explained by a number of great legal scholars with whom I was
fortunate to have productive conversations over a number of years: Toni
Williams, Kate Bedford, Iain Ramsay, Iain Frame, Donatella
Allessandrini and Paddy Ireland). At this point in my research I changed
my focus away from explaining the causes of the financial crisis to
understanding how and why consumer financial education became such
an important regulatory tool in financial markets. Essentially, I wanted to
explore how and if consumer financial education would be able to
respond to and address various consumer vulnerabilities in the financial
services market. Unfortunately, I discovered a number of serious limitations to this regulatory novelty. To my surprise, these limitations were
neither widely discussed in legal scholarship nor were they clearly identified by regulators and policy makers.
Thus one of the key tasks of this book was to list and interrogate some
of these limitations and to start a serious conversation about consumer
financial education and its regulatory potential. In other words, this book
never attempted to make any normative claims about the value of
financial education or the usefulness of being financial savvy. In


Preface

ix

principle, there is no or significant harm in knowing more about and
understanding money and finance. However, the situation is materially
different when specific regulatory expectations are attributed to consumers through financial education programmes. It is my contention that
financial education projects create a regulatory illusion that consumer
decision-making can be controlled in desirable ways. Yet it sidelines
other, possibly more effective, measures of consumer protection.
Second, the book sought to explain why consumer financial education
became such a popular regulatory measure. To do so, I explored the
historical development of financial literacy education in the UK and
discovered its close links to the neoliberal order, its effects, and modes of
governance. In that, financial literacy education was often presented as an
effective measure for those who were “left behind” by the processes and
practices of privatisation, financialisation and securitisation. Yet other
and possibly more effective regulatory measures were not given serious
thought and consideration.
While this book has not suggested any specific alternative regulatory
models (as this would be too much of a colossal task for one project),
I sincerely hope that future research will. However, the limitations to
financial education documented in this book could be a useful guide in
thinking about possible alternatives. For example, a regulatory focus on
abusive and exploitative product selling practices by financial firms could
potentially have a much more significant impact on consumer excessive
risk-taking. Similarly, consumer vulnerability and susceptibility to the
fluctuations of the financial market could be reduced or at least reasonably managed if regulatory attention was directed towards supporting
and sustaining the socio-economic structures on which consumers rely.
For instance, developing or expanding programmes and financial assistance for the unemployed; investing in skills training and requalification
programmes; extending financial support to the most vulnerable groups
of consumers such as single parents, low-skilled workers, including
low-skilled migrant workers and the disabled.

Some countries have indeed followed a much more socially inclusive
restructuring of the socio-economic and economic-political order. As
Jane Kelsey demonstrates in her work, Iceland is perhaps one of the most
vivid examples of this type of restructuring. Socially redistribute


x

Preface

programmes and practices were implemented by the feminist-led government (throughout the 1990s and 2000s, up to 2013) to build a more
socially equal and just society in Iceland.
These are just a few suggestions as to how regulatory measures could
be designed to have a materially positive impact over the financial, social
and economic well-being of consumers. Further comparative research in
this field could explore how regulatory measures other than financial
literacy education provide better support and protection for consumers.
As with many research projects, this one benefited greatly from many
contributions and suggestions from many generous people. I want to
express my thank you to many colleagues of mine and great scholars who
took the time to look at my work and provided useful feedback on
different parts of this project. My sincere thanks to Donatella
Allessandrini, Iain Ramsay, Paddy Ireland, Jane Kelsey, Iain Frame, Kate
Bedford, Will Mbioh, Emilie Cloatre, Serena Natile, Lucy Welsh,
Amanda Perry-Kessaris, Niamh Moloney, Johnna Montgomery and
Kendra Strauss. I also want to extend my thanks to the many amazing
PGR students at Kent who have created a very exciting and engaging
space for people like me to expose my ideas to the scrutiny of a
methodologically diverse but highly supportive community. I would like
to express a very special thank you to my former supervisor and great

friend, Toni Williams, whose work inspired my research and who provided continuous guidance throughout. Finally, I want to express my
appreciation to the immense intellectual as well as emotional support that
Will Mbioh has given me. The numerous discussions and debates that
we had and continue to have are of immense value to me. Without his
contribution, this project would not have been possible.
Canterbury, UK

Yours truly,
Asta Zokaityte


Contents

1 Introduction

1

2 Consumer Financial Education as a Novel
Edu-Regulatory Technique

25

3 Pension Privatisation and the Emergence
of the Financial Education Project in the UK

71

4 A Financial Literacy Indicator—Measuring Consumer
Financial Knowledge, Skills and Attitudes to Money

113

5 Personal Finance Education at English Schools

153

6 Edu-Regulating Consumers Through Access
to Financial Advice

191

7 Financial Crisis and the Money Guidance Service:
Building Consumer Financial Resilience

237

xi


xii

Contents

8 Conclusion

275

Bibliography

289

Index

295


1
Introduction

A year ago my partner and I decided to buy a car. Since we were both
recent Ph.D. graduates on a very limited budget, we went for a
second-hand car. It was our first “big” purchase, so we wanted it to be as
safe and comfortable as possible. After some research and visits to car
dealership centres in Kent, we selected Invicta Motors Ford as our dealer.
All the exciting things came first: picking the right model, the properties
and colour of the car, finding out more about its history, test-driving the
potential “candidates” and even taking photos in order to share our
experience with others. When we had finally selected one car that ticked
all of our boxes, we then had to arrange payment for the car, which is, of
course, the difficult part of the transaction. This difficulty for us as
consumers came in three different forms.
First, there came the sales pitch, and I am not talking here about the
sales pitch for the car. The dealer was very excited and passionate about
selling us other related products such as car insurance, payment protection insurance, car service insurance, consumer credit, etc. Having had
previous experience with sales pitches and being aware of what was taking
place, we managed to successfully decline almost all of these products
(we did get consumer credit at the end). If someone has been through
© The Author(s) 2017
A. Zokaityte, Financial Literacy Education,
DOI 10.1007/978-3-319-55017-6_1

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1

Introduction

this before, she probably knows that salesmen are usually very insistent
on their customers taking up these products, and it is not always an easy
task to navigate your own interests through the maze of hard sell.
Second, we had to make arrangements for the payment. Although my
mother very generously agreed to pay the full price of the car, we decided
that we would only take a part payment from her, covering the other part
with credit. We had two options: to get credit from our bank or from the
dealer. The total payable price for the credit depends on the individual’s
credit score. To find out your credit score, a credit history check needs to
be made. As probably everyone knows, every single credit check negatively affects your credit score so consumers are not, with good reason,
encouraged to do this very often. Understandably, I was worried that
two, consecutive checks would have a negative impact on my credit
history, which is still very “fragile” and recent. In addition to this, the
saleswoman repeatedly insisted that their dealership would “beat” any
price offer available on the market. She also reassured us that the interest
for credit would not exceed 8%. Having quickly browsed online to
compare prices, and taking into consideration all the above, we decided
to purchase credit from the car dealership.
When the clear parameters of the transaction were finally set, it was
time to start printing all the relevant documentation. For many, reading

the extensive terms and conditions of their contracts is probably the least
pleasant stage of any purchase. However, for me it was, in fact, quite a
treat. Being a lawyer and knowing very well how important these documents are, I took quite a long time going through those documents.
I wanted to understand what I was agreeing to. The saleswoman was not
too enthusiastic about my interest, to say the least. She joked about her
colleagues who do not bother printing all of the forms since their customers do not read them. At times, while I was attentively reading what
was given to me, she stared at me holding a pen and other documents to
encourage me to speed up since there were many more to be looked at.
Moreover, before handing out the forms that I had to sign, she provided
short summaries of what a particular document was about. Phrases such
as “this just confirms what we’ve agreed before”, “this forms explains in
detail what we’ve already discussed” were meant to “help” me “get on
with this”, so to speak, as soon as possible. So we did. The transaction


1

Introduction

3

was finalised within 2 h, and we could finally take our new car and a
heavy bag of documents home.
The reason I am telling this personal story is to illustrate the relevance
of this book to a wide readership. These complex financial decisions that
we as consumers make almost every day have become a mundane part of
our lives. We had to train ourselves to be or “become” financial managers
and experts of our personal finances. Some have suggested that it is
indeed much easier these days to be financially aware due to the growing
general interest in personal finance.

Articles on financial planning feature daily in our largest newspapers
and magazines. TV channels and radio stations have their own shows and
programmes dedicated to money matters. Major publishers are busy
working on self-help books in the area of personal investment and
household financial management. Financial institutions, banks and
financial advisors offer lessons, games, apps and other interactive platforms to their customers to engage in and learn more about financial
budgeting. A number of charitable organisations have recently joined the
movement to advocate and support the institutional development of
personal, financial education. Employers, particularly those responsible
for the management of large pension schemes, are increasingly investing
more money in teaching their employees about retirement planning.
Personal finance as a subject of teaching and learning is also embraced by
educational institutions. Personal finance is now taught in schools and
universities to help schoolchildren and students deal with the ever
complex world of money markets.
However, perhaps the most innovative yet the least discussed development of personal finance is taking shape in the area of regulation.
Regulators and policy makers across the world are espousing personal
finance education as an original and far-reaching technique of regulation.
This movement is endorsed not only by local governments (Australian,
British, Canadian, American, German, Russian, Brazilian, French and
others), but also by international organisations such as the World Bank,
the International Monetary Fund, the Organisation for Economic
Cooperation and Development, and the G20. New strategies and policies
are adopted and new regulatory bodies are set up in order to institutionalise personal finance education within national and regional


4

1

Introduction

regulatory frameworks. Incorporation of financial education into peoples’
daily lives is the prime and ultimate objective of these developments.
So what exactly is personal finance education? Why is there such a
noticeable increase in the regulatory interest around personal finance?
Furthermore, why have regulators and policy makers selected to use it as
a regulatory technique for governing households, consumers and financial markets?
The aim of this book is to provide some answers to these questions.
I explain what financial education is and what it does. My main focus is
on the regulatory side of consumer financial education. Thus, I conceive
of financial education as a form of regulation that uses interactive
methods such as education and advice, to govern consumer behaviour.
To have a greater understanding of what financial education does and
how it works, I examine its institutional development in the UK. One of
my objectives is to articulate intelligibly to the reader the regulatory
rationale of the financial education project. Yet equally, if not more
importantly, another objective is to problematise this regulatory rationale, exposing tensions and inconsistencies in, and limitations to, the
financial education project.
At this point, the reader might wonder why I am looking at financial
education as a regulatory enterprise, or more generally, what does
financial education have to do with their day-to-day lives? Is it worth
spending hours of their valuable time reading this book?
The reader might be persuaded to persevere if they knew that this
book is not merely an intellectual, academic exercise that starts a new
inquiry into financial literacy education. In fact, it gives a very practical
explanation of the ways in which we as consumers think about and act
around money. What is more, it analyses the expectations imposed on us
by the financial education movement. Finally, it evaluates these expectations in relation to our actual behaviour and decision-making. So how
do we behave around finance and how do we make our financial choices?

An extensive number of studies show that we are not very good with
our finances. It is suggested that we as consumers lack the necessary skills
and abilities to make prudent and rational financial decisions. Not only
do we fail to properly understand financial products and services sold to
us, we are also highly disinterested in anything that is even remotely


Financial Literacy Tests and Surveys

5

linked to finance and financial markets. To put it simply, we are considered to be financially illiterate. In general, we tend not to think too
much about our retirement; we do not usually save money for a rainy
day; we accumulate a lot of debt; we also spend our money on things that
are not always necessary to us; we rely on financial advice given to us by
our friends and relatives rather than by financial experts and we are not
very good at keeping an eye on our spending. These are just a few
examples of the type of behaviour that would normally be considered as
financially illiterate. However, to understand what financial illiteracy
means, a brief summary of some key studies on consumer financial
literacy is merited here.

Financial Literacy Tests and Surveys
Consumer financial literacy is still a fairly new phenomenon. If in the
early 2000s barely anyone showed any interest in the topic, by the late
2000s consumer financial literacy had become one of the hottest topics
in the news. Financial literacy is basically defined as the ability to read,
understand and process financial information as well as act upon it when
making financial choices. People’s financial literacy levels are often
determined using financial literacy tests, questionnaires and surveys.

Academic scholars, NGOs, governments and private actors all seem to be
actively involved in designing and conducting financial literacy surveys.
These financial literacy studies are often quite diverse. The methodological approaches and tools that are used to produce these studies can
differ considerably. For example, some financial literacy studies are
national in their scope. Others are international and seek to compare
literacy levels across different states. Some surveys measure financial literacy levels of the population at large, whereas others focus on specific
groups, such as women, children, migrants, or the elderly. Some financial
literacy studies are privately funded while others are publicly run and
funded.
Regardless of these differences, financial literacy studies tend to find
consumer literacy and numeracy levels to be very low. Financial literacy
studies report serious limitations on the ability of consumers to


6

1

Introduction

comprehend, process and evaluate financial information presented to
them. So what does this really mean?
Well, first, financial literacy surveys demonstrate that people lack
knowledge and understanding of specialised, financial terms and concepts. This adversely affects consumers’ ability to make sense of the
financial products and services sold to them. The OECD financial literacy survey illustrates this point quite well. The OECD questionnaire of
financial literacy was developed in 2011. It is one of the most common
assessment tools used by nation states across the world to measure
consumer financial literacy levels.The survey, amongst other things,1
tests consumers’ command of financial language. The concepts of
“inflation”, “risk diversification” and “risk and return on investment” are

used to assess the general understanding of specialised, financial terminology (OECD 2011). The OECD survey findings conducted in 14
countries2 revealed that while consumers are more familiar with the
concept of inflation,3 the concepts of “portfolio diversification”4 or “risk
and return on investment”5 is far less clear. The lack of command of
financial terminology affects consumer ability to successfully process and
understand information on financial products and services.
Second, surveys on consumer financial literacy also point to another
prevailing problem. Consumers generally have low proficiency in literacy
skills, by which it is meant that they have limited “ability to understand,
evaluate, use and engage with written texts”.6 For example, the OECD
Survey of Adult Skills demonstrates that consumers have low proficiency
in a great number of information-processing skills. According to the
survey, more than 48% of respondents are proficient at the lowest level in
literacy. The lowest level of proficiency, in essence, means that consumers can: “regularly complete tasks that involve very few steps, limited
amounts of information presented in familiar contexts with little distracting information present, and that involve basic cognitive operations,
such as locating a single piece of information in a text or performing basic
arithmetic operations, but have difficulty with more complex tasks”
(OECD 2013, p. 56).
What is more, respondents with low proficiency levels in literacy often
lack higher-order cognitive skills. These skills allow people to make
complex inferences, disregard irrelevant or inappropriate details, identify,


Financial Literacy Tests and Surveys

7

interpret and assess more than one piece of information. These surveys
basically suggest that the ability of consumers to understand financial
products and services are heavily dependent on their cognition.

Cognition is, in effect, the extensive mental processing that is involved in
acquiring, processing and comprehending knowledge. That cognition has
influence over consumer decision-making is supported not only by
financial literacy studies but also by empirical findings in behavioural
economics and psychology. Behavioural economists have questioned the
ability of consumers to use and process information rationally. Instead,
they have argued, consumers make decisions using various heuristics and
biases; that is, various mental shortcuts and rules of thumb that affect
their choices (Tversky and Kahneman 1974). So, for example, consumers
can make different choices which were informed by the same information
but framed and delivered to them differently (this is so-called Framing
Effect), or they can make choices that prioritise present-day payoffs over
future ones, discounting the fact that their future selves would not have
acted in such a way (this is called the present-bias). My encounter with
the car dealer exemplifies this very well. Although I clearly understood
the significance of reading the terms and conditions of my contract, the
pressure that was put on me during the sale affected my ability to assess
the documents rationally. Instead, I relied heavily on the saleswoman’s
verbal representations and completely ignored the numbers. When I was
signing the contract, I failed to notice that the interest rate on credit had
been changed from 8 to 13.4%.
Third, financial literacy tests and surveys suggest that consumers lack
adequate numeracy skills. Quantitative literacy is generally understood as
the ability to read, understand, process and work with numbers. This can
range from simple capabilities and skills necessary to understand and
compare numbers, to those that require a higher level of arithmetic
calculation and understanding. As I have argued elsewhere,
To comprehend the complexity of financial products and evaluate them
accordingly, consumers often need to calculate simple and compounding
interest, consider amortization costs and probabilistic information, particularly when assessing the risk factors of a financial transaction.

A number of long-term financial commitments, such as getting a


8

1

Introduction

mortgage or planning for retirement, involve making sound judgements
about risk, probabilities and chance. Financial literacy surveys repeatedly
find that consumers are not equipped enough to make such difficult
choices. (Zokaityte 2016)

Empirical research that examines consumer decision-making processes
often finds that consumers have very poor arithmetic skills in the area of
fractions and probabilities. For example, a 2005 experiment carried out
by a group of economists investigated whether investment decisionmaking is affected by the format within which information is provided to
individuals (Rubaltelli et al. 2005). Information on investment was
presented to participants in the monetary value as well as the percentage
value. The study found that consumers’ views on the investment were
influenced by the format of the information presented to them.
Participants in the experiment felt that the investment fund lost more
when the information on fund performance was presented in percentage
terms rather than in monetary terms.
Other scholars have also shown that consumers struggle to make sense
of numbers when the amounts substantially exceed their daily experience
(Willis 2008). In her seminal work on financial education, Willis has
argued that “someone who easily distinguishes between $250 per month
and $300 per month for health insurance could fail to appreciate the

difference between a $252,000 and a $259,000 mortgage after a $7000
broker fee is added. Large dollar values can be too big to comprehend for
those who rarely encounter them” (Willis 2008).
Finally, financial literacy studies suggest that consumers are not
well-equipped to understand and manage risk. Risk illiteracy is generally
defined as consumer limited ability to make well-measured and
well-balanced decisions about uncertain future. Studies show that consumers, for example, tend to underestimate potential risks of unexpected
life events. Some consumers ignore these future events altogether (TNS
BMRB 2015). The Money Advice Service in the UK that conducted
research on consumer financial capability has concluded that “not only
do people underestimate the likelihood and financial impact of a life
event, they also overestimate their financial resilience—including how
long savings would last and what other sources of income would be at


The Demography of Financial Literacy

9

their disposal” (TNS BMRB 2015). Some consumers purposively avoid
thinking about the probability of bad events happening to them, or if
they do, they are overly optimistic about their ability to cope with these
events (TNS BMRB 2015).
All these findings suggest that the average consumer generally lacks the
capabilities necessary for them to successfully navigate the complexities of
the financial services market. They struggle to understand specialised as
well as more generic information presented to them. They also have
severe difficulties processing and working with numbers, and their ability
to understand and manage risk, which is an inherent part of almost every
financial product, is very limited, to say the least.

Financial literacy surveys and tests have done well at documenting
these problems. These studies have contributed to our better understanding of the ways in which we as consumers think about and make
financial choices. They also made us more aware of our cognitive skills
and their influence over the decision-making process. These are concrete
merits of the existing research on consumer financial literacy. However,
there are other parts of financial literacy scholarship which are much
more problematic. One engages with the demographic dimensions of
financial literacy, while another promotes education as a response to the
problem of financial illiteracy. To explain why I view this type of literature dangerous or, at least, problematic, it is important to give a brief
summary of their key arguments and suggestions.

The Demography of Financial Literacy
Most financial literacy surveys collect information on respondents’ age,
gender, education, ethnicity, class and religion. These demographic
factors are then used to make broader observations about consumers’
financial literacy levels. For example, a number of financial literacy surveys find that women are generally less financially literate then men
(Atkinson and Messy 2012). Young people and the elderly are often
found to have lower financial literacy levels than the middle-aged
(Atkinson and Messy 2012). Lower financial skills and abilities are also
more frequently detected amongst ethnic minority groups and migrants


10

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Introduction

(Atkinson and Messy 2012). This scholarship basically links people’s
financial literacy levels to their earnings, educational qualifications, age,

ethnicity and gender (Monticone 2010; Lusardi et al. 2009; MasterCard
Worldwide 2011). In doing so, these studies rank social groups, such as
migrants, low-income earners, women and the young, based on their
generalised levels of financial literacy.
Some international surveys of financial literacy use countries as units of
measurement, and rank them based on financial literacy levels.
The OECD financial literacy questionnaire is arguably one of the most
widely used international surveys that compare literacy levels across
nation states. According to the OECD survey, countries like Germany,
Ireland, Sweden and Denmark are considered to be the most literate,
whereas Poland, Armenia, Italy, Greece and Spain were found to be the
least literate (Atkinson and Messy 2012). Geographies of financial literacy and financial illiteracy have been drawn even within countries.
Some parts, particularly poorer ones, are often found to be less literate
than the richer regions. It is hardly surprising that, for instance, Moscow
and St Petersburg are found to be the most literate places in Russia, with
literacy and numeracy levels significantly decreasing further East (Clark
2014a, b). The southern part of Italy has been found to be less financially
literate than the northern part (Clark 2014a, b). The UK’s financial
literacy map is also quite predictable: reportedly, the southern part has
higher financial literacy levels than the northern part (Clark 2014a, b).
So why do I find these findings problematic? Well, for one thing, this
research makes simplistic connections between financial literacy levels
and the respondents’ age, gender, ethnicity, religion or income. It presumes that financial literacy, defined as skills and abilities to manage
one’s finances successfully, is somewhat universal and, thus, able to be
tested across different segments of the society. It assumes that there are
financial literacy rules and techniques that people can follow and apply
universally in order to become savvy financial managers. A particular
standard of decision-making is used in these financial literacy tests to
judge against people’s actual behaviour. For example, planning for one’s
retirement or paying bills on time are often considered by these tests and

surveys as an indicator of financial literacy. Therefore, if you fail to pay
your bills on time, if you struggle to make ends meet or if you did not


The Demography of Financial Literacy

11

make any retirement plans, you are more likely to be found by financial
literacy tests to be illiterate.
This approach however completely ignores the contextuality of personal finance. It fails to acknowledge that the environment within which
people make financial decisions, influences their behaviour, reasoning
and attitudes towards money. The environment can act as an enabling
force, for example, allowing high-income earners to save money for a
rainy day or plan for their retirement. Yet the environment can also act as
a disabling force, limiting, for instance, low-skilled workers’ willingness
to pay off their debts on time. Again, if we take my personal experience
with the car dealer as an example, we begin to see how this is true. When
we took our car home, I looked at the terms and conditions of my
contract again. It was then that I realised the price for credit was 13.4%
instead of the promised 8%. At that point, I had an option to terminate
my credit agreement and pay off my debt using my mother’s funds.
However, I did not feel it was the right thing to do. My mother had
provided unsparing support for a number of years while I was doing my
Ph.D. and I did not feel comfortable taking more from her. So I decided
to keep the credit agreement, paying much more than I expected or
wanted to. Simply put, I ignored what might have been the most
financially literate decision and, instead, went for what I deemed at the
time to be the most ethical one.
This utter disregard of the ways in which demographic, social, cultural, economic and other factors influence people’s financial

decision-making, questions the reliability of financial literacy surveys.
Most financial literacy tests bundle all of the factors/life circumstances
together claiming that financial literacy skills have the greatest influence
over people’s financial decision-making. However, I want to suggest that
financial literacy studies fail to prove that the lack of financial skills is to
blame for what is considered to be illiterate financial behaviour. This
cannot be done until and unless a proper analysis of each and every factor
is carried out. We need to know, for example, if consumer inability to
pay off personal debts is determined by financial illiteracy, suddenly
increased financial commitments, reduced income, illness, the loss of
employment or other circumstances. At the current moment, however,


12

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Introduction

the absolute majority of financial literacy surveys neglect these very real
and possible influences.
Instead of pretending that these factors and life conditions do not
exist, or are not worth engaging with, I bring them into my analysis. In
Chap. 3 of the book, in which a study of the UK’s financial literacy
survey is presented, I map out some of these contextual conditions that
shape and determine people’s financial behaviour and attitudes to
money. Also, in the last chapter of the book that looks at financial advice
provided by the UK Money Advice Service, I consider the viability of
such advice in relation to people’s actual living conditions and circumstances. The purpose of this exercise is to show the complexity and
multiplicity of consumer financial decision-making that cannot and

should not be reduced to people’s financial skills. This particular point is
linked to another part of financial literacy studies that is highly problematic—that of financial literacy education.

Financial Literacy Education: Tackling
Consumer Financial Illiteracy
Studies on consumer financial literacy are not limited to questionnaires,
surveys and tests designed to measure financial literacy levels. A body of
literature has recently emerged that claims to have found a solution to the
problem of financial illiteracy. According to the key representatives of this
scholarship, financial education is viewed as the best way to tackle widespread financial illiteracy amongst consumers. In fact, the benefits of
financial literacy education seem to be extended even further. A number of
other social ills such as consumer overindebtedness, financial exclusion,
financial ignorance and economic instability are claimed to be reduced as a
result of financial literacy education (Financial Services Authority 2006;
Financial Consumer Agency of Canada 2005; Financial Literacy
Foundation 2007; Bucher-Koenen and Lusardi 2011; Commission for
Financial Literacy and Retirement Income 2012; García et al. 2013).
Financial education is praised for being an innovative, creative and
effective measure that can build consumer financial knowledge and skills.


Financial Literacy Education: Tackling Consumer Financial Illiteracy

13

It has also been suggested that financial education can empower consumers in the financial services markets. Greater financial knowledge and
skills can help consumers shop around and navigate the complexities of
financial markets.
As a non-violent, wide-ranging and “soft-touch” intervention into
people’s life, financial education became very popular amongst policy

makers and regulators across the world. Since around the late 2000s,
governments and international organisations have increasingly advocated
for the inclusion of financial education into the national and international architecture of financial regulation. Information disclosure is no
longer seen as adequate enough to address the problem of financial
illiteracy. However, financial education is perceived as complementing
existing measures on consumer protection. Since it introduces novel,
interactive techniques of regulation, such as teaching and learning, and
advice giving, it is argued that consumer financial education will help
consumers to make sense of the financial information presented to them.
In this book, I question this line of reasoning, which is pervasive not
only in the existing scholarship on financial literacy but also in policy
reports and financial regulations. My key argument is that financial literacy education is unlikely to strengthen or increase consumer protection
in the financial services market. I do, however, acknowledge that
financial education could potentially be effective in reducing consumer
informational vulnerability in financial markets. As an edu-regulatory
measure, consumer financial education uses interactive techniques, such
as education, advice and guidance to govern consumer behaviour. These
interactive techniques can indeed result in more protection to consumers
than mere information disclosures, labelling or warning signs.
Nevertheless, I argue that consumer financial education is severely limited to what it can do in terms of consumer protection and empowerment. At its very core, financial literacy education does not provide
protection for consumers against risks that cannot or are very difficult to
be managed through information.
During their lifetime, people are exposed to a variety of risks. These
range from macroeconomic circumstances such as economic instability,
financial crisis, austerity cuts or institutional discrimination to more
personal experiences, such as illness, loss of social networks, loss of


14

1

Introduction

employment, engagement in unpaid social care and voluntary work.
These risks cannot be successfully managed or reduced using education,
information or advice. Since all of these social, economic, cultural spheres
of life are not divorced from people’s financial life, they interact with
each other and they shape each other. As a result, a great variety of
measures other than education is required to enable individuals to control and manage these risks.
Regrettably, the project of consumer financial education ignores the
impact that these circumstances have on people’s financial experiences
and financial decision-making. To put it very bluntly, it fails to see that,
for example, people’s inability to pay bills on time might be conditioned
by their lack of income, not by their lack of financial skills. In the same
way, a lack of retirement planning might well signal someone’s deeper
problems such as the precariousness of work or unemployment.
Consumer financial education mis-attributes these complex social,
economic and cultural circumstances to people’s lack of financial literacy.
It becomes particularly dangerous and, indeed, highly unproductive
when policies and regulations designed to protect and help consumers, in
fact, mask the source of their vulnerabilities. The aim of this book is to
question and trouble financial il/literacy—a phenomenon that appears to
be very technical and easily separable from people’s social, economic and
cultural experiences. In doing so I seek to explore how various circumstances and conditions, not just consumer financial skills and knowledge,
influence their financial behaviour and decision-making. I humbly hope
that this book will put an end to dominant, simplistic representations
and marginalisation of the most vulnerable consumers who are the least
capable of managing their financial and economic lives through information, education or advice.

Book Overview
Regulatory calls to improve peoples’ financial literacy skills and ability to
understand and manage their money are growing at an exponential pace.
Governments, financial regulators, NGOs and private, financial actors
across the world are devising various financial education strategies and