Finance companies need to strengthen the financial literacy of their clients


Financial illiteracy is by no means a new problem. But the Covid-19 pandemic has exacerbated and exposed vulnerabilities and inequalities within our society, including the large gap between those who know how to manage their finances and those who struggle to do so.

If no collective action is taken by the public and private sectors to bridge these gaps, we will see even more widespread systemic inequalities in Britain and elsewhere.

The pandemic has revealed a harsh truth to many; that access to financial education and the security it offers around the world has been precarious for many years.

In February 2020 – before the pandemic took hold in the UK – the country’s Financial Conduct Authority found that 57% of adults polled in a survey felt nervous, overwhelmed or stressed when talking to financial service providers, or struggled to find appropriate funding. products or services. Some 37 percent found it difficult to rate financial products or found it difficult to shop.

June Felix, Global Managing Director, IG Group: “People need the right tools to be able to understand the opportunities and risks to manage their money and make their money work for them”

Several factors have contributed to this disturbing trend. They include the upheavals in the financing of pensions, following the switch from defined benefit (DB) pension plans to defined contribution (DC) plans.

These are made worse by changes in spending habits, as people move away from cash in favor of short and long term credit products. Meanwhile, the number of savings and investment choices continues to increase, with options ranging from the simplest to the most complex.

Simply put, as the individual’s demands for making critical financial decisions have increased (and show no signs of stopping), supportive financial education to inform that decision-making has not followed suit. rhythm.

As a leader in the financial services industry, I have seen these changes occur as the global financial environment transforms at breakneck speed, underpinned by the rapid acceleration in the use of technology.

For millennials and millennials, retirement will seem like a distant prospect, but the truth is, many are unprepared for it. Planning for retirement has completely shifted from the responsibility of employers and governments to that of the individual.

According to the Pensions Policy Institute, a leading retirement research organization, DB plan closures have resulted in a decrease in the number of private sector employees covered by DB plans. The number of active members covered by defined benefit plans increased from 3.5 million in 2006 to around 1 million in 2020.

Closing these DB plans in favor of defined contribution plans places the responsibility for long-term investment planning on those who are not currently prepared to manage these long-tail risks.

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As the way we work evolves, people are increasingly exposed to ‘lack of retirement savings opportunities’, with jobs in the odd-job economy and zero-hour contracts generally not offering. no retirement benefits. Likewise, most people now change jobs several times in their lifetime – a trend that does not create natural opportunities to save regularly for retirement.

As the responsibility for retirement planning has shifted largely to individuals, a prolonged environment of low interest rates has simultaneously eroded people’s savings. This prompted them to take a more active look at their finances as a whole.

While investors today have more choices than ever before, driven largely by globalization and technological advancements, people need the right tools to be able to understand the opportunities and risks to manage their money and put their money to work. money for them.

Private and public sector organizations must act.

The Chinese have an old saying for the crisis: be aware of the danger but recognize the opportunity. As I contemplate the world we live in today, this truth makes sense to me when I consider my education and the responsibility I have as a leader in financial services. Although statistics show the lack of widespread financial literacy, there is an excellent opportunity for the public and private sectors to help raise levels of collective financial literacy.

Support for improving financial literacy requires a dual approach. First, companies that offer financial products must also provide transparent educational materials to help clients make more informed financial decisions.

The journey to competent financial literacy should be presented as an essential element of customer service and embedded in the culture of the company. Whatever products or services are offered, companies need to think about how those offers will be received in the market and who will use them.

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Financial literacy education provides young people with the foundation for future prosperity and can help economically disadvantaged people escape poverty. Join the FT Flic campaign to promote financial literacy in the UK and globally

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In addition, organizations must integrate financial literacy into their ESG (environment, social and governance) strategy. Resources should be allocated to independent programs that support financial literacy at all stages of life, from youth to adulthood.

My passion for education, influenced by my childhood as a Chinese American, was a catalyst for me to personally become a founding donor of the Financial Times Financial Literacy Inclusion Campaign.

Working at a publicly traded company, my colleagues and I discussed how to evolve our ESG strategy to address social issues, with the aim of increasing resources for independent and education-focused programs.

As an example, IG Group has an existing partnership with Teach For All, an international non-profit organization that seeks to improve grassroots education. Here in the UK, we also partner with Teach First, providing the organization with funds and access to our people and their knowledge of the financial markets. These programs are just the start, as we evolve to directly support more financial literacy programs in the months to come.

At the same time, we have created a variety of online educational resources for our clientele ranging from technical education to macro market analysis for people at different stages of their investing knowledge.

We also take steps to ensure they have a level of understanding of financial products before using the more sophisticated products on our platform. It should be recognized that some products carry more risk than others. The crucial issue is to ensure that potential investors are properly informed before they begin their foray into online trading.

We recognize the need to be collaborative. The private sector must work together and strengthen the efforts of public sector organizations to advance financial literacy.

Not all products on the market will suit everyone. However, enabling people to make choices based on a solid foundation of education will make a huge difference in improving the overall financial health, not only of individuals but of society as a whole.

Technological innovation and the investment landscape will continue to evolve at a rapid pace. Giving people the knowledge they need to take advantage of these changes has the potential to be transformational.

June Felix is ​​Global Managing Director of the IG Group


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