Enhancing Consumer Financial Enhancing Consumer Financial Capabilities: A Canadian Capabilities: A Canadian PerspectivePerspective

Kuala LumpurKuala Lumpur

December 14, 2005 December 14, 2005

The 3The 3rdrd International Forum on Financial International Forum on FinancialConsumer Protection and EducationConsumer Protection and Education

Overview

– About FCAC– Financial Literacy vs Financial Capability– National Symposium on Financial Capability– FCAC and Financial Capability

About FCAC

Who We Are

• Created October 2001 by FCAC Act• Independent federal government agency regulating

federal financial institutions on consumer provisions• Report to Parliament through Minister of Finance• Commissioner appointed for 5-year term• Funded by assessments on federally regulated

financial institutions

About FCAC

What we do

• Protect: Supervise FRFIs’ compliance with “consumer provisions” in Acts & Regulations governing them,

and their own codes of conduct and public commitments

• Educate: Expand consumer education about consumer rights and responsibilities financial services and products

About FCAC

How we do it

• Yearly Budget of $8.1 million• Contract out non-core activities• Commitment to stay small, agile and focussed on

“Consumer First”• Website and toll-free number

Financial Literacy

Some definition

– “The ability to read, analyze, manage and communicate about the personal financial conditions that affect material well-being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy.”

- The Institute for Socio-Financial Studies (ISFS)

Financial Literacy

Components

Knowledge

Financial Literacy

Confidence

- Cutler and Devlin (1996)

Financial Capability

Observation

– “It is a mistake to believe that only those on low incomes or in disadvantaged areas need financial literacy. People need to be equipped with the skills, knowledge and confidence to ensure they make informed judgments and take effective decisions regarding their own financial circumstances.”

- UK Department for Education and Skills

Financial Capability

Three interrelated dimensions Financial knowledge and understanding

Financial Capability Financial skills and competence

Financial responsibility

- FSA and BSA (2002)

Financial “Literacy” vs. “Capability”

Advantages of Financial Capability

– Goes beyond knowledge and confidence– Acknowledges stages of developments– Makes fewer presumptions

– Hind, Kempson and England

Financial Capability and Public Policy

It has been found that financial capability can contribute to social and economic inclusion by:

– Enhancing Social and Economic Inclusion ;– Increasing uptake of public programs;– Helping consumers benefit from less costly

payment arrangements (e.g., direct deposit).

National Symposium on Financial Capability

• Held in June 2005 in Ottawa, Canada• National and international participants• 4 main objectives

– Explore what financial capability means and review current knowledge

– Evaluate impacts of financial capability training – Inform policy makers – Opportunity for networking

National Symposium on Financial Capability

Proposed Definition of Financial Capability “…enabling environment that ensures that all consumers develop the skills and confidence to be aware of financial opportunities, to know where to go for help, to make informed choices, and to take effective action to improve their financial well-being”.

National Symposium on Financial Capability

Financial capability interventions should include:

– Information– Training / education– Advice

National Symposium on Financial Capability

The Impacts of Financial Capability – Promotes social inclusion– Increases the use of mainstream financial services– Reduces individual financial barriers– Allows for better financial decisions over the life course

National Symposium on Financial Capability

Next Steps– Additional research

• Environmental scan (domestic)• Int’l financial capability policy and practices

– Establish database of existing programs and organizations (domestic and international)

– Move toward a Steering Committee• Role for public, private and voluntary sectors

FCAC and Financial Capability

Informing consumers about their rights and responsibilities

– Opening a Personal Bank Account– Cashing your Government of Canada Cheque for Free– Low-Cost Accounts – Cheque Inserts– Train-the-trainer manuals and outreach partnerships– Call Centre– CHP Database

FCAC and Financial Capability

Helping consumers understand financial products and services

– Understanding Your Credit Report and Credit Score– The Cost of Payday Loans– The ABCs of Mortgages– Considering an Investment Product Tied to the Stock Market's

Performance?– Qs and As Database

FCAC and Financial Capability

Helping consumers get the best financial products and services

– Cost of Banking Guide– Credit Card Interactive tool

Thank You!

Questions? Comments?