Enhancing financial literacy

There is strong reason to believe that it is in everybody's best interests for investors to be educated so they understand their investment options and can make rational, informed decisions. As long as their financial knowledge remains low, they will have difficulty interpreting financial information, advice and marketing, and the long-term relationship and trust between banks and clients will not be improved and developed.

Financial education is closely interlinked with financial inclusion. As a complement to financial inclusion that should be pursued in a commercially viable manner, financial education will help providers of financial products to expand their business operations to new segments of the population. Meanwhile, it can create consumer awareness on access to various types of products, and make them understand their rights and responsibilities as clients of financial services.

The more financially educated the public is, the more efficient macro-economic policy will be. Clearly, consumer and investor behavior backed with better financial literacy - better understanding of the investments and how they properly respond to monetary and fiscal policies - is vital to the success of the policies. The trust and confidence of the public would be easily earned and consequently policy objectives could be achieved if both the public and relevant authorities have mutual understanding and good interaction with one another.

It is well recognized that effective financial education should begin in schools. US Treasury Department research shows that high school graduates in the US who have received financial education have higher savings rates and a greater net worth than those without financial education.

Nowadays, as more and more young people are tempted to take on excessive debt for consumption, it is urgent to develop their financial literacy at an earlier stage. Of course, it will be beneficial later when they become adults and have to make important decisions about their personal or family finances.

Financial education should also be regarded as an important component of financial regulation. In the aftermath of the financial crisis, and facing growing demands from consumers for financial products, regulators should adopt a multi-channel approach to increase financial literacy, making investors fully understand the risks and benefits of the financial products they are buying.

Financial education is not a substitute for the effective safeguarding of consumers against abusive and fraudulent financial cases. Rather, financial regulators must further strengthen consumer-protection rule making and enforcement, improving the surveillance of financial products sales.

In China, financial education for Party and government leaders at every level plays a key role in maintaining financial stability. History shows that a large-scale financial education campaign among government leaders before the 1997-98 Asian financial crisis and the 2008 global financial crisis partly contributed to decisive financial reforms and regulations, which allowed the Chinese financial industry to more successfully weather the external storms.

The global financial crisis has changed our assumptions about the future, and as a result customer behavior is also changing; financial education will be an essential part of confidence building. It might be a costly, never-ending learning process, but the value of financial education is beyond doubt.