Why better financial literacy is in all of our interests, including the banks

A friend of mine once told me that when his credit card was stolen, he didn’t bother to report it because the thief was spending less than he was.

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

But money is no laughing matter, especially these days as households grapple with the cost of living crisis as they still recover from a global pandemic that is not happening. only once a century.

With soaring energy bills and food prices, 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 is already low and lagging behind so many of our nearest neighbors and global peers.

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

The results are striking.

Ireland’s financial literacy score stands at 54%, far behind the UK at 67%, Germany at 66% and Australia at 64%.

Women in Ireland score, on average, nearly 10 percentage points lower than men

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

Without having financial knowledge, it is a challenge.

People with low financial literacy are more likely to worry about their finances, are at greater risk of being exposed to online fraud, and are more uncertain about where to get information about financial products.

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

But in a situation like this, everything helps.

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

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

In Ireland, women score on average almost 10 percentage points less than men – and age makes no difference, with women having less financial knowledge than men across all age brackets.

Close the gap

So how do we close the financial literacy gap?

We can – and must – start by talking about it.

Finances are on par with gender and religion — and topped only by death — on the list of things people struggle to talk about, according to our research.

Nearly 10,000 customers typically only make minimal payments on their credit card balance each month

Three out of four people don’t talk about finances at all or only do so when they have to.

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

But moving the dial will take more than just words.

Creative solutions will be needed.

For its part, one of the ways Bank of Ireland has sought to close the gap is to look to behavioral science to nudge customers into adopting healthier financial habits, and early results have been very encouraging.

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

This debt can grow and skyrocket, with customers unaware of the long-term negative impact this can have.

To solve this problem, we contacted these customers directly, suggesting other ways to manage and reduce this credit card debt.

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

In a separate study, we focused on households that had no short-term savings to protect against unexpected financial shocks.

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

Conducted in collaboration with the Competition and Consumer Protection Commission (CCPC) and ESRI, the study demonstrated how providing behavioral-informed communications could increase the use of savings accounts by 25 to 40%, with particular resonance among low-income households.

The banking sector certainly has a key role to play in our national journey of financial literacy, but this question requires a response from all of society.

Our education system would be the obvious starting point.

Good financial habits, like all good habits, start at an early age. Our schools are therefore ideally placed to give the consumers of tomorrow a head start in developing good financial habits for life.

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

Financially savvy customers will be more demanding when it comes to buying financial products.

The appetite for these resources from teachers across the country suggests that there is a strong desire to see real-world, everyday financial literacy firmly embedded in the curriculum.

good for business

So why would a bank want to empower its customers in this way?

Financially savvy customers will be more demanding when it comes to buying financial products.

They will ask more questions – and harder ones too.

All this would complicate the life of a bank, wouldn’t it?

Bad. It’s actually a win-win for the banks and for our customers.

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

This in turn creates a financially healthy nation which positively impacts individuals, their families, businesses, communities and the economy in general.

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

Dawn Bailey is Head of Financial Wellbeing at Bank of Ireland

Geraldine L. Melton