07 September 2022

Keynote speech by Commissioner McGuinness on financial literacy at the Bruegel Annual Meetings

I really think that this event links to all of the things you have been discussing. And I think the problem we have is we divide things into sections where they shouldn't be.

So to some extent the issue of financial literacy covers every single policy area. And yet it's not really a headline billing.

So I am determined for the while I'm in this role, to speak about it on every single occasion. And I want to acknowledge, Patrick [Jenkins], the work of the FT in this area as well.

So it's a big honour to be here with some short opening remarks. What I really would like to see is that everyone in Europe has the knowledge and confidence to manage their personal finances.

And I think that would be a huge step forward, because today that is not the case.

I mean, can you imagine a utopia where every citizen was able to make the right financial decisions for themselves – I think it would be absolutely transformative.

So just a few points that I'll address today:

• Why financial literacy is important, especially right now,
• What the European Commission is doing about it already,
• And what we are planning to do next.

OK, so we live in unprecedented times, and that has become almost too much of a cliché.

At the macro level, growth is continuing, but it is of course being revised downwards to 3 percent or under.

We're looking at 8 percent average inflation in the European Union this year.

I'm old enough to remember when inflation was much more severe and interest rates were incredibly high.

And I wonder around, the whole discussion of financial literacy, if a younger generation quite understands that are almost historic now, that are coming back into the real world. And we need people to understand what's happening in the financial area.

Now all of the problems I refer to won't be solved by financial literacy – and I think we're all aware of that.

Because if your electricity bills – and we know for vulnerable households, the way electricity bills are rising put severe pressure on vulnerable households – so no amount of financial knowledge will make it more affordable.

But I do think it will help people generally to make the right decisions.

And this is something that the President of the Commission, Ursula von der Leyen, will be addressing soon – this emergency intervention and structural reform of the electricity market.

If we look within the financial system, I want to emphasise the importance of consumer protection, access to fair advice, and well-regulated markets.

But – all of that said – I believe that financial literacy has a vital role to play, particularly in these difficult times.

Because a person who is financially literate will understand what's going on in the wider economy, will understand what impact that is having on them personally, and then how to make the right choices or decisions within that difficult context.

So those who understand all of these concepts will know …

• That a higher inflation rate reflects things like rising food and energy prices – something they likely already notice in their bills, and in a squeeze on what they can afford.
• They'll understand that central banks are responding to higher inflation by increasing interest rates.
• And that those higher interest rates might make it more expensive for them if they want to take out a mortgage or indeed to re-mortgage.

It's easier to deal with challenging circumstances when you understand what's going on.

And we also know that a financially literate person is better able to prepare for difficult times and in a stronger position to make informed decisions.

In other words, they are more resilient. And that word resilience applies not just at the individual level, but also at the communal, family and societal level. Resilience is something that we do need to build in the European Union.

Individuals will know the value of building up a savings buffer in case they face unexpected expenses.

Or they can weigh up the best type of contract for their utilities at home.

And indeed on this particular point, there is huge interest now, and you hear many advertisements, across the Member States around how you can manage the bills you're paying, particularly electricity, and work around off-peak and peak time supplies.

Those factors at the individual level have a wider impact. So having all this knowledge, understanding what's going on, has a bigger impact.

And again if we have more resilient individuals, it leads to this much more resilient society.

A better informed society, where people are aware of – and also can share their opinions about – what's happening in their economies. Because knowledge is power.

Now the truth, and the reason why I'm glad that you're having this conversation today, is that the levels of financial literacy in the European Union are still too low – with a lot of variation amongst Member States.

And low financial literacy has a disproportionate effect on the most vulnerable groups in our society.

And the most vulnerable groups are more vulnerable now than ever. So the idea that they lack the skills around financial literacy puts them in a particularly difficult place, and we do need to address that....

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