Annual income twenty pounds, annual expenditure nineteen six, result happiness
What’s the most depressing book you’ve ever read? I sniggered at Jude the Obscure until I got bored, and I felt that the eponymous little twerp in The Sorrows of Young Werther was lucky his girlfriend didn’t blow his brains out for him. So imagine my surprise to find a book published by the OECD of all people that touched me deeply. Improving Financial Education and Awareness on Insurance and Private Pensions gave me a stark, uncompromising insight into the error of my ways.
Page after page describes all the stupid things people do when buying insurance or planning for retirement. Like all great literature, you can hear the author’s voice as you read. In this case, I’m sure they were two, and you could hear one saying “We’ve got to be thorough, cover all the possible cases” and the other replying “Come on, nobody’s that stupid!” He was wrong. I kept thinking: “That’s me! So is that! Oh no, that’s me too”. By the time I’d finished, I was in shock, but like the hand bursting from the grave at the end of a horror film, there was worse to come.
Once they’d finished listing all the daft things you shouldn’t do, the next stage of the descent into hell described all the clever things you should do. Not once did I cry out in relief “Yes, I did that”. No, I found myself muttering: “What’s that? Never heard of it. What are they talking about?”
So, apart from me, who else has a problem? Most of us, according to a joint report by the G20 Russian Presidency and the OECD that’s just been released following last week’s summit in St Petersburg. This time, it’s the report’s authors who are worried, because of: “… the long-term implications [in a growing number of countries] of low levels of financial literacy among the majority of the population.”
Women are particularly affected, and even though they appear to be better than men at keeping track of their finances, this short brochure produced by the OECD Directorate for Financial Affairs shows why there’s reason to be worried. For example, almost 60% of women in Poland don’t know that high investment returns are accompanied by high risk (45% of men don’t know either).
Women earn 16% less than men on average in OECD countries and spend more time outside formal employment and the social protection schemes linked to having a job. That helps explain why they tend to save less than men, especially for retirement, have more trouble making ends meet, and face a higher risk of poverty in old age. When choosing financial products, women are less likely than men to shop around, or to use independent advisors.
The G20 report identifies youth as another priority, and there’s also a brochure about financial education in schools. Again, there are some worrying statistics, for instance three-quarters of young Danes have little or no knowledge about interest rates. (I’m not sure what to make of the 96% of teenagers in the UK “who say they worry about money on a daily basis”. Maybe they could be financially educated to understand they can’t get everything they want.) The OECD recommends starting young and building financial literacy into school curricula from an early age. This is all the more important given that in many cases their parents or carers may not know much about finance themselves, and in some cases may even be worse than useless because of the bad example they give.
Last week’s G20 also heard from the G20/OECD task force about implementing the G20 “High-level Principles on financial consumer protection” endorsed in 2011. High-level here refers to the fact that the principles are not all that detailed, such as this one: “Strong and effective legal and judicial or supervisory mechanisms should exist to protect consumers from and sanction against financial frauds, abuses and errors.” As you can imagine, actually translating that into effective practice in different national contexts takes time, and the latest report is the ninth draft.
We’ll bring you up to date on progress as it happens. In the meantime, I should point out that the book I mentioned at the start wasn’t totally depressing. In fact, just when all hope had gone, I realised I wasn’t alone in my despair. Here’s what restored my faith in human nature: “A survey by the Royal Bank of Canada finds that respondents consider choosing the right investments for a retirement savings plan to be more stressful than going to the dentist.” I love Canadians.