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Symposium 2012

Proposal - A Thousand Reasons to (Re)Build Financial Education

The Challenge

As governments face increasing debt burdens and companies too face significant cost burdens, there is a clear movement towards individual responsibility for financial planning for retirement. This mov ...

As governments face increasing debt burdens and companies too face significant cost burdens, there is a clear movement towards individual responsibility for financial planning for retirement. This movement is happening at precisely the time that individuals themselves are feeling more insecure about the future in the face of declining job security and the increased reluctance of financial institutions to provide credit.

In order to tackle the question of why ordinary people should be educated about finances, we could list a thousand reasons, but the first one is quite enough: Financial education is a cornerstone of a balanced and productive life and therefore helps people to have a better life.

Financial education enables people to know how to accumulate and invest resources wisely in order to consume with pleasure, be prepared for emergencies and guarantee their future. This means having discipline, making plans and knowing how to invest.

We live in a world that is going through incredible transformations, and in which finances should be handled even more carefully. Some of these changes are more general, whereas others are more specific, namely those related to the changes that the market undergoes due to the international financial crisis.

We agree with Professor Mandell when he states that the solution for general problems after the financial crisis has firstly two solutions: financial regulation and financial education.

It thus leads us to an important question: what should a financial education program comprise?

We point out four main points: credit, savings, investment and prevention of financial fraud.

a) Savings → issues like setting goals for the short, medium and long term and financial organization. Financial planning is a core issue.
b) Credit → addressing the issue of conscious consumption and the difference between "want" and "need." Taking credit is the cost of haste.
c) Investment → it is important to show the participant of a financial education program the variety of available products, their relation to each goal, as well as their risks. Present the relationship Risk and Return.
d) Financial Fraud → It is important to show that investments should be made on sound institutions authorized by regulators, and, above all, to show that returns much above normal should always be regarded with suspicion.

In the particular case of Brazil, we cannot talk about Rebuilding Financial Education. Instead, in our country one needs to talk about Building Financial Education. We have to start with the most basic content on the subject. Nowadays the default rate of Brazilians is very high, precisely because we do not have financial education. We live a transitory period from an environment of low consumption, in which it was almost impossible to make household financial plans, to a panorama in which we do consume, but still lack control of our finances.
On the other hand, there is an issue as important as the content of the programs. We have to consider two other important questions: who should provide and how to disseminate Financial Education?

Who should provide financial education?
The simplest and truer answer is: everyone, especially primary schools and firms. In Brazil and other countries, the progression of much of the population into the middle class has generated a typical phenomenon: uncontrolled consumerism; hence the importance of financial education for young people. They are the first agents of cultural change. Despite knowing that there is low retention rate among young people, the seed must be planted.
Companies may play an important role in this field as they provide lectures, seminars and meetings for dissemination of Financial Education mainly for focus groups, for example, those interested in learning about retirement plans.

There is also the need for governments to integrate this process through regulatory and inspection bodies. In Brazil, the Brazilian Securities Commission (CVM) and the Brazilian Central Bank have already been promoting financial education. The range of these programs must be widened and activities of these bodies should also be improved in order to simplify procedures and products.

Financial institutions play a fundamental role. After all, they are the ones which have direct contact with the population and should make efforts to create a relationship of increasing trust with their clients. It surely involves a great investment in financial education.
Other social agents such as trade associations and labor unions should actively participate in this process.

How to disseminate Financial Education?
Transforming long and boring texts long into more visual-friendly material. Online approach through movies and texts turned into rapid dialogue. For instance, we have Personal Finance courses at FGV Online which are free on web. It is also possible to make use of comics in magazines. We must explore games and challenges through the Internet and social networks.

The results will surely come. First of all, we will have more individual responsibility. People will realize that their future depends entirely on themselves. Planning will be part of everyday society. This will bring more economic stability to the country, since investments will be made with a long-term focus, and may finance long-term projects as well as create the so desired sustainable growth. Clearly, this will also require a cultural change. We shall go from uncontrolled consumerism for conscious consumption, from a protective State to the individual entrepreneur. We expect a very positive change.

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