"The financial education challenge"
Closing session of the seminar "La economía ante el blockchain. Lo que está
por venir", UIMP - APIE (Santander)
Javier Alonso
Deputy Governor

Good afternoon.
It is a pleasure to be here again in Santander and to have the opportunity to close this
seminar, successfully organised year after year by the Menéndez Pelayo International
University and the APIE (the Spanish Association of Economics Journalists). As always, I
much appreciate their kind invitation to be a part of this traditional event on the calendar.
Last year, the seminar turned on how the digital agenda affects the economy and industry.
This year, it is structured around one technological development in particular, the
blockchain. The interest in new technologies is thus clearly apparent.
Undoubtedly, new technologies are one of the challenges facing the economy in general,
and the banking industry in particular. I have repeatedly addressed this challenge in recent
interventions, in which I highlighted the fact, moreover, that at the Banco España we have
recently created an Associate Directorate General for Financial Innovation and Market
Infrastructures, with the aim of building up our knowledge on the challenges the provision
of financial services is going to face in this setting of technological developments, and on
the consequences for the financial system in general, and for banks in particular.
Without losing sight of the interest this seminar has in the challenge the new technologies
pose, I would like to focus today on another major challenge that is not exclusive to the
banking industry but applicable to everybody: financial education.
Allow me first to set out, non-exhaustively, some of the results drawn from the Survey of
Financial Competences presented by the Banco de España and the CNMV last month. I
shall then refer to how important it is to continue dedicating efforts to financial education,
especially in the current context of financial innovation.
The Survey of Financial Competences
The Survey of Financial Competences, which is included in the National Statistics Plan,
adapts for Spain a questionnaire devised by the International Network for Financial
Education, coordinated by the OECD. The aim is to measure, in an internationally
comparable way, the financial competences of the population aged 18 to 79.
The Survey measures these competences from different perspectives, and obtains
information on: (i) financial literacy; and (ii) knowledge, holding, acquisition and use of
financial products.
To measure financial literacy, the Survey poses questions on three basic financial concepts:
i) inflation; ii) compound interest rates; and iii) risk diversification.
The aim is to assess whether the interviewee understands: (i) that money loses purchasing
power when prices rise; (ii) that the changes in an amount saved in an account over five
years depend not only on the annual interest rate applied to the amount saved the first year,
but also on the interest accumulated thereafter; and iii) that the risk of investing in equities
diminishes if a broad range of shares is acquired instead of only one type.
The replies, obtained from a broad sample of randomly selected individuals representing
Spanish territory as a whole and each of its regions, and provided by INE, reveal, inter alia,
the following results: (i) 58% of interviewees understand what inflation is; (ii) 46%
understand the concept of compound interest; (iii) 49% understand the concept of risk
diversification; and (iv) the percentage of correct replies increases with educational level and
household income level.
Given that the Survey includes questions from an international project to measure financial
competences, it is possible to compare these results with those obtained in other countries,
in particular with OECD countries and EU countries that have information available in this
connection. The comparison shows that the percentage of correct replies in Spain regarding
the concepts of inflation and risk diversification is below the average, particularly in the case
of risk diversification, in which the averages for the OECD and EU countries stand at 62%
in both groups (compared with 49% in Spain). Regarding the concept of compound interest,
however, the percentage is very close to the average observed in the OECD countries (46%)
and in the EU members (44%). Nonetheless, this should serve as no consolation, since this
average means that over half the interviewees do not understand a basic financial concept
such as compound interest rates.
The need to reinforce the general public's financial literacy is also patent in some of the
results on knowledge, holding, acquisition and use of financial products.
Firstly, as far as knowledge of financial products is concerned, the Survey asks interviewees
whether they have heard of the following products: (i) savings accounts, pension schemes,
investment funds, shares and fixed income (all savings vehicles); (ii) life insurance and
medical insurance; (iii) means of payment such as credit cards; and (iv) debt products such
as mortgages and personal loans.
It can be concluded from the results that there is less knowledge of savings products than
of debt or insurance products. Shares and pension schemes are well known (around 90%
have heard of them), but only 73% of interviewees have heard of savings accounts and term
deposits and only 78% of fixed income, while the percentage of those who have heard of
life and medical insurance, credit cards, mortgages and personal loans is, in all instances,
higher than or equal to 95%.
In the case of savings vehicles, moreover, significant differences are observed on the basis
of educational level (primary, secondary or university) and the level of income which,
generally, are less marked in the case of debt and insurance products.
Secondly, as regards whether interviewees have or have recently acquired any of these
financial products, a notable 97% have a current account, 43% have some type of savings
vehicle and 41% have debt of some sort. The commonest saving product is the savings
account, followed by pension schemes. Once again differences are observed on the basis
of educational level and level of income, more markedly so in the case of savings vehicles
than in that of debt products.
Among the international patterns identified in respect of the holding of financial products, it
is worth mentioning that while in Spain holding a current account is more generalised than
in the OECD and EU countries, holding savings products stands slightly below the average
for these countries. It should be borne in mind, however, that the results on the comparison
of the holding of savings products should be viewed with caution since the list of products
considered as savings vehicles may vary from country to country.
As to the recent acquisition of financial products, the Survey shows that 38% have acquired
some type of saving or insurance vehicle, a means of payment, or have incurred debt over
the past two years. This percentage is lower than the average observed in the OECD
countries (54%) and EU members (50%). The most frequently acquired product in Spain is
the credit card, followed by personal loans.
Here, too, there are significant differences in the acquisition of savings products based on
educational level and on the level of income, which are less marked in the case of debt
products. Thus, in the case of interviewees with a university education, 32% acquire savings
products, while in the case of those with primary schooling, only 8% acquire them. By level
of income, 43% of those who live in a household with income of over €44,500 acquire
savings vehicles while only 8% do so in households with income of up to €14,500.
Finally, the Survey also enables information to be had on the use of financial products: in
particular, on one hand, on whether interviewees have saved over the past 12 months and,
if so, using which savings vehicle; and, on the other, whether the household's spending has
exceeded its income over this period and, if so, how they financed it the last time this
happened.
This information shows that, as regards saving, 61% of interviewees have been saving in
the past 12 months. The percentage increases in terms of educational level and level of
income. One noteworthy feature is that the second most common method of saving, behind
the current account, is cash, even in the highest educational and income segments. In
particular, 38% of interviewees who save do so in cash. Only 14% do so via a savings
account and 11% via a pension scheme.
As regards expenditure, 28% of interviewees live in households whose spending has
outpaced income over the past 12 months, a percentage that is in line with the average
observed in OECD and EU countries. 51% financed this shortfall resorting to savings, and
35% through informal credit (friends, employer, etc.). As in the foregoing cases, differences
were observed in terms of educational level and level of income. As both levels increase,
the percentage of instances in which spending has exceeded income diminishes and the
percentage of cases where greater spending is financed with savings increases.
Undoubtedly, financial behaviour does not depend solely on financial literacy, but is also
influenced by other circumstances; but, in light of some of the above-mentioned results, I
do believe there is clearly room for improvement in the field of financial education in Spain,
and that we should continue to strive in this direction.
Financial education in a context of technological innovation and developments
Giving priority attention to financial education is, moreover, particularly significant in the
current context of financial innovation.
Technological developments are changing the way in which customers relate to financial
institutions and how they take up financial products. And this, though it has attendant
advantages, also entails risks. Greater financial culture, greater awareness of the new reality
and a greater development of the general public's digital competences can help mitigate
these risks.
I would like to refer, in particular, to three examples of these risks.
First, the increasingly frequent dissemination of relevant information, pre-contractual and
contractual alike, via smart phones and tablets. Screen size, the apparent user-friendliness
of applications and the immediacy of acceptance limit the customer's ability to know what
actually is being agreed to, and they are a hindrance to specific key aspects of acquiring
financial products, such as the reading of the contractual terms and conditions, and
interaction to resolve questions about them.
In acquiring products digitally, customers assume greater independence in terms of
information and decision-making, and they must ensure they fully understand the potential
consequences of their choices. Additionally, just as they are aware - or should be - of the
importance of the commitment acquired when they sign an agreement in their own hand,
so too should they be aware of the commitment taken on when clicking on a touch screen
where it says "I accept the terms and conditions of the agreement".
A second example of risks that are present in the current context of technological innovation
and developments is the ease with which access may be had to complex financial assets
and products that can hardly be understood without basic financial knowledge. A case in
point here are what are popularly known as cryptoassets, whose development has much to
do with the focus of this seminar, namely blockchain technology.
Among cryptoassets are what are generally known as cryptocurrencies, conceived for use
as a means of payment, and those known as digital tokens, conceived for obtaining
financing and which confer on the purchaser the right to receive remuneration, or to exercise
certain rights.
The Bitcoin is an example of the former. The so-called ICOs (Initial Coin Offerings) are an
application of the latter.
Both have been the subject of growing interest, and there are at present numerous and
highly heterogeneous initiatives.
While their impact so far on global financial stability is considered to be limited, they pose a
series of risks, in areas such as consumer protection and the prevention of
moneylaundering and the financing of terrorism, which the authorities monitor closely and on which
they have issued warnings and statements. In this connection, it should be stressed that
these are assets of a marked speculative nature, without the backing of supervisors and
susceptible to fraud or price manipulation. They cannot be considered as money or as
deposits, and they do not enjoy the protection of the regulations governing banking and
investment products.
It is worrying that, in a setting in which less than half the population understands the concept
of compound interest rates, there is such demand for complex assets with these
characteristics.
Lastly, I wish to refer to the risk of authorising - owing to a lack of knowledge or of due care
- access to personal information that would preferably have been kept private. The debate
over the use of personal information in the area of payment services has heightened with
the new Directive known as PSD2, which institutionalises the so-called TPP (Third Party
Providers).
TPP encompass "payment initiation service providers" and "account information service
providers". The former offer an alternative to the use of cards when making electronic
purchase payments. The latter provide consolidated information on the status of the various
accounts the customer has with entities, thereby facilitating financial planning.
Payments account holders are entitled to authorise these third party providers to order
payments on their behalf and/or to consult information associated with their accounts.
Against this background, and irrespective of the usefulness of these services, it is important
that customers should strive to understand the real scope of the authorisation granted,
which may entail access to their account by a third party on the same footing as if it were
the customers themselves accessing the account.
Faced with risks such as the foregoing, magnified by the development of new technologies,
I believe that financial education has a role to play.
It may help, for example, make people aware of the change in reality that the digital
arrangement of agreements entails or increase the digital competences of the public at
large.
The Financial Education Plan
Mindful of the foregoing, the Banco de España and the CNMV continue working on their
commitment to financial education through the Financial Education Plan.
Over the past ten years, and using two courses of action, one covering the 2008-2012 period
and the other the years 2013-2017, this Plan has enabled actions such as the following to
be carried out: the Financial Education Programme for schools, which seeks to improve
students' financial literacy; the consolidation of an extensive network of public and private
collaborators; the institution of a "Financial Education Day" on the first Monday of October
each year; and the website finanzasparatodos ("finance for all"), which contains basic
material on household finances, such as how to get to the end of the month or how to
manage finances at different stages of life.
Indeed, this week has seen the publication of a new plan of action for the 2018-2021 period.
It includes objectives additional to the previous ones, including most notably the
identification of target segments of the population not sufficiently catered for, the use of
digital tools for the development of financial education initiatives and the strengthening of
the Plan's network of collaborators, which provide a boost for and outreach to people in all
social circumstances and situations. To attain these objectives, analysis and use of the
results of the aforementioned Survey of Financial Competences will naturally be pivotal.
I have no doubt that, thus conceived, the Financial Education Plan will play an important
role in alleviating the risks arising from digitalisation in the provision of financial services.
Thank you very much for your attention.