Queen Máxima of the Netherlands has called on European financial supervisors to review financial services for their health impact and urged the banking, payments and investment industries to do more to make sure that their clients make well-informed decisions.
Speaking in her capacity as United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, Máxima particularly mentioned consumer lending practices, cryptocurrencies and online financial services as areas that risk exploiting vulnerabilities, particularly of young people.
“My suggestion is: assess present financial products and services, along with their effects on financial health,” the Dutch queen, who worked as a banker for HSBC James Capel in New York during the 1990s, told a conference organised by the EU’s three financial supervisory bodies.
Young investors extremely vulnerable
“We should ask ourselves: Do these offers really help people manage their expenses, or do these lead to overspending? High risk cryptocurrency and day trading have also become increasingly popular among people hoping to become rich. Young, inexperienced investors are extremely vulnerable,” she said.
Máxima made her comments on Tuesday in a two-day conference organised jointly by the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). A range of financial sector and consumer representatives also spoke at the event.
“I do encourage financial institutions to change practices that may generate income, but unfairly hurt low-income consumers. At the end of the day, these practices will not only hurt consumers, but can also harm businesses in the long run,” she said. “Businesses are in a unique position to influence people’s financial behaviour for the better. There is great potential in offering products that improve financial health.”
“Great importance”
Speaking on behalf of the supervisors, EIOPA chair Petra Hielkema said they attach “great importance” to financial education and consumer protection. The European Commission also has made it clear that financial education is a topic of increasing importance. Together with the Organisation for Economic Cooperation and Development (OECD), it recently presented a new financial competence framework for adults, and more initiatives are being prepared.
“We really do need to talk about money,” said the EU Commissioner for financial services, Mairead McGuinness. “What I want to achieve, certainly working with others and with yourselves, is I want consumers to know the right questions to ask, and more importantly to have the confidence to ask those questions. Here in the Commission we are very much committed to taking action to support the financial education of consumers.”
Citing recent inflation figures, the Dutch queen said the topic of financial health and financial education becomes even more important because of the pandemic and the rising costs of living.
Relieving pressure on government safety nets
“Today, it is even more urgent. Across Europe, an overwhelming majority of people express concern about the impact of inflation on their financial wellbeing. The unpredictability of the pandemic also creates more uncertainty for millions of peoples and their families. Many have struggled to stay afloat since the start of the crisis,” she said.
“People with good financial health are more resilient and better equipped to seize opportunities. A financially healthy population can relieve pressure on government safety nets overall,” Máxima said. “So, if we want to rebound quickly in times of crisis, financial health is an essential tool.”
Financial education programmes at schools are not enough, she said, referring to the rapidly increasing importance of social media and influencers. “We must meet people where they are. This reliance on social media will grow for the foreseeable future. So it is important that we learn how to use these channels properly,” she said, citing research that shows 80 percent of young people receive financial advice from influencers.
Simplified regulation needed
While Queen Máxima’s comments towards the financial supervisors sounded constructive, the Brussels representative of Europe’s asset management industry was more critical and called for simpler and clearer financial regulation that will make it easier for investors and consumers to make the right decisions. Here again, inflation was mentioned.
“Financial education is not just necessary but absolutely critical. One out of three EU citizens is not financially resilient. They can not deal with a financial shock. This is scary when one considers that retirement will sooner or later come as a big shock for many people,” said Tanguy Van de Werve, head of the European Fund and Asset Management Association (EFAMA).
“When something is perceived as complex, it will be perceived as higher risk which will result in a lower willingness to invest. Improving financial literacy should therefore go hand in hand with a simplification of the regulatory framework,” he said. “Not only the retirement savings gap is increasing but also wealth inequality. This can eventually lead to social unrest and further fragmentation of our societies.”
“There is a need to be bolder, far more determined,” Van de Werve said.