OECD‐BANQUE DU LIBAN OECD‐BANQUE DU LIBAN INTERNATIONAL CONFERENCE INTERNATIONAL CONFERENCE

ON FINANCIAL EDUCATION: ON FINANCIAL EDUCATION:

BUILDING FINANCIALLY BUILDING FINANCIALLY EMPOWERED EMPOWERED INDIVIDUALSINDIVIDUALS

By:By:

Dr. Omar RazzazDr. Omar Razzaz

Beirut, October 20, 201Beirut, October 20, 20100

OutlineOutline

Introduction: Why now?Introduction: Why now? why do so many low income consumers why do so many low income consumers

fail to save their money in financial fail to save their money in financial institutions?institutions?

Elements of ReformElements of Reform The Case of Jordan Social SecurityThe Case of Jordan Social Security Future Opportunities for Lebanon and Future Opportunities for Lebanon and

JordanJordan

Why Now?Why Now?

Recent financial crisis:Recent financial crisis: Scale: Vast increase in financial retail services Scale: Vast increase in financial retail services

(saving and borrowing) not matched by adequate (saving and borrowing) not matched by adequate regulation, supervision, and protection.regulation, supervision, and protection.

Rapid increase in complex financial products: Rapid increase in complex financial products: Even those who are supposed to understand the Even those who are supposed to understand the financial products…. Don’t!!!!!financial products…. Don’t!!!!!

““complex financial products combined with complex financial products combined with frequently opaque marketing and disclosure frequently opaque marketing and disclosure practices result in problems not just for practices result in problems not just for consumers, but for institutions and investors as consumers, but for institutions and investors as well.”*well.”*

Why So Many Fail to Save?Why So Many Fail to Save?

Poverty!Poverty! Lack of understanding of basic financial Lack of understanding of basic financial

conceptsconcepts Lack of trust in, and credibility of financial Lack of trust in, and credibility of financial

institutions institutions Lack of appropriate instruments that meet Lack of appropriate instruments that meet

their needstheir needs

Elements of a Reform StrategyElements of a Reform Strategy

Who supervises? Who supervises? Central Bank, Consumer Central Bank, Consumer protection Agency, Specialized institution?protection Agency, Specialized institution?

Scope of coverage: Scope of coverage: Investment houses fall through Investment houses fall through the cracks, leading to pyramid schemes.the cracks, leading to pyramid schemes.

Disclosure: Disclosure: Simple, plain language, Key Facts Simple, plain language, Key Facts Statements, consumer disclosure lies at the heart of Statements, consumer disclosure lies at the heart of robust consumer protection.robust consumer protection.

Information: Information: Provide accurate, easy to understand, Provide accurate, easy to understand, and timely information tailored to individual’s need.and timely information tailored to individual’s need.

Addressing complaints: Addressing complaints: An effective mechanism to An effective mechanism to monitor and deal effectively with complaintsmonitor and deal effectively with complaints

Education: Very important, is prerequisite, Education: Very important, is prerequisite, but not substitute for the above.but not substitute for the above.

The Jordan Case of Social The Jordan Case of Social SecuritySecurity

Social Security: Social Security: Not easy to understandNot easy to understand

• Defined benefits vs. defined contributionsDefined benefits vs. defined contributions Not easy to mandateNot easy to mandate

• Myopia Myopia Not easy to reformNot easy to reform

• Who benefits/who paysWho benefits/who pays

Disclosure: Financial StatementsDisclosure: Financial Statements

Disclosure: Publishing the Actuarial Disclosure: Publishing the Actuarial Study in the PressStudy in the Press

-2,000

3,000

8,000

13,000

18,000

23,000

28,000

Millions

Contributions Expenditures Total Revenue

2016 2026 2036

المشروع المشروع دوافع دوافعالمنظور المدى في بالتزاماتها الوفاء على المؤسسة قدرة المنظور عدم المدى في بالتزاماتها الوفاء على المؤسسة قدرة عدم

الدولية العمل منظمة اعدته التي السادسة االكتوارية الدراسة الدولية نتائج العمل منظمة اعدته التي السادسة االكتوارية الدراسة نتائج

احتياطيات تالشيكامل بشكل المؤسسة

< النفقات االيرادات

النفقات االشتراكات>

النفقات االشتراكات<

5 عليهم مؤمن

1متقاعد

1عليه مؤمن

1متقاعد

ضوء في الديموغرافية ضوء التغيرات في الديموغرافية التغيرات البكر التقاعد على البكر االقبال التقاعد على االقبال الوفيات و الخصوبة معدالت الوفيات انخفاض و الخصوبة معدالت انخفاض العمل سوق العمل ظروف سوق ظروف

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

7000

27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75

العمر

المنافع )االشتراكات( السنوية

اشتراكات

تقاعدية رواتب

المؤسسة يحمل المبكر التقاعدكبيرة مالية اعباء

National Dialogue on ReformNational Dialogue on Reform

Information: Pension CalculationInformation: Pension Calculation

Information: User ManualsInformation: User Manuals

Information: User ManualsInformation: User Manuals

Information: User ManualsInformation: User Manuals

Complaints: Free HotlineComplaints: Free Hotline

Complaints: Paper/ On-line Complaints: Paper/ On-line Complaint FormComplaint Form

The Jordan Case of Social The Jordan Case of Social SecuritySecurity

Education:Education: What is Social Security?What is Social Security?

• Image building: “Extension of Family to help face life Image building: “Extension of Family to help face life risks”risks”

What is the issue of financial sustainability?What is the issue of financial sustainability?• Image building: Social Security as “Olive Tree”Image building: Social Security as “Olive Tree”

What is an Actuarial Study? Budget estimate over What is an Actuarial Study? Budget estimate over 40-70 years! Why?40-70 years! Why?

What is the risk of doing nothing? Animation to What is the risk of doing nothing? Animation to help explain how funded scheme work and risks help explain how funded scheme work and risks involved.involved.

http://www.youtube.com/watch?http://www.youtube.com/watch?v=bthjb09nvxs&NR=1v=bthjb09nvxs&NR=1

Future Opportunities for Lebanon and Future Opportunities for Lebanon and JordanJordan

How do you get people to save/invest How do you get people to save/invest more?more?

The huge untapped role of Diaspora The huge untapped role of Diaspora remittances (from consumption to long remittances (from consumption to long term saving and investment)term saving and investment)

The potential role of public and private The potential role of public and private pension schemespension schemes

The Jordan Case of Social The Jordan Case of Social SecuritySecurity

National Dialogue on ReformNational Dialogue on Reform: : Matrix of consultations, what got adopted, what didn’t, and why?Matrix of consultations, what got adopted, what didn’t, and why?

InformationInformation:: Yearly Account StatementYearly Account Statement Procedures GuideProcedures Guide On line calculator of pensionOn line calculator of pension

Disclosure:Disclosure: Publish all relevant financials and audited reportPublish all relevant financials and audited report Publish Actuarial Study and offer Parliament to hire Actuarian at Publish Actuarial Study and offer Parliament to hire Actuarian at

SSC expense to verify study.SSC expense to verify study. Complaints:Complaints:

Free Hot LineFree Hot Line Mystery ShopperMystery Shopper Complaint Forms and Boxes in all branchesComplaint Forms and Boxes in all branches Central Complaint Office (with a guarantee to respond within 2 Central Complaint Office (with a guarantee to respond within 2

weeks)weeks) Address of Government Ombudsman on all Complaint FormsAddress of Government Ombudsman on all Complaint Forms