The recently issued 2018 annual report by the Arbiter for Financial Services, which gives a very comprehensive statistical and quantitative review of financial services complaints, indicates that 192 new complaints were received by the Arbiter in 2018 – an increase of 10 per cent over the previous year. The Arbiter remarked again that most of these complaints referred to investment services offered to consumers.
The table on this page shows an analysis of complaints received over the last 10 years.
The table does not include the 2,057 “other enquiries and minor cases” that the Arbiter made reference to in his published report, which have been received since May 2016.
Is there a tenable link between the increase in concerns or complaints submitted by the financial services consumers to the Arbiter and the lack of financial literacy in Malta? Maybe there is.
In an article that Annamaria Lusardi wrote for the Swiss Journal of Economics and Statistics in 2019, she noted that “the lack of financial literacy, even in some of the world’s most well-developed financial markets, is of acute concern and needs immediate attention”.
Financial literacy is still a fairly new phenomenon. Interest in this topic increased in the beginning of the 21st century as financial markets around the world became increasingly accessible to the ‘small investor’ and as new products and financial services became more widespread. In fact, until the financial crisis of 2007-2009, the global economy was adding an estimated 150 million new consumers of financial services each year.
The Organisation for Economic Cooperation and Development (OECD) and the International Network on Financial Education (INFE) defined financial literacy as “a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing”.
Daily and long-term financial decisions are based on financial literacy, with consequences not only for the individual who would be taking such decisions, but on society in general.
On November 22, 2018, the results of an OECD Survey on Financial Literacy in Malta were presented by the Retirement and Financial Capability Group following the research carried between June-September 2018 on 1,013 Maltese residents aged between 18 and 79.
Apart from other salient conclusions from the research, it was reported that “one in three adults feel that they have a low level (very/quite low) of overall knowledge of financial matters, 44 per cent feel that they have an average level of knowledge and only 21 per cent feel that they have a high (very/quite high) level of knowledge”.
Furthermore, Malta ranks in the lower end amongst the OECD grouping when it comes to adults making money decisions in their household by themselves or together with someone in the household. Malta scored 85 per cent while the average OECD countries stand at 91 per cent.
As a nation, we need to give more importance to financial literacy education. It is true that various initiatives have been taken recently, such as ‘Money Week’ as part of the European Banking Federation initiative to promote financial education and financial literacy among students and youths (Times of Malta, March 21, 2019).
Several local authorities joined the Malta Bankers’ Association’s initiative to target financial knowledge, skills and competencies of State, Church and independent schools up to Sixth Form level. The recent launch of the government website ġemma. gov.mt is also a positive initiative to explain how one can make better use of one’s own income. The critique of these positive initiatives is that households are being encouraged to save for a ‘rainy day’, particularly as part of their retirement planning, due to the known fact that local pensions may not be adequate upon the time of retirement.
The author’s view is that more focus is required on these initiatives to explain to consumers the benefits and pitfalls of financial products, how to seek independent, professional financial advice and also consumers’ rights and practitioners’ obligations.
No ‘one-size-fits-all’ approaches should be implemented; rather, a more holistic approach should be directed at Maltese society in general as an effective financial literacy programme should have clear objectives and should be targeted at the most vulnerable groups of Maltese society.
An analysis of complaints received over the last 10 years by the Arbiter for Financial Services.
John Sammut is head of Internal Audit at the Malta Financial Services Authority.