Monitoring the success of policy initiatives to increase consumer understanding of financial services

One of the main statutory obligations of the Financial Services Authority (FSA), the regulatory authority responsible for overseeing financial markets in the UK, is to promote public understanding of the financial system and the services offered within it. As a result, the FSA has embarked upon a personal finance education programme to increase public awareness and understanding of financial services. It has done so in the knowledge that many consumers and potential consumers of retail financial services exhibit limited understanding and awareness of financial services and the financial system in general. Limited understanding on the part of consumers has important implications for consumer behaviour in financial services markets. Many consumers show limited interest, make little effort to evaluate alternatives and some even purchase financial services which may be detrimental to their long-term interests. This paper argues that, in order to be deemed successful, policy issues aimed at increasing financial knowledge should influence consumer behaviour in retail financial services markets in a number of ways, leading to more informed and sophisticated buying behaviour. It places the debate in a public policy and marketing framework and analyses evidence of limited understanding and past and planned consumer personal finance education initiatives. The paper then offers a review of consumer behaviour in retail financial services markets and develops propositions as to how enhanced awareness, interest and understanding may affect such behaviour. Policy implications are explored, including the proposed monitoring of consumer behaviour variables in order to provide an insight into the degree of success of consumer personal finance education initiatives.