How many times have you bought something while a voice in your head told you that it was not a good idea? Sometimes the pocket is not enough for more, and even so, we allow ourselves to be carried away by the temptation to resort to one of the many forms of credit that the market offers us. Although, this time, it is something different: the covid bill has made a dent in many Spanish households that have been forced to borrow beyond their means. Layoffs, temporary employment regulation files (ERTE) or, simply, an adjustment in the payroll that complicates the arrival at the end of the month. Many households were already tightening their belts before the pandemic due to the slowdown that the country was experiencing; now, the virus has finished off the delicate economic situation that already lived.
In this scenario, how to avoid over-indebtedness? Financial education must be promoted, but “it is certainly not a unique tool, it has to go hand in hand with other regulatory measures,” he said. Fernando Tejada, Director of Conduct of Entities of the Bank of Spain (BdE) during a round table organized by The confidential Y Asufin, within the framework of the ‘Over-indebtedness in times of covid-19’ program, subsidized by the Ministry of Consumer Affairs. In it also participated Patricia Suarez, president of Asufin; Matilde Cuena, Professor of Civil Law at the Complutense University of Madrid (UCM), and Jose Maria Lopez, member of the Edufinet project work team.
The covid-19 has contributed to the saving of families being accentuated in our country, where this culture is not yet fully established. The Bank of Spain revealed that deposits rose 13.5% through July. “In times of covid we have seen that many people who were making ends meet have started have problems right away, and this is because we do what should not be done, save in times of crisis and spend like crazy the rest of the time, “he lamented Patricia Suarez. It is important to have a budget, to know what your income is and what you are spending it on. It is one of the maxims to prevent over-indebtedness. But this is not being done: “People with difficulties are going to more expensive loans, easier and faster, and they are reaching situations that will be difficult for them to get out of ”, warned the president of Asufin.
For many, there is no other option. Income has fallen and they do not give more of themselves. In fact, 24% of Spaniards had to ask borrowed money to face confinement and 64% confessed to having less income than before the crisis, according to the European Consumer Payments report prepared by Intrum. “There is a huge amount of saving, but it is not healthy saving, it is saving from fear that is due to particular circumstances,” he said. Jose Maria Lopez from Edufinet, to which he added that “indebtedness itself is a useful tool, the bad thing is over-indebtedness. It is what must be avoided ”.
So how do you get people to make wise funding decisions? Delivering education. However, this is insufficient compared to a aggressive marketing of loans and too “easy” access to fast money, according to Matilde Cuenca, professor at the UCM: “Lenders are well aware of the cognitive biases of consumers, who are optimistic and think more about the present than the future. There is no consumer who goes into debt irresponsibly if there is no lender who lend irresponsibly”, He reproached. In countries like the United States or Canada, there is a “second chance” for insolvent people to access the loan, but they have to overcome a mandatory test to certify that they have certain financial knowledge. Works? According to some university studies in these countries, no: it was shown that almost 85% relapsed, that is to say, they became over-indebted again.
The financial education of the population and behavior supervision of the entities are two sides of the same coin because “they are complementary tools. It is necessary to modify the behavior of the entities towards their clients, but at the same time it is necessary to correct this cognitive bias of the consumer ”. That is why there are no results in financial education short term, because it means changing habits deeply rooted in society, according to Tejada.
“There is no consumer who goes into debt irresponsibly if there is not a lender who lends irresponsibly” (Matilde Cuena)
For the speakers the regulation and supervision of lenders they play an essential role. But it must be made clear that in the world of credit, not everyone has the same regulation (banking and non-banking entities), “that is why it is also important to know who are you indebted to, because the resolution of the conflicts will not be the same ”, added the Director of Conduct of Entities of BdE. In line with the general regulatory framework, López pointed out that the Organic Law of Budgetary Stability and Financial Sustainability exists, and that, if applied, we would not reach that public over-indebtedness.
According to the advertising malpractice, many times consumer decisions are precipitated by advertising tools “Very well thought out”Tejada mused. Along these lines, “we are introducing advertising monitoring as an additional element of conduct monitoring. It is a field in which there is a lot to go ”. The supervisor just posted a new rule on advertising and banking services, and in a short time, the National Securities Market Commission (CNMV) will launch another.
In relation to the problems that this raises, from Asufin they have gone to the public consultation of the CNMV to propose that a registry be activated: “We should have a compilation of advertising, of what they have sold us, how they had sold it to us and how badly they have sold it to us, because later it is difficult to recover the role where they only taught the good ”.
“If the Organic Law of Budgetary Stability and Financial Sustainability were applied, we would not reach public over-indebtedness” (López)
Matilde Cuena considered that for this to be solved, the reputational cost for financial institutions when carrying out irregular actions “it has to be powerful.” On the other side of the coin, the professor placed the reputational cost of the client, which should also exist: exclude defaulter, which has already defaulted, but the one who is over-indebted is not excluded “, because he explained that this data is easily concealed:” Today I can go to a loan platform (which are non-reporting entities), get over-indebted and then go to the bank to ask for a loan, which will not know this information “.
How much do we know in Spain?
“It is an aberration that young couples think about mortgaging when they are going to live together ”. That’s how resounding the president of Asufin was. For her, young people have learned through trial and error. How to improve? Introducing financial education with more intensity in schools and institutes. You have to have basic tools: know what a savings account is, what it means to get a mortgage or what does it mean that they value your solvencyAccording to Suárez: “People come to the association who complain because they are not granted a loan, but the entities are right, they cannot give it to them ”. Patricia Suárez explained that when banks tighten credit conditions they do it well, because they carry out that exercise that we do not do: how much you have, how much you earn and how much you can spend.
The Survey on Financial Competencies carried out by the BdE together with the CNMV revealed that four out of ten Spaniards do not know the inflation concept, reaching 51% in young people between 18 and 24 years old. “When you ask about inflation, older people have experienced it and they know it. This shows that not everything is training, you also have to live it “, said the member of the Edufinet project work team, who also put on the table the” so low “skills that young people have in reading comprehension and mathematics, according to the results of the PISA 2018 report: “If you do not know this, it is difficult for you to understand the good and the bad of simple and compound interest,” he said.
From the Bank of Spain, Fernando Tejada was positive stating that “many teachers already teach financial education as a transversal competence and not as a subject, because some international studies have already shown that this not the best way”.
But “You have to lead by example”, according to the UCM professor: “The first that should receive financial education is the State, which is spending more than it constantly enters.” Cuena said that the solution is to introduce public measures for more decent consumption and wages: “It is impossible to continue consuming with such low wages if it is not through credit.” We need to activate consumption, but how to do it with half of the population unemployed? “The state has to help through checks for travel or tourism, for example, and not through credit. Institutions have almost been forced to give liquidity to people who cannot pay it back, This is the world upside down”, Lamented the professor.
Even in this context of crisis, financial advice is not being used. “We have been surprised that in this situation there has not been a flood of calls to the ‘call centers’ or to the portals. We thought people would care more, and we are only receiving specific, short-term and limited questions, “said the BdE, to which Asufin added that” there is no culture of advice in Spain, only money is sought. ” Why is counseling not predominant? “It is a cultural element. In the US, counseling has to be paid for, and here we are not used to it, ”Edufinet added.
To conclude the debate, it was put on the table how technology, which occupies an essential place in all aspects of our lives, can play a fundamental role in financial education. “For young people it is a opportunity, because they are going to learn much more, “said Patricia Suárez. But there are risks, such as, the transfer of data on the internet. Asufin carried out a survey that revealed that, although youth are aware of the risks involved in exposing privacy on social networks and trust them less than in public organizations or banks, they have no problem in continuing to publish this data. José María López exposed another problem related to the older population: digital exclusion for the closure of branches: “Between all of us we have to articulate a way to educate and so that these people can continue to access useful financial services.” Still, he ended by saying that, of course, technology represents an opportunity rather than a problem, and “we have a challenge to face in this regard.”