Poor financial literacy makes ‘the weak subsidize the rich’
Experts worry that basic lack of financial literacy in Israel will increase disparities, stymie growth.
Bank Hapoalim Photo: Ariel Jerozolimski
The numbers were stark. Of all bank account holders in Israel, 52 percent went
into overdraft last year, half of them remaining in the red on a regular basis.
Not counting mortgages, half the public was in debt of one sort or
Fully 20% of them were late in their bill payments, and many
said they would not be able to deal with an unexpected one-time cost of NIS
More than simply a snapshot of poor financial planning, the data
paints a picture of a public that lacks basic financial literacy, a problem
experts worry can have implications for the broader economy.
every one of us to have vast personal responsibility, which can affect the
entire economy,” said Oded Sarig, the director of capital market, insurance and
savings department at the Finance Ministry.
Speaking at a financial
literacy forum outside Jerusalem on Sunday, Sarig said that the last financial
crisis demonstrated how “lack of financial literacy contributes to global
problems, like the real estate bubbles in the US and Europe.” One aspect of the
housing bubble that led to the 2008 crises arose from banks giving huge
mortgages to “sub-prime” borrowers, many of whom did not realize they could not
afford the homes.
Without enough regulation to safeguard those who lack
the proper tools to make basic financial decisions, banks and other financial
institutions can ultimately misdirect the nation’s resources, lining their
pockets instead of putting funds toward prosperity.
today is that the weak ones are subsidizing the rich,” said Zvi Stepak, chairman
of Meitav Investments. “There are many that are very happy for the public to
Uriel Lederberg, whose nonprofit organization Pa’amonim
helps families in financial difficulty achieve economic independence, lays out
“A central problem is that people don’t plan anything
ahead, either for the short-run or the long-run,” he said. “We see that many of
the bad decisions people made in the past, they made because they didn’t know
Many Israelis live beyond their means, he continued, and the
deficit of knowledge on how banks, high-interest loans, overdraft rates and
mortgages work put people in financially precarious situations.
knows the expression ‘preventative medicine,’” he said, drawing an analogy to
inexpensive medical measures taken to prevent people from developing more
serious – and costly – illnesses. “But we don’t know the expression
‘preventative welfare.’” People don’t need to learn how to make huge profits or
play the stock market, but simply how not to make big mistakes by avoiding
high-interest debt, spotting predatory lenders, building up moderate savings and
keeping their money safe.
Lederberg recommends putting together
infrastructure to educate people throughout life about the types of financial
decisions they will have to make, starting in school, the army, the work place
and extending to newlyweds and new retirees.
On that front, there is some
good news. Early financial literacy programs have been put in place in second
through fourth grades and in 10th grade, according to Ofra Meisels, who heads
pedagogical affairs at the Ministry of Education.
A strategic plan laid
out by the Finance Ministry in October seeks to target specific groups it said
tend to lack financial literacy, such as low-income earners, the ultra- Orthodox,
new immigrants and women. Its strategy includes offering online tools, providing
accessible information at financial institutions and creating in-school
Simplifying the tax code to help people take advantage of
myriad benefits would also help, added Sarig. But that may not be
MK Faina Kirshenbaum, of Likud-Beytenu, said she wants to see the
creation of a government body to promote financial advice. “I want to see two
things: more education, and the advent of personal financial advisors,” she
said, saying that people would rely on them for financial advice the way they do
on doctors for medical advice.
Eugene Kandel, who heads the National
Economic Council, said that even if such a organization existed, early education
Turning the medical metaphor to a dental one, he said:
“Every kid knows to brush their teeth and to go see a doctor when something
hurts. In the financial field we don’t know these things. If you give everyone a
toothbrush but don’t teach them how to use it, we’ll have a population with
rotten teeth. Nobody will even produce toothbrushes to sell if the public
doesn’t know to buy them.”
In other words, education is necessary to
create public demand for financial advisers.
Sarig said educating the
public for financial literacy won’t just help families stay out of trouble, but
will help boost the overall economy. Research shows that high financial literacy
also creates more competitive and deeper financial markets.
deeper financial markets are,” he said, “the more robust the economy is.”