Financial markets are either up or down. So far so good. But still it is necessary to be interested in it. Finance plays a predominant role in our daily lives. The constant rise in inflation and the explosion of energy bills alone have a major impact both on the budgetary policies of the States and on the monetary policy of the European Central Bank (ECB). In such a context, we consumers need to understand, to have answers, not only on the causes, but above all on the day-to-day consequences.
In terms of public finances, it is, for example, appropriate to explain the delicate role of the government in adopting budgetary orthodoxy while allocating the essential support aid in the midst of the energy crisis. The challenge is to popularize the need to preserve the country’s attractiveness to foreign investors, on whom more than 30% of GDP depends, at the risk of losing the country’s lethal weapon: its AAA rating.
Moreover, the complexity of public finances remains quite relative in relation to that of monetary policy. The impact of the last three unprecedented increases in the key rates of the ECB can sometimes be difficult to apprehend. But then, how to explain that this partly results from inflation rates higher than 15% in other countries? The citizen gets lost.
An impact on personal capital
Lately, the ECB tackled excess liquidity in the banking system, by acting on the rates of “TLTRO – Targeted longer-term refinancing operations”. A barbaric term which, even popularized, generates massive disinterest.
However, all these phenomena have repercussions on our daily lives. And you don’t have to wait long to see the first effects. The latest ECB bank credit survey revealed that the criteria for granting business, mortgage and consumer credit have significantly hardened in the third trimester.
The implications for personal finances are numerous. Still, according to the European Commission, 45% of Europeans say they make decisions about their personal finances based on recommendations from bank staff or financial advisors. In Luxembourg, this figure is 56%. Furthermore, while 36% of Europeans rely on product comparisons such as specialist websites and magazines, only 33% of Luxembourgers do the same.
A look to the future
The need for quality sources of financial information increases as financial products become more complex. To illustrate, let’s take sustainable finance. With all the investment products qualified as ESG (Environment, Sustainability, Governance), professionals are losing their minds. Too many acronyms, too many names of regulations, too many different labels, deplore some in “off-the-record”.
If some of the professionals have trouble finding their way, then what to expect from consumers? Only 6% of people in Luxembourg, compared to 8% in Europe, are clear whether their savings and securities are invested in sustainable economic activities, according to the European Commission. And barely 3% of consumers in the country, compared to 6% at European level, receive information on the sustainability impact of these financial products.
Beyond the day-to-day challenges, it is even essential to invest massively in the financial education of the youngest. This is not only about the future of their personal wealth management and their pensions while the public finances of certain States are seriously deteriorating, but also about the renewal of the talents of the financial sector itself.