Bruxelles, 2006

The increasing level of complexity of financial products means that there is a need for a higher level of consumer financial capability. A market able to reduce the current gap in information and financial expertise between financial intermediaries and consumers would have the effect of reducing the risk of over-indebtedness, default or bankruptcy). This would also generate more competition between lenders and thus raise the overall efficiency of the market. This paper analyses the topic from a regulatory perspective based upon the different approaches that the main European countries currently take towards financial literacy. The analysis shows a choice between an ‘invasive approach ’ and an ‘information approach’. The objective of this paper is to evaluate whether or not a regulatory initiative designed to stimulate debtors’ perception of their own financial capabilities would be advisable. The proposal for a financial capability index is addressed. In addition, guidelines for selecting the information to be used in the index are discussed. The financial capability index, is meant to help the consumer estimate his / her financial situation and to evaluate the impact that a (new) load would have on his/her current financial situation.This paper is meant to be a preliminary study, preparing the way for a more elaborate proposal for a financial capability index