Ľudovít Ódor on Finweek: “Definitely,Central banks should think about the solution of transformation of the cash to the digital currency.” Is the cash over?
Is Slovakia prepared on financial questions, which are accelerated by COVID, despite of low financial literacy?
B r a t i s l a v a – October, XX, 2020 – COVID caused a decrease in cash use. Some of experts say that this is the end of cash use; others think that we are just too afraid of crisis. The growth rate of Slovak household indebtedness is accelerating significantly; however, financial education is still not included in the curriculum. In addition our low financial literacy is facing world financial trends. One of the solutions for adaptability and stability of this ecosystem is the new approaches of the national banks. The challenge is to introduce of a digital currency. Some banks are just thinking about it, others are already raking concrete steps. The global problem and challenge are 2 trillion people, who do not have access to the banking system.
On September 21st, Techsummit Events® launched a four-day financial marathon. The Finweek conference raised several questions about the future of our finance, what is considered as an absolute highlight of this historically challenging season. “We are glad that we organized Finweekdespite the unfavourable COVID situation. It was our 19th conference in our history and we consider it as extremely successful. We connected four days full of information about the financial world with live networking discussions. The created format thus has a comprehensive informational value for the participants, „says Davy Čajko, director of Future Proof, which organizes the conference.
The great importance of Finweek is not attached just by the organizer, but also by the Minister of Finance, who personally opened the conference.“Moving forward requires knowledge, so we need such information support. I believe that with this connection we can achieve great results that will have a positive impact on the shift of Slovakia,„said Eduard Heger, Minister of Finance of the Slovak Republic.
The financial marathon also included the zero year ofInvestsummit conference, which will continue on October, 29th, 2020. “The topic of investing in Slovakia deserves special attention. This is an opportunity that we do not use, mainly due to a lack of information. However, the pandemic caught most of us unprepared. We do not have a sufficient financial cushion for unforeseen situations, such as COVID, which only accelerates this topic. It is essential to think about the future and create a safer outlook in finance. Our ambition is therefore to create an Investment Club, which aims to create a safer overview of investment opportunities,” says Čajko.
The theme of Investsummit will be traditional and alternative investment. Firstly, both forms will be discussed with experts from investment practice. This will be followed by introducing of concrete products of both forms of investment by firms, which services provide.The conclusion of the conference will again be part of the discussion. Experts will evaluate the advantages and disadvantages of individual products. “This will create a professional “match” for a potential investor. It has proved to us that through a diversified discussion, people form the best picture for internal decisions about further investment. We want the viewer to get as much information as possible, so there will be a discussion before and after the presentation of investment opportunities,” added Čajko. The organizers are still working on the final content of Investsummit, but you can reserve your place at the conference for free HERE.
Day 1st of Finweek opened Finance in Crisis (COVID-19 & payments – is cash over? & Digital currency of central banks).According toMark Trevor, Commercial Director of Vaultex, COVID crisis caused that the cash as a payment method is not rising, bur the demand for online payments is raising all over the world. Tomáš Holub, a member of CNB´s Bank Board, nevertheless claims that this will not mark the end of cash, because its volume, which is in circulation during the COVID crisis, is larger than before. “It means that people are afraid of the crisis, so they keep larger amounts of cash,” said Holub.
The price of cash is also becoming important for the company. As Trevor noted, cash is becoming more expensive and the cost is rising. According to Ľudovít Ódor, Vice Governor of the NBS,it is increasingly competing with technologies that enable faster, cheaper and probably safer payments in the future. “Central banks are increasingly discussing the potential issue of digital currency,”Odor added.According to Miroslav Lukeš, senior vice president of MasterCard, the digital currency is a benefit of the new era, and we should focus as much as possible on how to make the best use of it.Robert Schwertner, CEO and founder of Innomagic, who compares cash and digital money to horses and cars, also agrees. “Horses are still here, but their role is different than before. In my opinion, cash has no future. We are facing a digital revolution that will bring digital money. And if we miss this chance, we will waste the future,”said Schwertner, who, despite this risky COVID situation, came to the conference in person from Vienna to share his views with us.
However, according to Trevor, the introduction of the digital currency is not clear: “We cannot dictate to companies and consumers what they will use. They must have a choice. Therefore, cash must be available at the same time as the digital currency.” According to Ódor, several central banks are already preparing for the digital menu and will undoubtedly come up with a functional prototype within 3-5 years. “So far, the whole process is between the central bank and the banking sector, there is a lack of access for ordinary people and small businesses,” saidÓdor and noted that the global problem and challenge are 2 trillion people who do not have access to the banking and financial system. “Most of them have mobile phones, so if we reach the digital revolution, there is great potential to provide services to another 2 trillion users,” addedÓdor. According to Schwertner,three types of digital currency are being formed: “The first type is the digital currency of central banks distributed and controlled by central banks. The second is the digital currency distributed and managed by companies such as Google or Facebook, which have already taken the first steps towards its introduction. The last is the so-called decentralized currency, e.g. bitcoin as a cryptocurrency, based on the principle of blockchain technology.”
Despite the enormous opportunities that the introduction of the digital currency could bring, some experts are very cautious about its introduction. According to Holub, one of its ambiguities is the question of cost-effectiveness or achieving stability. “It is not just about smart technologies, but alsoabout the absence of control mechanisms to set regulation and control in order to achieve stability,” added Holub.
Lukeš also draws attention to the current settings, which slow down the introduction of the digital currency:“There is not even a system between Slovakia and the Czech Republic that would ensure fast B2B payments. From the point of view of national banks, this is too complicated. Facebook would be able to act quickly and efficiently, but it does not meet the regulatory requirements set by the National Bank.” According to Schwertner, the China can be an example, which is actively implementing the crypto menu, and whose progress and several years’ lead in feint applications are remarkable. “In Europe, we must first prepare the possibilities and infrastructure at the level of China or the USA for the introduction of the digital currency. And as soon as possible, because if people start using a Chinese platform, it will be much harder to lure them back,” said Ódor.
According to Trevor, the fundamental difference between cash and cryptocurrency is the fact that while cash boosts confidence, cryptocurrency evokes a feeling of instability. The basic precondition for its functional implementation is therefore the need to teach people something more about the digital currency.“Facebook’s digital currency is built on managing data and personal information. And this has to be explained to the public before Mark Zuckerberg breaks society with digital currency,” noted Trevor. And although we can learn e.g. from China, according to Lukeš, we should finally start doing something other than what the rest of the world is doing.“Experimenting, innovating and showing your own way is the solution. We have capable people here, conditions and experience with projects, and this must be used,” remarkedLukeš, according to whom he will also help if we start communicating benefits to people and explain to them what benefits the introduction of digital currency will bring them. Ódor also agrees with the need to experiment, according to which we can also solve the question of the properties of the digital currency, which are key for its users.“The initial launch of the digital currency will still be just a complement, not a substitute for cash. However, commercial banks will thus be able to streamline many internal processes and involve the company’s fintech in them,” said Ódor.
However, Schwertner views the introduction of the digital currency not from a national but from a global perspective.“I see the digital currency as the internet. We do not talk about it as Slovak, Czech, or Austrian; it is simply the internet as such. It allows us to transfer much more value and money are only a small part of what we can send and receive with digital currency. The digital currency is the beginning of a great future that we cannot even imagine,”concludedSchwertner, however according to Holub, we are too far from this future: “Technically, this future can be achieved within 5 years, politically and in terms of global fiscal and banking union. however, it is unimaginable.”
Day 2nd of Finweek was devoted to Financial Literacy, which was discussed by experts in three separate discussions. The first of these was Financial Education in Schools, which is still absent in Slovakia. “When we talk to students about where they get the most information or skills about financial literacy, the answer is either parents or the internet. The school does not play such a key role in this process, and that is a serious problem,” said Juraj Hipš, Slovak expert on education. The reason is the neglected system of methodological support for teachers for years.The correction of such problems stems from school reforms, but it takes many years. “If we started with education reform in the 1990s, we might have already overtaken Finland. The problem, however, is that we have not started at all. If it goes on like this, in 2030 other people may be sitting here, but they will say the same words as we do today, which is a serious problem,” added Hipš.
According to Danica Lacová, Program director of FinQ, SLSP Foundation, the shortcoming of our national educational standard is that it is thematically orientated, it means on topics, not on students. “Teachers do not have enough teaching and learning material or methodological, pedagogical or didactic support to know how to work with students in financial education,”saidLacová. ČSOB is also aware that the basis is quality teacher support, which is why they focused their attention on them in their experiment. “We created an online platform and an interactive game – something like open educational resources, in cooperation with teachers to create a kind of methodology of model lessons for the course of financial education,”explainedAndrea Baumgartnerová, Senior director and a board member of ČSOB insurance company. Text understanding, as well as context understanding based on the game, is also necessary in achieving financial literacy, according to Jana Merounková, director of Yourchance. “Children should be able to make a financial decision based on context, or at least take the right stance. It is not just about counting or reading something, you need to think and argue. Let’s realize that even a child in preschool age is able to make a decision in some way if he has a choice,” explained Merounková.
To some extent, the conditions of financial education are replaced by the private and non-profit sectors. “Our success is also based on cooperation with business partners. However, It should not work in this way, the non-profit sector should not replace something that the state should do. We are aware that we would not exist in an ideal state at all and we hope that one day our work will be done by the public sector,” remarked Eva Vargová, Director of Junior Achievement Slovakia. Except of mentioned the Slovak problem is the absence of lifelong learning. “The topic of lifelong learning is not a need; it is a necessity for a person to be able to manage their personal finances and to be able to find a job in the labour market. In order to be flexible, he knew how to meet the expectations of the employer, he knew how to function in terms of civic activism and he also knew how to behave like an adequate consumer,” explained Lacová. Ongoing problem is the educational system itself, from many children drop out every year. “These children do not need only financial but also reading literacy. Soon, there will be huge differences between children who have completed their education and those who have not,” concluded Hipš.
The second discussion on financial literacy was the Level of Financial Literacy, which is a serious problem for Slovakia. According to Gabriela Horecká, head of department of financial literacy and the Slovak Centre for Training Companies SIOV, the great benefit is that the topic of financial literacy and financial education is discussed in public. “Every single citizen should be familiar with finance, loans, insurance, and savings and, of course, business skills,” noted Horecká.
According to Martin Šuster, director of research department of the NBS, the reduction of some curriculum of Slovak and maths, which will be used by about 1% of students in their lives, should be solution. Instead, we should include in the curriculum curricula leading to financial literacy. “We have a serious problem with financial literacy, although it is an area that is used by every single inhabitant of Slovakia. It makes fundamental decisions for achieving lifelong well-being – whether to take out a mortgage, save money, or even whether I can avoid fraud,” explained Šuster.
Erika Pastoráková, Dean of the Faculty of Economics at the EUBA, also agrees with the reduction of the content of other subjects. At the same time, she perceives all financial literacy as a tool that we are building in order to educate individuals who can think in the long run and are prepared to respond adequately to the risks that are natural. Šuster also agrees with her, according whom for a child is the most effective, if he/she sees an example of responsible financial behaviour in his parents, it means reasonable borrowing of money, reasonable investment, moderate risk acceptance, provisioning and the like.
The social environment, into which the individual is born, is really significant factor, which influence his future decisions in financial matters.“We found that students from socially disadvantaged backgrounds achieve worse learning outcomes while achieving lower scores in financial literacy responses. This applies not only to Slovakia, but to all OECD countries,”said Júlia Miklovičová, national coordinator of PISA Slovakia, NUCEM. According to Šuster, is therefore important for the state to set the parameters of individual financial products so that they are also suitable for people with low financial literacy.
The last discussion on financial literacy was addressedto The Consequences of Poor Financial Literacy as a serious problem for whole Economy. According to Jozef Beständig, a member of TOP club in Fincentrum Company – Swiss Life Select Slovensko, in Slovakia it is manifested mainly by the fact that we are able to buy goods and services in instalments, the useful life of which is significantly shorter than the repayment period. “An extreme case is the instalment on holiday I take in 2 weeks, but I will pay for it for a year or more – this is one of the biggest financial mistakes,” said as an example Beständig.
At the same time, the National Bank of Slovakia itself has been drawing attention to the suitability and unsuitability of financial products for a long time. “Everyone should cover themselves with their duvet. If I take a loan, I should have created a reserve for some month in order to overcome the potential problem of income loss,” said Júlia Čillíková, Executive director of Regulation and Protection of Financial Customers, NBS, who claims that on Slovakia is needed the systematic measurement of financial literacy. At the same time, however, it also draws attention to the problem of fraud. “Everyone should check in advance whether the person who offers me the service is on the NBS list. Then it is too late to argue that the institution has been unlicensed. Unfortunately, the obligation to take responsibility is also based on financial literacy,” addedČillíková. According to Helena Brýchová, head of educational projects at the Czech Banking Association, if we want to prevent fraud, we should motivate and learn people how to investproperly even within the framework of more standard tools.
The result of poor financial literacy is also an insufficient reserve, which can be achieved, for example, by investing. “It is necessary to take steps to make people understand their investments. One of the basic rules is that investments must reach at least the rate of inflation, otherwise they lose resources,” said Beständig. However, Slovaks are associated with a crisis in investing, which often makes them too risky. However, as Čillíková said, here has always been and always will be a crisis, so instead of rejecting the investment, we should talk about risk diversification. From the point of view of Peter Kubrický, General Director of Bratislava Stock Exchange, the crisis should show people the need to prepare for the future by creating a reserve. “From the investment point of view, the best chance to minimize risk is the form of long-term investment,” added Kubrický.
Day 3rd on Finweek was dedicated to the introductory part of the zero year of the Investsummit conference. The topic of Savings and Investment opportunities was discussed by the experts from practice, who showed mainly to the importance of investing.According to Maroš Ďurik, Head of Across Private Investments, Slovaks are the second poorest nation in terms of financial assets in the EU. In addition, as Juraj Forgacs, CEO of Fumbi, added, the indebtedness of Slovak households has tripled in the last 12 years. One possible solution to this situation is to invest, but it involves a number of practical issues. How to start with investing? Is better invest to less risky or riskier forms of investments? What is financial volume which should be cut from monthly budget, so that investing makes sense for us? These and many other questions will be answered and practically explained on October 29th, during the continuation of the Investsummit. Do not forget to book your place for free HERE.
The disadvantage of Slovakia is that they not only learn little about finances and financial products, but also discuss them. The public lacks relevant information and any opportunity to find it is beneficial. One of them is Fórum Zlatá minca (about financial products), the most active Facebook group about financial products in Slovakia. Anyone can ask anything here about the products of insurance companies, banks and funds without being sold products or providing commercial information that they do not ask for. This group is a good example of strengthening financial literacy in Slovakia.
In order to contribute to it, all further discussions of the Finweek conference will be elaborated in detail, as this press release contains only the elaboration of the first two days. They will be available in writing form, but also in the form of videos and podcasts. You can watch the discussions of the first two days on our YouTube channelor listen to them in the form of a podcast.
The Finweek conference was held in the main partnership with the Ministry of Finance of the Slovak Republic and the National Bank of Slovakia. Thanks for the possibility of organizing italso belongs to other partners and supporters:
- Main partners: Ministry of Finance of the Slovak Republic, National Bank of Slovakia
- Partners: British Embassy Bratislava
- : Bratislava Stock Exchange, a.s., ČSOB, Oracle Corporation, Raiffeisen Bank
All information can be found on Finweek.sk and on social networks.