Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
Annamaria LusardiThe George Washington University School of Business and GFLEC Italian Financial Education Committee
October 23, 2019 `
Financial literacy and the need for financial education
1
Three topics
Financial literacy
Financial literacy matters
The need for financial education
123
2
Changing landscape for financial security/consumer choice
Changes in pension systems• More individual and private accounts
Changes in financial markets• Greater complexity• More opportunities to borrow & in large amounts
Changes in labor markets• Workers change job often• Wage differential according to skills/education
Changes in education• Higher cost of education • Other reasons to plan and save for the future
Changes in technology (fintech)• Money is invisible• Apps for decision-making
3
Some questions we all ask
What will my work be tomorrow?• Investing in skills and education
How can I grow my saving?• Investing and portfolio choice
Will my pension be enough?• Saving for the future
How can I help others?• Children and parents• Caring for others and the environment
And much more…
4
To get started
A number:
5
1/3• How many people in the US know the basics before
age 50
• How many people are financially literate around the world
To get started
6
These numbers are not our destiny
• Changing the statistics• Building our future• A new ecosystem
Changing the statistics
7
Financial literacy: the ABC of personal finance The Big Three
1. “Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?”
2. “Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, with the money in this account, would you be able to buy…”
3. “Do you think the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.”
More than $102 Exactly $102 Less than $102 Don’t know Refuse to answer
More than today Exactly the same
as today Less than today Don’t know Refuse to answer
True False Don’t know Refuse to answer
8
Collecting data: The US National Financial Capability Study (NFCS), from 2009 to 2018
We collaborated with the FINRA Foundation to design questions on financial literacy and capability.
9
Financial literacy increases slowly with age/cohort (2018 NFCS)
Source: US 2018 NFCS
About 1/3 of Americans know these 3 basic concepts by age 50 even though many financial decisions are made well before that age
13% 13%18%
22%
29%32%
36% 38%41%
45%49%
45%
0%
10%
20%
30%
40%
50%
60%
18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+
% o
f res
pond
ents
Age/Cohort
Percentage answering the Big 3 questions correctly
10
The S&P Global FinLit Survey
• The largest, most comprehensive, global measure of financial literacy
• Interviewed more than 150,000 adults age 15+ in more than 140 countries
• The measure has to be applicable to every country, irrespective of economic structure and financial market development
• The survey covers four topics:
• Numeracy • Interest compounding • Inflation• Risk diversification
Being financially literate: Able to answer 3 out of these 4 topics correctly
11
Financial Literacy Across the Globe
Only 1 in 3 adults worldwide responded correctly to three out of four topics
% of financially literate adults
12
How countries score Country% who are financially
literateNorway 71%
‐‐‐‐‐ -----Australia 64%
‐‐‐‐‐ ‐‐‐‐USA 57%------ -----
RussianFed. 38%
------ ------Italy 37%‐‐‐‐‐ -----
Philippines 25%‐‐‐‐‐ ‐‐‐‐‐‐‐‐‐
Vietnam 24%
Norway, Denmark, and Sweden lead the list with 71% of adults being financially literate.
In the US, 57% of adults are financially literate
In Italy, 37% of adults are financially literate
13
Gender gap in financial literacy around the world
In most economies around the world, men have a better understanding of basic financial concepts than women
Source: Global FinLit Survey
14
Turning to the young: OECD Programme for International Student Assessment (PISA)
Since 2000, every three years the OECD Programme for International Student Assessment (PISA) answers these questions and more. It assesses to what extent students near the end of compulsory education have acquired some of the knowledge and skills essential for full participation in society.
Are students well prepared for future challenges? Can they analyze, reason and communicate effectively? Do they have the capacity to continue learning throughout life?
15
B-S-J-G (China)
Belgium (Flemish) Canadian
provinces
Russian Federation NetherlandsAustralia
United StatesPolandItaly
Spain
LithuaniaSlovak Republic
Chile
PeruBrazil
380
400
420
440
460
480
500
520
540
560
580Mean scoreStrong performance in
financial literacy
Low performance in financial literacy
Average performance
of 15-year-olds in financial literacy in
2015 PISA
Average performance of 15-year-olds in financial literacy (2015 PISA)
16
Looking deeper into financial literacy
• Financial knowledge strongly related to the socio-economic background of their family
• Gender differences start early in life, e.g. Italy
Large diff. among students
17
Building an ecosystem
We need many components
• Financial literacy is an essential one
• It is the foundation (like water)
• Financial inclusion and financial regulation work better with financial literacy
18
Topic 2
Financial literacy matters
19
Financial literacy and wealth inequality
• Consider a life cycle model of saving with financial literacy
• Financial literacy affects the return on savings
• Financial literacy is an important determinant of wealth and wealth inequality
• Important finding: 30-40% of U.S. retirement wealth inequality can be attributed to difference in financial knowledge
20
Financial literacy and fintech
21
The role of financial literacy
• Only 40% of Millennial mobile payments users are able to answer the Big Three financial literacy questions correctly.
• A basic level of financial literacy is negatively associated with using mobile payments. Respondents with a basic level of financial literacy are less likely to use mobile payments.
40%53%
Users Non-users
Spend more than they save
Occasionally overdraws
checkingaccount
Used at least one form of
AFS
Uses m‐payments
Basic financial literacy
Financially literate mobile payment users
• Financial literacy is negatively associated with each of the three financial behaviors.
• Respondents who use mobile payments and are financially literate are much less likely to engage in each of these behaviors.
22
Citations to the term “financial literacy” over time: New meta-analysis shows that financial education does work
23
Topic 3
The need for financial education
24
Where to focus
Large and scalable programs
• Financial education in school• Financial wellness programs in the workplace• Financial education in the community (libraries, museums,
theaters, other places where people go to learn)
25
Fast Lane initiative: Promote financial education in high school
• Provides research-based guidance and support for (1) students, (2) teachers, (3) school administrators, (4) parents/guardians, (5) policy makers, and (6) community members
• Making sure young people are on the fast lane to financial prosperity
26
Museums for financial education
27
A Museum of Saving in Italy
28
An International Federation of Finance Museums (IFFM)
29
In July 2017, I was appointed by Italy’s Minister of Economy and Finance as director of the new Financial Education Committee
The Committee is in charge of designing the national strategy and implementation program for financial literacy
Follow our work on www.Quellocheconta.gov.it
Policy work: Italy
30
Policy work: National strategies for financial literacy
About 70 countries have done or are doing a national strategy for financial literacy
31
Advice for public policy : Toward a new ecosystem
Building a financial resilient society
• Add financial literacy among indicators for policy
• Toward a more inclusive society
32
Concluding remarks
Financial literacy is like reading and writing: it is an essential skill to thrive in the 21st century
• Everyone deals with finance, and finance is sufficiently complex that we cannot leave it to the individual to learn by himself/herself
• It is very important to be financially literate as early as possible
33
Looking ahead
Short definition of financial literacy: A vision for the future
The question is: Which future do we want to build?
Thank you!