The Impact of Financial Education for the Youth

Veronica Frisancho†

†Inter-American Development Bank, Research Department (vfrisancho@iadb.org)

OECD-Russia Global Symposium

Moscow, 4-5 October 2018

Introduction Evidence Conclusion

Financial Education

Financial literacy is associated with better financial and economic outcomes

More countries are implementing national financial inclusion strategies with a

strong financial education component

Focus on youth, especially school-age population

But what do we know about the impact of financial education for the youth?

1/7

Introduction Evidence Conclusion

Large Impact of Financial Education for the Youth

Recent evidence of sizeable effects among the youth

Impressive compared to education interventions in general

NOTE: Weights are from random effects analysis

Overall (I−squared = 84.9%, p = 0.000)

Study

Becchetti 2012i

ID

Hinojosa 2009i

Berry 2018i

Hinojosa 2009i

Jamison 2014iii

Batty 2017i

Hinojosa 2009i

Batty 2015i

Berry 2018ii

Bover 2018i

Bruhn 2016i

Frisancho 2018i

Furtado 2017i

Jamison 2014ii

0.19 (0.13, 0.25)

0.32 (0.02, 0.62)

ES (95% CI)

0.42 (0.23, 0.61)

0.02 (−0.09, 0.12)

0.38 (0.15, 0.61)

0.08 (0.03, 0.14)

0.16 (0.01, 0.32)

0.50 (0.34, 0.66)

0.68 (0.45, 0.90)

−0.01 (−0.12, 0.11)

0.17 (0.04, 0.29)

0.21 (0.16, 0.25)

0.14 (0.10, 0.19)

0.07 (0.00, 0.14)

0.09 (0.03, 0.14)

100.00

%

3.08

Weight

5.28

7.85

4.31

9.52

6.27

6.15

4.39

7.77

7.21

9.72

9.80

9.12

9.52

0.19 (0.13, 0.25)

0.32 (0.02, 0.62)

ES (95% CI)

0.42 (0.23, 0.61)

0.02 (−0.09, 0.12)

0.38 (0.15, 0.61)

0.08 (0.03, 0.14)

0.16 (0.01, 0.32)

0.50 (0.34, 0.66)

0.68 (0.45, 0.90)

−0.01 (−0.12, 0.11)

0.17 (0.04, 0.29)

0.21 (0.16, 0.25)

0.14 (0.10, 0.19)

0.07 (0.00, 0.14)

0.09 (0.03, 0.14)

100.00

%

3.08

Weight

5.28

7.85

4.31

9.52

6.27

6.15

4.39

7.77

7.21

9.72

9.80

9.12

9.52

0−1 −.75 −.5 −.25 0 .25 .5 .75 1

2/7

Introduction Evidence Conclusion

The Case of Peru: A Large-Scale Experiment

Financial Literacy GPA 2016 GPA 2017 Pr(Work) Self-ControlTreatment 0.143*** 0.094*** 0.022 0.000 0.032**

[0.022] [0.025] [0.021] [0.008] [0.016]Number of Observations 19673 19170 11464 19247 17391Mean in Control 0.30 0.53 -0.03 0.40 -0.03

Large impact on financial skills (≈ 14.8-point improvement in PISA 2015)

(Short lived) boost on grades

No effect on probability to work

Impact on self-control

3/7

Introduction Evidence Conclusion

Even Larger Impact if Made High Stakes

School-based programs with course requirement have sizeable impact

Average impact on financial skills increases to 0.24SD

Null or small impact of voluntary after school programs

Low take up and participation rates

4/7

Introduction Evidence Conclusion

Impact Seems Inclusive: No Heterogenous Effects

In the Peruvian case, no differential effects by:

Gender, previous exposure to financial lessons

Initial financial or math skills

Family background

Slight difference in learning by asset index

5/7

Introduction Evidence Conclusion

Conclusion

Financial competencies are becoming more relevant as economies transform

Younger generations are ill prepared and face increasingly complex

environment

School-based financial education works!

Starting early pays off in the short-run

Some evidence on potential to affect long-run behavior

Next steps:

Scalability in schools

Experiential learning leveraging on technology

6/7

Thank you

vfrisancho@iadb.org

Financial Education: Young People in the Digital Age

Annamaria Lusardi(GFLEC, and Italian Financial Education Committee)

OECD-Russia Global Symposium, Moscow, 4-5 October, 2018

Some Questions about the Young People in the Digital Age

1. How well-equipped are young people to deal with this new digital finance environment?

2. How financially literate are young people?

3. Does fin-tech help the younger generations improve their financial decisions?

The PISA Financial Literacy Assessment

Measuring Financial Literacy Among the Young

• PISA is the first large-scale international study to assess the financial literacy of 15-year-old students

• 18 countries participated in the 2012 Financial Literacy Assessment

• 15 countries participated in the 2015 Financial Literacy Assessment

• Russia participated in both the 2021 and 2015 Finlit Assessment

The countries/economies are:

2012: Australia, Belgium (Flemish Community), Shanghai-China, Colombia, Croatia, Czech Republic, Estonia, France, Israel, Italy, Latvia, New Zealand, Poland, Russia, Slovak Republic, Slovenia, Spain, and the United States

2015: Australia, Belgium (Flemish Community), Brazil, B-S-J-G (China), Chile, Canadian provinces, Italy, Lithuania, Netherlands, Peru, Poland, Russia, Slovak Republic, Spain, and the United States

• On average across OECD countries and economies, 22% of students do not have basic financial skills

22%

Too Many Students Lack Basic Financial Skills (2015 Data)

• Only about 12% of students across participating OECD countries and economies are top performers, as they can tackle the most difficult tasks

12%

Changes in financial literacy scores between 2012 and 2015 in percentage terms

-5.09%-4.71%

-4.55%

-3.30%

-2.20%

-0.92% -0.81%

3.87%

5.13%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

POLAND SLOVAK REPUBLIC AUSTRALIA SPAIN OECD AVERAGE-7 BELGIUM UNITED STATES ITALY RUSSIA

PER

CEN

TAG

E C

HA

NG

E

PERCENTAGE CHANGE BETWEEN 2012 AND 2015 IN MEAN FINANCIAL LITERACY PERFORMANCE ADJUSTED FOR DEMOGRAPHIC CHANGES

A Simple Measure of Financial Literacy:The Big Three

“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?”

More than $102 Exactly $102 Less than $102 Don’t know Refuse to answer

More than $102 Exactly $102 Less than $102 Don’t know Refuse to answer

True False Don`t know Refuse to answer

“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…”

“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.”

1.

2.

3.

Financial Literacy Across Age 2015 US National Financial Capability Study

(% answering Big 3 questions correctly)

13%

18%

24%27%

35% 36%38% 37%

44%47%

51%

42%

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+

• Financial knowledge increases very slowly with age/cohort• Less than 25% know 3 basic concept by age 35 even though

many important decisions are made before that age

Two New Reports on Millennials’ Financial Literacy in the Digital Age

1st Report - Millennial Mobile Payment Users: A Look into their Personal Finances and Financial Behaviors

Compared to non-users, Millennials who use mobile payments are more likely to:

• occasionally overdraw their checking account (33% vs. 19%). This is an especially concerning practice because it often incurs in high penalty fees.

• pay fees on their credit cards in the past 12 months (58% vs. 45%)

• make withdrawals from their retirement account (37% vs. 9%)

• use alternative financial services such as pawnshops or payday loans (50% vs. 23%)

21%

33%

18%19%

Overdraws checkingaccount

Overdraws checkingaccount

Users Non-users

2016 GFLEC Mobile Payments Survey

2015 NFCS

Checking account management (in the past 12 months)

1st Report - Millennial Mobile Payment Users: A Look into their Personal Finances and Financial Behaviors

• Only 40% of Millennial mobile payments users are able to answer the big three financial literacy questions correctly

• Those who use mobile payments are less likely to be financially literate.

• Respondents who use mobile payments and are financially literate are much less likely to engage in poor financial behaviors.

• Financial literacy and fintech are good complements, not substitutes

40%

53%

Users Non-users

Source: 2016 GFLEC Mobile Payments Survey

Financial literacy of mobile payment users

2nd Report - Millennial Financial Literacy and Fin-tech Use: Who Knows What in the Digital Era

The new insights from the 2018 P-Fin Index demonstrate that:

• Millennials answered 44 percent of P-Fin Index questions correctly, compared to 50 percent of the US adult population.

• Financial literacy is lowest in the areas of comprehending risk and insuring

• 80 percent of millennials use their smartphone for transactional purposes like paying bills and depositing checks.

• Almost 30 percent of millennials who use their smartphone to make mobile payments report overdrawing their checking account.

• Those who use mobile payments are more likely to overdraw their checking account

• Fin-tech users with higher financial literacy are less likely to overdraw their checking account

2nd Report - Millennial Financial Literacy and Fin-tech Use: Who Knows What in the Digital Era

Final Thoughts

Financial literacy is like reading and writing

• As it was not possible in the past to participate insociety without being able to read and write, so it isnot possible to thrive in today’s digital economywithout being financially literate

Building human capital for 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

GENERATION Y – PATTERNSIN FINANCIAL BEHAVIOR

WHO ARE MILLENNIALS?

HOW MILLENNIALS BEHAVE FINANCIALLY

PLANNING SAVING ATTITUDE BIG PURCHASES

plan their budget

from time to time

always plan

save money live for the moment and don’t

think about retirement

plan big purchases well in advance

Source: Financial Behavior of Millennials in Large Russian Cities, November 2017. GfK for Visa

ATTITUDE TOWARDS BANKS

TRUSTNot sureabout it…

I WANT IT ALLAND NOW!

#clie

nt-c

entr

ic#reliable#simple #innovative

#modern

#honest#accessible

#transparent

#safe

#24/7

#professional

#quick

#ind

ivid

ual a

ppro

ach

#discounts

CASHLESS IS A PRIORITYWhen choosing between cash and cashless payments millennials prefer cashless

All categories

Online shopping

Bank transfers

Source: Financial Behavior of Millennials in Large Russian Cities, November 2017. GfK for Visa

KEY NOTE

Millennials prefer to live for the moment, and technologies are pacers.

VISA FINANCIAL LITERACY PROGRAMSContributing to

financial educationTeaching children

basic financial terms

Helping Russian citizens master

financial planning

Explaining to children how payment

technologies work

Digitalization

Challenges & Opportunities for an international financial education organization

Roeland Monasch, CEO-Aflatoun International

Aflatoun Life Skills & Financial Education

Tools for different age groups

Five Core Elements

15-24+ years

Footprint Aflatoun – 5 Million Children

Over 200 Organizations in 109 Countries

Integration Education Curriculum: 30+ Governments

In every setting the tools are localized/contextualized

Child-Centered Active Learning Methodology

Focus = Educators

Child-Centered Active Learning Methodology

NGO Facilitators

Focus = Educators

Educators Students

Who should we focus on?

While we were debating…

How do we empower teachers and children in a digital era?

…Many different digital initiatives were popping up…

China Latin America

Pakistan Poland

Is one approach suitable for all countries?

Educators Students

Response: Aflatoun developed two platforms

Challenges

• Digital illiteracy – Especially for disadvantaged youth

• Lack of Internet access

• Different devices: simple phones, smartphones, etc

• Lack of direct link to Teacher, Parent

• Lack of Social Interaction: peer to peer learning

• Difficult to provide technical support

Aflatoun Solutions (we thought) Online/Offline

Free basics by Facebook

….and many more…

Meanwhile…..we started to receive many requests for our content

Financial Education

Shift 1: For Students - DO WHAT WE DO BESTCreating contextualized / localized digital learning resources

Financial Education

?

Shift 2: For Educators - OnLine Refresher Trainings + Certification

Shift 3: Content - focus on digital finance

Adapting our material to include lessons on Digital Financial Services

Shift 4: Young people as financial services educators

…Learn & Innovate & Learn & Innovate & Learn…

Way forward