Conferencia inaugural del ciclo que sobre 'Educación financiera' organiza la Fundación Ramón Areces con IE business school. Annamaria Lusardi, una de las mayores expertas mundiales en esta materia, da a conocer aquí los resultados de varios estudios y sus conclusiones. "En el siglo XXI, ofrecer educación financiera debería ser algo tan básico como enseñar a leer y a escribir", explica.

1. Ciclo Conferencias Fundación Ramón Areces
January 16, 2014
Financial Literacy:
Evidence across Countries
Annamaria Lusardi
George Washington School of Business
Academic Director: Global Financial Literacy Excellence
Center (GFLEC)

2. The growing importance of financial literacy
A new economic landscape
Major changes that increase individuals’ responsibility for
their financial well-being
 Changes in the pension landscape
• More individual accounts and DC pensions
 Changes in labor markets
• Divergence in wages – skills are critical
• More flexibility – pensions have to be portable
 Changes in financial markets
• Greater complexity
• More opportunities to borrow & in large amounts

3. Increase in individual responsibility
You are your own CFO
 Individuals are in charge of deciding
• How much to contribute to retirement accounts
• How much and when to invest in education
 Not enough to look at asset side; liability
side is equally important
• Increase in household debt
• Debt normally incurs higher interest rates than
what is earned on assets
 Financial decisions are complex and so are
financial products
• Many more financial products than in the past

4. Because individuals are in charge
Some questions
1. How well-equipped are people to make financial
decisions?
2. Are there vulnerable groups?
3. Does financial literacy matter?
4. What can be done to promote financial literacy?

5. How well equipped are people?
Do individuals know the basic concepts that are
key to making financial decisions?
Aim: Assess knowledge of basic concepts, the abc’s
of personal finance
 The journey of three simple questions
 Added to 5 national surveys in the United States
 Added to national surveys in more than 20
countries

6. Measuring financial literacy (I)
To test numeracy and understanding of interest
rates, we asked:
“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?”
i) More than $102
ii) Exactly $102
iii) Less than $102
iv) Don’t know
v) Refuse to answer

7. Measuring financial literacy (II)
To test understanding of inflation, we asked:
“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…”
i) More than today
ii) Exactly the same as today
iii) Less than today
iv) Don`t know
v) Refuse to answer

8. Measuring financial literacy (III)
Finally, to test understanding of risk diversification,
we asked:
“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.”
i) True
ii) False
iii) Don`t know
iv) Refuse to answer

9. Financial Literacy around the World
(FLat World)
First set of countries:
 USA
 The Netherlands
 Germany
 Italy
 Russia
 Sweden
 New Zealand
 Japan

10. Special issue of JPEF, October 2011
• Financial Literacy around
the World (FLat World)
• We published a paper for
each participating country

11. Financial Literacy around the World
(FLat World)
Second set of countries:
 France
 Switzerland
 Australia
 Romania
Published in Numeracy, July 2013
The Central Bank of Austria has collected data on 10 Central
& Eastern European countries (next project)

12. Data for the United States
The 2009 National Financial Capability Study
It includes 3 surveys:
1. National Survey: Nationally projectable
telephone survey of 1,488 American adults
2. State-by-State Survey: Online survey of
approximately 28,000 respondents (roughly
500 per state + DC)
3. Military Survey: Online survey of 800
military personnel and spouses
Data collection is an important step in a
national financial literacy strategy

13. How much do Americans know?
Distribution of responses across the U.S. population
Distribution of Responses to Financial Literacy Questions (%)
(2009 FINRA National Survey)
Responses
Correct
Incorrect
DK
Refuse
Interest rate
65%
21%
13%
1%
Inflation
64%
20%
14%
2%
Risk diversif.
52%
13%
34%
1%
NB: Only 30% correctly answered all three questions; less than half
(46%) got the first two questions right.

14. How much do Germans know?
Distribution of responses across the German
Distribution of Responses to Financial Literacy Questions (%)
population (2009 SAVE)
Responses
Correct
Incorrect
DK
Refuse
Interest rate
82%
7%
11%
0%
Inflation
78%
5%
17%
0%
Risk diversif.
62%
6%
32%
0%
NB: About half (53%) correctly answered all three questions; 72% got the
first two questions right.

15. How much do Dutch know?
Distribution of responses across the Dutch
Distribution of Responses to Financial Literacy Questions (%)
population (2010 DNB Household Survey)
Responses
Correct
Incorrect
DK
Refuse
Interest rate
85%
5%
9%
1%
Inflation
77%
8%
14%
1%
Risk diversif.
52%
13%
33%
2%
NB: Less than half (45%) correctly answered all three questions; 73% got
the first two questions right.

16. How much do Japanese know?
Distribution of responses in the Japanese
Distribution of Responses to Financial Literacy Questions (%)
population (2010 SLPS)
Responses
Correct
Incorrect
DK
Refuse
Interest rate
71%
15%
13%
1%
Inflation
59%
11%
28%
2%
Risk diversif.
40%
3%
56%
1%
NB: Only 27% correctly answered all three questions; less than half
(49%) got the first two questions right.

17. Findings: The world is flat
Similar patterns across countries
 Financial illiteracy is widespread in the population
• Less than half of the population in many countries can
answer three basic questions
 Risk diversification is most difficult concept
• Similar pattern of response across countries
• Prevalence of “do not know” answers
 Some groups are less likely to answer correctly
• Similar pattern of response across countries

18. FLat World
Similar patterns across countries
 Financial literacy is lowest among
 Young
 Older
 Women
 Women answer in the same way across
countries; they say they “do not know”

19. Financial Lit. & Gender: U.S. Data (HRS, age: 50+)
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Compound Interest
Inflation
Stock risk
Male
74.70%
82.20%
59.30%
Female
61.90%
70.50%
47.50%

20. Financial literacy and gender (age 23-28, USA)
90%
82%
80%
77%
70%
60%
60%
53%
48%
50%
40%
40%
30%
20%
10%
0%
Interest Rate
Inflation
Male
Female
Risk Diversification

21. “Do not know” responses by gender (age 23-28, USA)
50%
47%
45%
40%
35%
29%
30%
25%
20%
20%
15%
11%
10%
5%
8%
4%
0%
Interest Rate
Inflation
Male
Female
Risk Diversification

22. “Do not know” responses
Similar patterns across countries
 Women are disproportionately more likely to
say “I do not know”
 Strikingly similar across countries
 It holds across age groups
 New project assessing whether it is lack of
knowledge, confidence, or something else

23. Looking closely at differences among
population sub-groups
The Maori population in New Zealand

24. Financial Literacy and Age: Germany

25. Financial Literacy among the Old: US Data
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
≤ 60
61-70
> 70
Compound Interest
Inflation
Stock Risk
75.88%
67.22%
57.63%
80.79%
79.72%
64.89%
59.95%
54.01%
42.61%

26. Financial literacy matters for financial behavior
Debt and debt management
Investments
Planning and wealth accumulation

27. Financial literacy and mortgages
 Those with low literacy are more likely to be delinquent
and default on subprime mortgages
 Those with low educational
attainment are less likely to
refinance mortgages during
a period of falling interest
rates
Source: Campbell (2006), Gerardi et al. (2013)

28. From research to applications
Ideal venues for financial education
 In schools
• Easier to reach the young
• Need a base on which to build
 In the workplace
• Easier to reach the adults
• Growing importance of retirement
accounts
 In libraries, local communities,
museums
• Where people go to learn

29. OECD’s Programme for International Student Assessment
(PISA). Financial literacy added in 2012
Are students well prepared for future challenges?
Can they analyze, reason and communicate
effectively?
Do they have the capacity to continue learning
throughout life?
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.

30. Modules developed with a team of
mathematicians at Dartmouth College

31. New course in personal finance
A new course at GWSB
Financial Decision-Making: Implications
Consumer and the Professional
for
the
 Cover personal finance with a rigorous approach
• A quantitative approach to personal finance
• Teaching takes into consideration gender differences in fin literacy
 It incorporates some macro, accounting, and risk
management
 Writing a textbook on personal finance
• Joint with a mathematician

32. Start early: Teaching with Elmo
Elmo and Beth Kobliner (member of President’s Advisory Council
on Financial Capability)

33. Reaching adults
The importance of workplace education
Reaching the young at school and the adults at work
 Most of the adult population is at work
• A potentially effective way to do financial education
 Workers have to make financial decisions at work
• Financial and health benefits
 Thinking about well-being in a holistic way
• Financial fitness in addition to health and physical fitness.
Exercises for financial fitness.

34. Addressing financial illiteracy & gender differences
The Dartmouth Project
 Simplify financial decisions
 Provide information at
teachable moments
 Target specific groups
 Use communication that
does not rely on figures and
numbers

35. Financial Fitness Toolkit at NYSE

36. Thinking outside the box: Financial literacy games
Celebrity Calamity
Bite Nightclub

37. A museum of savings in Turin, Italy

38. A Museum of Saving in Italy

39. A Museum of Saving in Italy

40. An International Federation of Finance Museums

41. The Financial Literacy Programme
Bringing together an international team
The United States
The Netherlands
Spain
Portugal
Switzerland
Italy
Sweden
Germany
Turkey
The Financial Literacy Programme is a collaboration among
9 research institutions in the US and Europe and is
supported by the European Investment Bank

42. What a federation of museums can do
Support and promote financial literacy
 Be an advocate for financial literacy for the young
• Organize a financial literacy academy or a financial literacy
competition
 Be an ambassador for the work of PISA
• Can rely on rigorous data and tests
 Provide an opportunity to learn
• Visitors go to museums to explore and learn

43. Concluding remarks
The importance of financial literacy
 Financial literacy is like reading and writing
• It is an essential skill for the 21st century
 It is essential for full participation in society
• Citizens are asked to vote on economic reforms
 It is a global issue
• Everyone is affected by it

44. Final thought
“If you think education is expensive,
try ignorance”
Derek Bok (Former President of Harvard)

45. Contact and sources of information
Annamaria Lusardi
Global Financial Literacy Excellence Center (GFLEC)
E-mail: alusardi@gwu.edu
Blog: http://annalusardi.blogspot.com/
Twitter: @A_Lusardi
FinLit Talks: http://www.gflec.org/
Financial Literacy Seminar Series: http://business.gwu.edu/flss/