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Financial Literacy: Preparing for the Future

The International Federation of Finance Museums, NYC, June 19, 2013. Financial Literacy: Preparing for the Future.

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Financial Literacy: Preparing for the Future

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  1. The International Federation of Finance Museums, NYC, June 19, 2013 Financial Literacy: Preparing for the Future Annamaria LusardiThe George Washington School of Business Academic Director: Global Financial Literacy Excellence Center (GFLEC)

  2. Why is financial literacy important? A new economic landscape • Major changes that increase individuals’ responsibility for their financial well-being • Changes in the pension landscape • More individual accounts • Changes in the labor markets and in demographics • More flexibility, people change jobs often • Increase in longevity • Changes in the financial markets • More complexity • More opportunities to borrow and in large amounts

  3. Financial literacy is a life skill Financial literacy is needed throughout life • Investment in education • One of the most important decisions individuals have to make when young • Student loans to support education • Good decision-making throughout life • Where to live, how to take care of others • Citizenship and democracy • Citizens are asked to vote on different economic policies, such as economic reforms

  4. International comparison of financial literacy Financial Literacy around the World • We designed a module to assess financial literacy that has been used in many countries • International comparison is still continuing • The importance of data and rigorous research • Identify vulnerable groups • Bring a global perspective • Financial literacy is important in all countries

  5. Financial Literacy around the World (FLat World) We collected and examined data from national surveys in many countries. First set of countries include: • The Netherlands • Germany • Italy • Russia • Sweden • New Zealand • Japan • USA

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

  7. Financial Literacy around the World (FLat World) Second set of countries included: • France • Switzerland • Australia • Romania • To be published in special issue • of Numeracy, July 2013 • The Central Bank of Austria collected data on 10 Central & • Eastern European countries (next project)

  8. Data for the United States The 2009 National Financial Capability Study • Large data set: • State-by-State Survey: Online survey of more than 28,100 respondents (roughly 500 per state + DC) • 2009 wave was used in the first international comparison

  9. New data for the United States The 2012 National Financial Capability Study • Large data set: • State-by-State Survey: Online survey of more than 25,500 respondents in both years (roughly 500 per state + DC) • 2012 wave was released on May 29, 2013, and will be used in new international comparison

  10. Findings: The world is flat Financial illiteracy is widespread in the population Little knowledge of interest compounding, inflation, and risk diversification Financial literacy is lowest among Young people, women, and those with low income Young people are a particularly vulnerable group Financial literacy is a strong determinant of financial behavior. Lack of financial literacy has consequences Similar patterns across countries

  11. Comparison over time: US Data Financial literacy has not improved among Americans No sign of improvement but hard to change without formal financial education Importance of student loans Young people increasingly have to deal with debt Many signs of financial distress among young people This is a vulnerable group Overwhelming support for education in school 89% said financial education should be taught in school Comparing data between 2009 & 2012

  12. What lies ahead for the young Job challenges Growing government debt that needs to be repaid Rising health care costs and transfers to individuals Cost of infrastructure repair and building Challenge of changing education Living longer lives Retirement risks Lower returns on saving and investments And more Challenges for the future

  13. Financial education in schools Need to prepare the new generations • Financial education in school is critically important, • Investment in higher education is one of the most important decisions young people face • Young people need to understand the weight of this decision • Need to be financially literate before engaging in financial transactions • It is much cheaper to educate young people • Provide an equal opportunity to learn • Without fin educ, the young enter adult life on unequal footing

  14. 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.

  15. What a Federation of Museums Can Do Support and promote financial literacy • A beacon of light for financial literacy: • Be an advocate for financial literacy for the young • Need to prepare the young generations for the future • 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

  16. What a Federation of Museums Can Do (cont.) New innovative ways to promote fin literacy • Many ideas that museums have used: • Have a financial literacy academy • Support or teach financial literacy • Have special exhibitions • Cover an important financial literacy topic in depth • Make financial literacy relevant and fun • Financial literacy games, interview with entrepreneurs, etc.

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

  18. Ignorance is not a good alternative • “If you think education is expensive, try ignorance. • D. Bok (Former President of Harvard)

  19. Thank you Contact information AnnamariaLusardi GW School of Business Academic Director: Global Financial Literacy Excellence Center (GFLEC) Tel: 202-994-8410 E-mail: alusardi@gwu.edu Blog:http://annalusardi.blogspot.com/ Our web site: http://www.globalfinancialliteracy.org/ Twitter: @A_Lusardi

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