Keynote Address to CITI-FT Financial Education Summit 2013

My (short) keynote address to the CITI-FT Financial Education Summit 2013, “Moving Financial Capability Forward: Innovation, Scale and Impact,” held in Honk Kong on December 4-5, 2013.

It is an honor to speak at a conference that marks the 10^th anniversary of an event held here in Hong Kong in 2004. One had to be visionary back then to think of financial capability and I want to acknowledge the wisdom of the Citi Foundation.

Robert Lucas, a Nobel Prize economist from the University of Chicago, once said that once you start thinking about economic growth, you cannot stop thinking about it. For me, this has been true about financial literacy. I have worked on the subject of financial literacy for more than 10 years and I want to use my short remarks today to talk about this important component of financial capability.

Financial literacy is a basic but essential skill for living in the 21^st century. It is what reading and writing was for previous generations; somebody who could not read and write could not fully participate in society, just as today, somebody who is not financially literate cannot fully participate in the modern economy. We need to equip people with the basic skills necessary to live in the modern world and this has to start at school. I want to emphasize four reasons why we need financial literacy in school:

1.      The young face formidable challenges. One challenge is how to deal with an aging society. My Center organized a Global Financial Literacy Summit some weeks ago. It was held in Amsterdam in partnership with the World Pensions Summit. The discussion on planning for retirement was considered in combination with financial literacy in schools. In other words, preparing for retirement can be thought of as starting in school, where young people can learn the basics of financial decision making. On a selfish note, one of the reasons to focus on the young is that if they do not do well financially, they will move back in with us!

2.      Equality. Financial literacy is very unequally distributed in the population. A group that is particularly vulnerable is women. In all of the surveys I have done across countries, women always come out as the group that knows the least in terms financial literacy. We need to have financial literacy in schools to make sure women have equal access.

3.      Financial literacy is at the basis of democracy. How can we ask people to vote on economic reforms that they don’t understand? This is to say that financial literacy is not just about one’s personal finances; individual knowledge and decisions can impact the community, the country, and the global economy. We need to update the curricula to acknowledge this.

4.      Finally, we need financial literacy in schools because this is where young people are, and it is more scalable and cheaper to impart this knowledge while the young are still in school.

       As evidence that financial literacy is now considered a basic skill, like reading and writing, in 2012 the OECD Programme for International Student Assessment (PISA) added financial literacy to the list of topics it measures when it evaluating the knowledge of 15-year-olds. I look forward to the release of the financial literacy data, expected in June 2014, but for now I am happy to report that Hong Kong did extremely well in mathematics, reading, and science. These findings have been just released and Honk Kong came out in the top five in each topic (3^rd in math, 2^nd in reading, and 2^nd in science)

I want to focus on financial literacy today because recent work in the United States has tried to dismiss its importance. I need to mention to you that financial education in US schools normally consists of a one-semester course taught in the senior year of high school (and often by teachers who report—when surveyed—that they do not feel qualified to teach the topic). I do not need to see an evaluation to predict that this sort of education does not work. We do not learn anything—not math, geography, history—by taking one course at the end of high school. We need to start early and build upon basic knowledge. We need experimentation, new ideas, and the help of technology. We need initiatives like the ones I heard about on the bus to dinner and during dinner last night. And we need to evaluate them to see what works, and then do more of what works.

       To summarize, the points I have touched upon are . . .

-          Financial literacy/education

-          Focus on women

-          The importance of evaluation

You may say Wait, but these are the topics we discussed ten years ago. Have we come full circle? Progress has been made, but my message today is that there is still work to do.

I think we may find inspiration from a city like Hong Kong. I am blown away by it. If a city can find a way to grow so much and so fast, if it can build these tall skyscrapers that light up at night to transform Hong Kong into a city of light, surely we can find a way to tackle financial literacy. Welcome back to this great city!