Tuesday, December 24, 2013

Financial literacy in school is common sense

On my plane to London and then Milan, Italy , a few days ago, I picked up the Financial Times, a newspaper I particularly like, but that I normally read online. The week-end edition had a FT Money section, which was reviewing the main events of 2013. As I was browsing through the articles, I noticed one that was titled: “Cheer up, 2013 wasn’t as bad as we thought” by Jonathan Eley. It was about the UK and the author listed five reasons why 2013 was actually much better than it looked. I reported below his number 4 reason in quotation marks:
“Children will be taught about money. What was the best thing the government did this year? For me, it wasn’t putting Aim shares into Isas; it was putting financial education into the national curriculum. This passed barely noticed, won’t come into effect until next year, and will take many years to bear fruit. But it’s vital. We cannot expect young people to take responsibility for their own financial future unless we give them the skills and knowledge to do so.” 

 I report the link to the article at the end of this post, if you want to read the other four reasons why 2013 was not as bad.

I was pleasantly surprised to read this article, but it also made me realize that adding financial literacy in school has become common sense. Anyone who understands the changes in the current financial environment can see that the new generations will need new skills and these skills are best acquired in school. It is a simple argument and I hope not just the UK but other countries as well will think of adding financial literacy in school in the new year.

As I landed in Milan, I was determined to do some qualitative testing on my favorite subject: my little niece Giorgia. So after the many hugs and kisses I get when I come back to Italy and while I was looking at the new drawings she did for me, I asked her whether she was interested in learning about money. I was not even done asking the question that she jumped from the chair and she went to get her piggy bank. I was amazed by how much money she had in there. It was obvious that we had to go beyond the lesson on money, we had to talk about investment. So I told her that she should not leave the money in a piggy bank, she had to put the money at work. And while I was thinking of creative ways of explain that to her, she told me the she and her schoolmate Michelle were thinking if Santa Klaus needed help with his toy factory, an idea suggested by one of the parents.

 The morale of this story can be summarized as follows:
1)      It is never too early to talk about money to children;
2)      It is best if money is learned at school, so we do not have to spend our time thinking of ways to teach money ourselves (I do it for living, but in my case as well I would prefer to play checkers with Giorgia);
3)      It Santa Klaus were to do an IPO, we will be ready to invest. For the moment, indexed funds will have to do;
4)      The new year will not be as bad if we have financial literacy in school. 

Here is the article. The online version was titled: Five reasons why 2013 was better than it seemed

Monday, December 9, 2013

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 10th 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 21st 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 (3rd in math, 2nd in reading, and 2nd 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!