Thursday, April 20, 2017

Imparare a valutare il rischio

This blog, written in Italian, was originally published in the April-May 2017 edition of Focus Risparmio, which can be found by clicking here.

In un arco temporale di più di dieci anni, assieme a un team di ricerca, siamo riusciti a misurare la financial literacy in molti Paesi, aggiungendo domande relative alla conoscenza finanziaria in indagini nazionali, fino a realizzare un paio di anni fa un’indagine globale della financial literacy in più di 140 Paesi, in collaborazione con Gallup e la Banca Mondiale. Ma ciò che mi ha sempre interessato in modo particolare è la risk literacy, ovvero la conoscenza finanziaria relativa al rischio. Poiché molte delle decisioni finanziarie si riferiscono al futuro, che è per definizione incerto, capire il rischio e i concetti a esso legati, per esempio la relazione tra rendimento e rischio, è fondamentale nella gestione della finanza personale. Un argomento su cui avevamo dibattuto già qualche anno fa, ma i dati si basavano su pochissime domande (spesso solo una) relative alla conoscenza di concetti quali la diversificazione del rischio. È per questo che siamo stati felici di collaborare con Allianz in un’indagine non solo sulla conoscenza finanziaria ma, in particolare, sulla risk literacy in ben 10 Paesi europei, inclusa l’Italia. Abbiamo utilizzato domande che si riferivano alla conoscenza finanziaria di base e alla risk literacy. I risultati di questo nuovissimo studio fatto lo scorso autunno sono stati resi pubblici a gennaio.

Tre gli elementi di particolare interesse. Primo: anche se esistono varie differenze tra i dieci Paesi europei, un aspetto comune è la bassa risk literacy. In generale, in tutti i Paesi, meno del 50% della popolazione sa rispondere correttamente a domande relative al rischio. Contrariamente alle domande relative alla financial literacy, quelle sulla risk literacy hanno un’alta percentuale di “non lo so”. In sostanza, i dati rilevano una ignoranza diffusa su uno dei concetti fondamentali per le decisioni di risparmio e di investimento.

Secondo: la conoscenza conta! Oltre alle domande relative alla conoscenza finanziaria, il questionario ha incluso tre scenari che consistevano nella scelta del migliore prodotto finanziario in situazioni di rischio. In particolare, viene valutata la capacità di assicurarsi contro il rischio di non avere risorse finanziarie in età avanzata, la capacità di gestire la liquidità in un orizzonte temporale di breve periodo, e la capacità di diversificare il rischio in scelte di portafoglio di lungo periodo. Chi ha una conoscenza finanziaria di base e ha una conoscenza del rischio è in grado di scegliere prodotti finanziari adeguati alle esigenze descritte nei tre scenari. Terzo: nel confronto con gli altri dieci Paesi, l’Italia ha la più bassa financial e risk literacy.

Non tutti questi risultati sono nuovi. Al contrario, molti tendon a confermare i risultati di altri studi fatti nell’arco di più di dieci anni. È forse questa la novità. Senza interventi mirati a migliorare la conoscenza finanziaria è difficile aspettarsi che le persone la acquisiscano da soli. E la bassissima conoscenza tra i Millennials è una indicazione che i giovani sono fortemente impreparati a scelte finanziarie e assicurative. Il messaggio di questi dati è semplice: “Abbiamo un grande bisogno di cambiamento, in particolare in Italia”.
  
 

Wednesday, March 22, 2017

Should College Students Be Required to Take a Course in Personal Finance? YES: Ignorance Carries a High Price

This is an extract of an article which first appeared on the front page of the Personal Finance section of The Wall Street Journal on March 19, 2017. Read the full online version by clicking here

Think about driving. To ensure orderly traffic, we create speed limits and roadway rules. We erect signs to warn where turns are difficult or roads are treacherous. And before we allow someone behind the wheel, we make sure they understand the basics. That’s where a driver’s license comes in. We take those precautions to protect the drivers and to protect others.

It is time to extend that type of thinking to financial knowledge by making personal finance a required course at U.S. colleges and universities. For people—especially young people—to survive and thrive in today’s financial environment, knowledge of personal finance is a necessity.

We’re already seeing what happens when young adults juggle high-impact financial decisions without the benefit of financial knowledge. Take the well-known burden of student-loan debt. Student loans are the second-largest part of the consumer credit market, after mortgages. The lion’s share of that debt sits in the hands of millennials—and our research shows they worry about their ability to pay off those loans. As well they should. The default rate on student loans is sobering.

Multiple studies confirm that students have little understanding of how student loans work. Our analysis of the latest National Financial Capability Study, or NFCS, finds that more than half of millennials take on student loans without even attempting to calculate what their payments will be. Given that student loans are pursued to acquire an education, it seems only prudent to have that education include the knowledge needed to manage that debt.

But student debt is just one of the challenges. These young people will have to support long retirements on savings and investments managed throughout their careers. To accomplish that feat, they will depend on interest compounding—a basic concept that they don’t fully understand. They also struggle with two other critical concepts: risk diversification and inflation.

These are the ABCs of personal finance, the benchmarks by which we measure financial literacy. By age 40, when a majority of Americans have already made most of their important financial decisions, only 1 in 3 has mastered these concepts, according to the NFCS. Unless something changes, millennials will become part of that disturbing statistic.

Such courses must be well designed to be effective. There is mounting evidence that personal-finance courses with a rigorous curriculum and trained teachers are influencing behaviors of young people in matters such as debt and defaulting on debt. Teaching personal finance is not about describing financial products, it is about teaching the principles of financial decision-making so that people understand how financial instruments work. When people are knowledgeable, they also are better able to benefit from the services of financial advisers.

Those opposed to requiring personal-finance courses say that the main thing students should learn is skepticism about the financial industry and its products. Some skepticism is always warranted, and I teach my students about the potential conflicts of interest that financial advisers may have. But the purpose of a personal-finance course goes beyond those topics.

Financial literacy is about prevention. Regulators simply cannot keep up; they tend to come in when a problem already exists. This is why regulation is not enough.

The lack of financial literacy—just like the lack of a driver’s license—is more than a personal problem. It is dangerous for our country’s economic health. The Great Recession was driven by mortgages and loan terms consumers didn’t understand. The entire nation went into an economic tailspin as a result of that lack of understanding.

Looking ahead, will young people saddled with student loans be less likely to buy cars and homes? Will their ability to engage in transactions that require not just liquidity but good credit ratings be hampered? Will they veer away from starting their own businesses or pursuing advanced degrees? If they are not saving enough for retirement, will they have to be rescued from poverty in old age—and at what price to the country?

One of the basic lessons in personal finance is that time is money. But time is starting to run out. Young people are already behind the steering wheel of their financial decision-making. It’s time we step in to make sure they know how to navigate the highway ahead.

Thursday, February 2, 2017

Educazione finanziaria, costa di più non farla

A shorter version of this blog was published in Il Sole 24 Ore and can be found here.

Ci sono alcune somiglianze tra l’inizio del 2017 ed il 2016. Un anno fa si parlava di bail-in, ma anche di educazione finanziaria per salvaguardare i risparmiatori. Un anno dopo si parla di nuovo di decreto legge “salva banche” e di educazione finanziaria. Questa volta però, le indiscrezioni sul Dl banche sembrano autorizzare la speranza che il più trascurato dei due temi riceverà qualche attenzione in più rispetto al passato.

Tutti i sondaggi parlano chiaro. Il livello della conoscenza finanziaria in Italia è molto basso e molto più basso della maggioranza degli altri Paesi europei. L’analisi dei nuovi dati su un campione di dieci Paesi europei pubblicati proprio lo scorso lunedì in un rapporto di Allianz fatto in collaborazione con il Global Financial Literacy Excellence Center vede l’Italia fanalino di coda. Rispetto a Paesi come l’Austria, il Belgio, la Francia, la Germania, l’Olanda, il Portogallo, il Regno Unito, la Spagna e la Svizzera, l’Italia si colloca ultima o penultima in quasi tutte le domande che misurano i concetti base della finanza, l’abc della conoscenza finanziaria. Più del 30% degli Italiani non sa calcolare il 2% su una somma di 100 euro. La conoscenza più bassa si riferisce al rischio e alla diversificazione del rischio, un fatto di cui avevamo preso amaramente nota lo scorso anno guardando agli investimenti dei risparmiatori di Banca Marche, Banca Etruria, CariFe e Carichieti.

Altre indagini confermano gli stessi risultati. Il S&P Global Financial Literacy Survey, il Programma per la valutazione internazionale dell’allievo (PISA) dell’OCSE, e i dati della Banca d’Italia sono tutti concordi nel descrivere un Paese con pochissime conoscenze dei principi alla base delle decisioni finanziarie. Se per importanza economica l’Italia si colloca tra i Paesi del G7, per conoscenza finanziaria assomiglia invece alle economie emergenti, dove anche il Sud-Africa fa un po’ meglio dell’Italia. Purtroppo questo è vero anche per i giovani: nella valutazione della conoscenza finanziaria dei quindicenni in PISA, gli studenti italiani sono arrivati penultimi; fanno meglio solo della Colombia. Non possiamo quindi aspettarci che le generazioni future facciano meglio delle generazione odierne; il ciclo della bassa conoscenza finanziaria sembra destinato a ripetersi.

I costi dell’ignoranza finanziaria sono spaventosi. L’ignoranza è un po’ come quelle malattie silenziose che si annidano nel corpo senza particolari sintomi che siano visibili a occhio nudo, per poi esplodere al momento dei test, quando talvolta è troppo tardi per curarle. Il costo delle scelte sbagliate dei mutui negli Stati Uniti si è transformato in una enorme crisi finanziaria non solo per le famiglie ma per l’intera economia. Se ci riferiamo solo al comportamento relativo alle carte di credito, secondo le nostre stime, più di un terzo delle spese relative a interessi ed altri costi del credito—per intenderci più di 3.5 miliardi di dollari nel 2009—è dovuto alla mancanza di conoscenza finanziaria, ovvero a costi che potevano essere evitati. Sempre negli Stati Uniti, si è stimato che l’ammontare dei mancati rendimenti degli investimenti azionari dovuti a commissioni ed altre spese si aggira intorno ai 100 miliardi di dollari, e questi costi sono sostenuti soprattutto da chi ha bassi livelli di alfabetizzazione finanziaria.

I costi dell’ignoranza finanziaria sono alti anche nella semplice gestione del conto bancario, non di complessi portafogli. Secondo recenti stime, il mancato utilizzo di tecnologie come online banking, unito all’ignoranza finanziaria crea perdite di ricchezza anche nello strumento finanziario più semplice che tutti possediamo, ovvero il conto corrente.

In passato abbiamo creduto di poter risparmiare dei soldi rinunciando all’educazione finanziaria? Purtroppo anche l’ignoranza finanziaria costa. Non solo i costi ci sono, ma sono anche alti, e se non vengono pagati adesso, saranno pagati nel futuro. Se le risorse da investire nell’educazione dei cittadini non sono sufficienti dobbiamo intervenire anche noi. Ci sono varie organizzazioni in Italia che si stanno occupando di alfabetizzazione finanziaria, dalle organizzazioni dei consumatori, al Museo del Risparmio di Torino che è nato proprio per promuovere l’educazione finanziaria. Lavoriamo con loro. E possiamo fare molto nelle scuole e nelle università in modo che i nostri giovani siano meglio preparati a capire il nuovo mondo finanziario che si apre di fronte a loro, e per non creare nuove vittime e nuove povertà.

L’educazione finanziaria è un investimento per il futuro. In tutti i paesi i mercati finanziari sono diventati più complessi, i prodotti finanziari più numerosi e le scelte finanziarie, anche quando si riferiscono agli strumenti di base, sono più difficili rispetto al passato. Ogni cittadino si confronta con queste scelte. L’obiettivo dell’educazione finanziaria è quello di trasformare i risparmiatori non già in esperti ma solo in persone più consapevoli. Promuovere l’educazione finanziaria significa fare prevenzione invece di interventi drastici quando i problemi si sono protatti così a lungo che non sono nemmeno più curabili con semplici medicine. I costi allora sì che esplodono.

Il 2017 non deve diventare una triste continuazione del 2016. No grazie, non abbiamo tempo da perdere. Una cosa che ci insegna la finanza, è che il tempo è denaro. L’educazione finanziaria non può più aspettare.

Friday, January 20, 2017

Our hopes for the future

Many challenges await the new president, some of great urgency. In his inaugural address, he expressed a desire for action. There are many areas of action but one especially pernicious issue has several relatively simple solutions. That is the problem of financial illiteracy.

Our research shows that financially knowledgeable individuals make smarter financial decisions and achieve better outcomes; they are more likely to save, plan for the future, invest, and become contributing members of society; and less likely to take on expensive debt.

However, millions of Americans lack even a basic understanding of personal finance. In 2015, only 32 percent of Americans could answer correctly three basic questions on financial concepts like interest rate, inflation, and risk diversification. This “financial illiteracy” undermines their quest for a better future.

Consider debt. The number of student loan borrowers has nearly doubled in the past decade, and many borrowers do not understand the effects of that borrowing beforehand. According to our research, 54 percent of student loan holders did not try to calculate their monthly payments before borrowing, and 53 percent said that given the chance, they would do things differently. This debt causes financial stress: 37 percent of people with student loan payments due said they were late with a payment at least once in the last 12 months.
Debt is also a growing problem for older Americans, threatening their retirement security. And speaking of retirement, only 39 percent of Americans have even tried to determine how much money they will need in later life, a figure barely changed since 2009.
Financial fragility is another problem exacerbated by limited financial literacy. Some 34 percent of Americans said that they could not come up with $2000 if an unexpected need arose within the next month. We need to put in place policies that improve individuals’ financial security both in the long-term and the short term. We need to equip people with the knowledge to make quality financial decisions around debt, and we need ways to encourage American families to build “rainy day funds” for emergencies.
There is an urgent need for policy action to encourage the spread of financial education so that people in all walks of life can make savvy financial choices. Parents and teens would benefit from having a better grasp on how to pay for college. Millions of Americans would be more likely to build emergency savings if they realized their importance. People also would benefit from a better understanding of how to save for retirement. Our research shows that the mere act of planning for retirement is a strong predictor of retirement wealth.
Some schools already provide financial education for all students. Workplace financial education and financial wellness programs can also impart essential knowledge. Government incentives for both employers and schools to provide financial education could spur new solutions to the problem of low financial literacy.
If more schools and employers provided financial education, millions of American would have the tools to build better lives for themselves and for us all. This is a vision for the future we hope for.

Friday, January 13, 2017

Six Questions to Help Determine Your Financial Health

This blog post was also posted on the Wall Street Journal and can be found here

Many people, when thinking about their financial health, focus on a single indicator, such as whether they are saving enough for retirement or carrying too much student-loan debt. If personal finances were limited to--or fixed by--a single line item in the balance sheet, that approach would be fine.

But they aren’t.

During an annual physical exam, it is not possible to assess how well a patient is doing simply by checking the heart rate or blood pressure. Rather, a more comprehensive series of evaluations are needed. How well is the patient managing his or her health? Is the patient taking medicines as prescribed? Is the patient exercising and eating well?

The same is true of financial health.

Fortunately, there is a short financial checkup that effectively predicts what I think of as the key components of financial health--including short-term and long-term savings, management of financial products and financial literacy. The six-question test, which is based on a body of national and international research, evaluates four key areas: 1) ability to make ends meet, 2) advance planning, 3) management of financial products and 4) financial knowledge. (More in-depth questions from a national survey on financial capability, now in its third wave, are available online.)

Taken together, the questions below--and their answers--provide a starting point for people to better understand and improve their personal finances.

1. How confident are you that you could come up with $2,000 if an unexpected need arose within the next month?
-  I am certain I could come up with the full $2,000.
-  I could probably come up with $2,000.
-  I could probably not come up with $2,000.
-  I am certain I could not come up with $2,000.

This first question of the test assesses financial fragility--or the ability to mobilize resources when facing a shock. It is a rich measure that goes well beyond availability of or access to liquid assets, taking into consideration that one could deal with a shock by borrowing, by relying on the help of family and friends, by selling possessions or through other strategies. Moreover, it is a summary measure of the balance-sheet situation (not just assets) even as it addresses how one manages resources. Research links the lack of resources or the inability to access them when facing a midsize shock (specifically, answering this question with either of the last two responses) with indicators of financial distress.

2. Have you ever tried to figure out how much you need to save for retirement?

This question measures advance planning by examining the longer-term horizon and whether one has made plans for the future. While simple and intuitive, the question looks yet again at the state of personal finances and, in particular, at the steps taken to accumulate retirement savings, which can take many forms, including keeping within a budget. Academic research shows that those who answer affirmatively to this question have up to three times the amount of wealth as they near retirement as those who have not made any plans.

3. On a scale from 1 to 7 (where 1 = strongly disagree and 7= strongly agree), how strongly do you agree or disagree with the following statement: I have too much debt right now.

The third question turns to the liability side of the balance sheet. There are many opportunities to borrow and a multitude of options for doing so. Many young employees today start their working life in debt. The answer to this question reveals both the extent of the respondent’s debt burden and his or her management of finances. Those who choose value above the median (value 4 ) are found to carry not only several forms of debt, both short term and long term, but also to use high-cost methods of borrowing, such as payday loans.

The next three questions measure understanding of the ABCs of personal finance. They apply to the many financial decisions people have to make and that, ultimately, shape their finances and ability to achieve financial security in the short and long term. The questions address fundamental concepts--interest compounding, inflation and risk diversification--that underlie financial decisions, from day-to-day money management, to saving and investing for retirement, to borrowing.

Those who correctly answer the three questions reported below (the correct answers are the end) are not only less likely to be financially fragile and over indebted, but they are also more likely to plan for the future and to engage in many other behaviors conducive to higher retirement savings.

4. Suppose you had $100 in a savings account and the interest rate was 2% per year.  After five 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

5. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, with the money in this account, would you be able to buy…
-  More than today
-  Exactly the same as today
-  Less than today
-  Don’t know

6. 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.
Rather than looking at a single behavior--an approach that usually is inadequate for evaluating how someone is doing financially--this test provides an encompassing measure of financial capability. It also identifies the areas where help may be needed.  Even more, it allows individuals to compare their results to those of the average American. The findings for each question are available here.

As employers and others look for ways to help employees become financially fit, this test may provide them with a tool to measure, assess, and reconsider what they are doing. Perhaps it is something to add to employee benefits in 2017.

(Answers: 4. More than $102;  5. Less than today; 6. False.)