2nd Global Policy Research Symposium to Advance Financial Literacy

Annamaria Lusardi

Academic Director, Global Financial Literacy Excellence Center (GFLEC)

Chair, PISA Financial Literacy Expert Group

TOWARDS A MORE INCLUSIVE SOCIETY

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2nd Policy Research Symposium to Advance

Financial Literacy

• This is the second Policy

Research Symposium

• Proceedings summarizing

presentations in the first

Symposium are available

• New theme

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Towards a more inclusive society

• The focus of this Symposium: Building a more

inclusive society

• Research demonstrates that there are large

differences in financial literacy

• Who are the vulnerable groups?

–women

– lower income/lower education

– immigrants, elderly

–young

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Financial knowledge among women

• Very robust findings of large gender differences in financial knowledge

• Women are much more likely to say “I do not know”

22%

35%

47%

33%

38%

55%

60%

51%

0%

10%

20%

30%

40%

50%

60%

70%

US Netherlands Germany Canada

Financial knowledge by gender (% answering 3 Qs correctly)

Women Men

50%

46% 43%

47%

34%

29% 30% 28%

0%

10%

20%

30%

40%

50%

60%

70%

US Netherlands Germany Canada

At least one "don't know" answer, by gender

Women Men

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Financial knowledge across income groups

• Financial knowledge is also strongly positively correlated to income level

14%

19%

25%

31%

38%

48%

56%

62%

0%

10%

20%

30%

40%

50%

60%

70%

<$15K $15-25K $25-35K $35-50K $50-75K $75-100K $100-150K $150K+

Financial knowledge by income level in the United States (% answering 3 questions correctly)

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Financial knowledge across education groups

• Financial knowledge is strongly positively correlated to education level

10%

22%

38%

49%

65%

0%

10%

20%

30%

40%

50%

60%

70%

Less than HSgrad

High schooldiploma

Some collegeeducation

Collegegraduate

Post-Graduateeducation

Financial knowledge by education in the United States (% answering 3 questions correctly)

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Financial knowledge among the young

• Compared to other age groups, financial knowledge among the young is very low

• Now we have 2012 PISA data on financial literacy that allows us to study financial

literacy among high school students in 18 different countries

13%

22%

28%

34%

38% 38% 42% 43%

50%

55% 54%

49%

0%

10%

20%

30%

40%

50%

60%

18-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+

Financial knowledge by age in the United States (% answering 3 questions correctly)

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New data for 15-year-olds around the world

• We have important new

data

• 2012 Programme for

International Student

Assessment (PISA)

• Measuring financial

literacy among high

school students

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2012 PISA Financial Literacy Assessment

PISA is the first large-scale international study to

assess the financial literacy of 15-year-old students

The PISA financial literacy

assessment provided an

articulated plan for

developing items,

designing the instrument,

and providing a common

language for discussion of

financial literacy.

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PISA Financial Literacy Assessment

• A group of experts was convened by the OECD to

design the 2012 module on financial literacy

• They represented many countries and many

stakeholders (treasury departments, central banks,

regulators, practitioners, academics)

• Experts worked on the assessment for about two

years

• Data was released on July 9, 2014

A multiple-year project

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US release of PISA financial literacy data, July 9, 2014

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What does the data say?

• The data is incredibly rich and provides a lot

of information that can be used by policy

makers, practitioners, teachers, and parents

• The data tells us a lot

• Today we are also going to listen to some

young people. They are the faces behind

the numbers.

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Some important findings

• A lot of the variation in financial literacy is

explained by socio-economic background

(parent’s income and education)

• We start unequal when it comes to financial

literacy and inequality will only grow

• How to provide equality of opportunity early

in life?

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Relationship between socio-economic status and financial

literacy, mathematics, and reading performance

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Why should we care?

• Financial knowledge can be linked to

behavior: saving, borrowing, investing, and

retirement planning

• Today, we will see that financial knowledge

is also linked to wealth inequality

• The paper in the afternoon session shows

that financial knowledge is one of the main

determinants of wealth inequality

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The importance of research

• Assessing how financial knowledge impacts

wealth inequality is a hard task

• Need a (new) model of saving that incorporates

financial knowledge

• The model needs to incorporate realistic features

of the economy, such as:

–Many sources of risk

–Borrowing constraints

– Inequality in wages

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The importance of research (continued)

Once we have such a model, it is possible to

• Calculate the share of wealth inequality that is

due to financial knowledge

• Understand the behavior of financial knowledge

over time

• Assess whether policies or programs improve well-

being; for example, what are the effects of adding

financial literacy programs in school?

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From research to applications

What can be done to address financial literacy

among the young and to address inequality?

• We have received a large

number of projects which

have been done around the

world

• We want to discuss other

ideas as well Borrow from other fields, for

example health

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From research to applications (continued)

• Very important to share experiences

• INFE is a true gateway for financial education

• We are looking forward to an interactive session at

the end of the Symposium

−Still time to ask questions or to mention projects

−Learning from each other

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Philadelphia Los Angeles

Pasadena

Palo Alto

Berkeley

Hanover Boston

Madison

Northampton

Paris Montreal

Munich

Milan

Groningen Amsterdam

Braga Madrid

Stockholm

St. Gallen

Istanbul

Mexico City

Tianjin

Turin

Oxford

Glasgow

Sao Paulo

Vienna

Singapore

Wellington

Washington D.C.

GFLEC’s Global Network: Ongoing projects around the

world

Experimental

Economics

Psychology

Business

Economics

Linguistics Sociology Financial

Literacy

Our approach is multidisciplinary

Entrepreneurs

Financial

Literacy

Maximizing our potential through entrepreneurship

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Thanks to our funders

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Thank you!

Annamaria Lusardi

Global Financial Literacy Excellence Center (GFLEC)

E-mail: alusardi@gwu.edu

Blog: http://annalusardi.blogspot.com/

Twitter: @A_Lusardi