Financial literacy and the need for financial education: Evidence and implications

Lusardi, Annamaria

Article

Financial literacy and the need for financial education:

Evidence and implications

Swiss Journal of Economics and Statistics

Provided in Cooperation with:

Swiss Society of Economics and Statistics, Zurich

Suggested Citation: Lusardi, Annamaria (2019) : Financial literacy and the need for financial

education: Evidence and implications, Swiss Journal of Economics and Statistics, ISSN 2235-6282,

Springer, Heidelberg, Vol. 155, Iss. 1, pp. 1-8,

https://doi.org/10.1186/s41937-019-0027-5

This Version is available at:

https://hdl.handle.net/10419/259733

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CON F E R E N CE KE Y N O T E Open Access

Financial literacy and the need for financial

education: evidence and implications

Annamaria Lusardi

1 Introduction

Throughout their lifetime, individuals today are more re-

sponsible for their personal fina nces than ever before. With

life expectancies rising, pension and social welfare systems

are being strained. In many countries, employer-sponsored

defined benefit (DB) pension plans are swiftly giving way

to private defined contribution (DC) plans, shifting the re-

sponsibility for retirement saving and investing from em-

ployers to employees. Individuals have also experienced

changes in labor markets. Skills are becoming more critical,

leading to divergence in wages between those with a col-

lege education, or higher, and those with lower levels of

education. Simultaneously, financial markets are rapidly

changing, with developments in technology and new and

more complex financial products. From student loans to

mortgages, credit cards, mutual funds, and annuities, the

range of financial products people have to choose from is

very different from what it was in the past, and decisions

relating to these financial products have implications for

individual well-being. Moreover, the exponential growth in

financial technology (fintech) is revolutionizing the way

people make payments, decide about their financial invest-

ments, and seek financial advice. In this context, it is im-

portant to understand how financially knowledgeable

people are and to what extent their knowledge of finance

affects their financial decision-making.

An essential indicator of people’s ability to make finan-

cial decisions is their level of financial literacy. The Or-

ganisation for Economic Co-operation and Development

(OECD) aptly defines financial literacy as not only the

knowledge and understanding of financial concepts and

risks but also the skills, motivation, and confidence to

apply such knowledge and understanding in order to

make effective decisions across a range of financial con-

texts, to improve the financial well-being of individuals

and society, and to enable participation in economic life.

Thus, financial literacy refers to both knowledge and

financial behavior, and this paper will analyze research

on both topics.

As I describe in more detail below, findings around the

world are sobering. Financial literacy is low even in ad-

vanced economies with well-developed financial markets.

On average, about one third of the global population has

familiarity with the basic concepts that underlie everyday

financial decisions (Lusardi and Mitchell, 2011c). The

average hides gaping vulnerabilities of certain population

subgroups and even lower knowledge of specific financial

topics. Furthermore, there is evidence of a lack of confi-

dence, particularly among women, and this has implica-

tions for how people approach and make financial

decisions. In the following sections, I describe how we

measure financial literacy, the levels of literacy we find

around the world, the implications of those findings for fi-

nancial decision-making, and how we can improve finan-

cial literacy.

2 How financially literate are people?

2.1 Measuring financial literacy: the Big Three

In the context of rapid changes and constant develop-

ments in the financial sector and the broader economy,

it is important to understand whether people are

equipped to effectively navigate the maze of financial de-

cisions that they face every day. To provide the tools for

better financial decision-making, one must assess not

only what people know but also what they need to know,

and then evaluate the gap between those things. There

are a few fundamental concepts at the basis of most fi-

nancial decision-making. These concepts are universal,

applying to every context and economic environment.

Three such concepts are (1) nume racy as it relates to

the capacity to do interest rate calculations and under-

stand interest compounding; (2) understanding of infla-

tion; and (3) understanding of risk diversification.

Translating these concepts into easily measured financial

literacy metrics is difficult, but Lusardi and Mitchell

(2008, 2011b, 2011c) have designed a standard set of

questions around these concepts an d implemented them

in numerous surveys in the USA and around the world.

Correspondence: [email protected]

The George Washington University School of Business Global Financial

Literacy Excellence Center and Italian Committee for Financial Education,

Washington, D.C., USA

Swiss Journa

Stat

International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and

reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to

the Creative Commons license, and indicate if changes were made.

Lusardi Swiss Journal of Economics and Statistics (2019) 155:1

https://doi.org/10.1186/s41937-019-0027-5

Four principles informed the design of these questions,

as described in detail by Lusardi and Mitchell (2014).

The first is simplicity: the questions should measure

knowledge of the building blocks fundamental to

decision-making in an intertemporal setting. The second

is rele vance: the questions should relate to concepts per-

tinent to peoples’ day-to-day financial decisions over the

life cycle; moreover, they must capture general rather

than context-specific ideas. Third is brevity: the number

of questions must be few enough to secure widespread

adoption; and fourth is capacity to differentiate, meaning

that questions should differentiate financial knowledge

in such a way as to permit comparisons across people.

Each of these principles is important in the context of

face-to-face, telephone, and online surveys.

Three basic questions (since dubbed the “Big Three”)to

measure financial literacy have been fielded in many sur-

veys in the USA, including the National Financial Capabil-

ity Study (NFCS) and, more recently, the Survey of

Consumer Finances (SCF), and in many national surveys

around the world. They have also become the standard

way to measure financial literacy in surveys used by the

private sector. For example, the Aegon Center for Longev-

ity and Retirement included the Big Three questions in

the 2018 Aegon Retirement Readiness Survey, covering

around 16,000 people in 15 countries. Both ING and Alli-

anz, but also investment funds, and pension funds have

used the Big Three to measure financial literacy. The exact

wording of the questions is provided in Table 1.

2.2 Cross-country comparison

The first examination of financial literacy using the Big

Three was possible due to a special module on financial

literacy and retirement planning that Lusardi and Mitch-

ell designed for the 2004 Health and Retirement Study

(HRS), which is a survey of Americans over age 50. As-

tonishingly, the data showed that only half of older

Americans—who presumably had made many financial

decisions in their lives—could answer the two basic

questions measuring understanding of interest rates and

inflation (Lusardi and Mitchell, 2011b). And just one

third demonstrated understanding of these two concepts

and answered the third question, measuring understand-

ing of risk diversification, correctly. It is sobering that re-

cent US surveys, such as the 2015 NFCS, the 2016 SCF,

and the 2017 Survey of Household Economics and Fi-

nancial Decisionmaking (SHED), show that financial

knowledge has remained stubbornly low over time.

Over time, the Big Three have been added to other na-

tional surveys across countries and Lusardi and Mitchell

have coordinated a proj ect called Financial Literacy

around the World (FLat World), which is an inter-

national comparison of financial literacy (Lusardi and

Mitchell, 2011c).

Findings from the FLat World project, which so far in-

cludes data from 15 countries, including Switzerland,

highlight the urgent need to improve financial literacy

(see Table 2). Across countries, financial literacy is at a

crisis level, with the average rate of financial literacy, as

measured by those answering correctly all three ques-

tions , at around 30%. Moreover, only around 50% of re-

spondents in most countries are able to correctly answer

the two financial literacy questions on interest rates and

inflation correctly. A noteworthy point is that most

countries included in the FLat World project have

well-developed financial markets, which further high-

lights the cause for alarm over the demonstrated lac k of

the financial literacy. The fact that levels of financial lit-

eracy are so similar across countries with varying levels

of economic development—indicating that in terms of fi-

nancial knowledge, the world is indeed flat—shows that

income levels or ubiquity of complex financial products

do not by themselves equate to a more financially liter-

ate population.

Other noteworthy findings emerge in Table 2. For in-

stance, as expected, understanding of the effects of infla-

tion (i.e., of real versus nominal values) among survey

respondents is low in countries that have experienced de-

flation rather than inflation: in Japan, understanding of in-

flation is at 59%; in other countries, such as Germany, it is

Table 1 The “Big Three” financial literacy questions

1) Suppose you had $100 in a savings account and the interest rate was

2% per year. After 5 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

Do not know

Refuse to answer

2) Imagine that the interest rate on your savings account was 1% per

year and inflation was 2% per year. After 1 year, how much would you

be able to buy with the money in this account?

More than today

Exactly the same

Less than today**

Do not know

Refuse to answer

3) Please tell me whether this statement is true or false. “Buying a single

company’s stock usually provides a safer return than a stock mutual

fund.”

True

False**

Do not know

Refuse to answer

Source: Lusardi and Mitchell (2011b)

**Correct answers

Lusardi Swiss Journal of Economics and Statistics (2019) 155:1 Page 2 of 8

at 78 % and, in the Netherlands, it is at 77%. Across

countries, individuals have the lowest level of know-

ledge around the conc ept of risk, and t he percentage of

correct a nswers is particularly low w hen looking at

knowledge of risk diversification. Here, we note the

prevalence of “do not know” answers. While “do not

know” responses hover around 15% on the topic of

interest rates and 18% for inflation, about 30% of re-

spondents—in some countries even more—are likely t o

respond “do not know” to the risk diversification ques-

tion. In Switzerland, 74% answered the risk diversifica-

tion question correctly and 13% reported not knowing

the answer (compared to 3% and 4% responding “do

not know” for the interest rates and inflation questions ,

respectively).

These findings are supported by many other surveys.

For example, the 2014 Standard & Poor’s Global Finan-

cial Literacy Survey shows that, around the world,

people know the least about risk and risk diversification

(Klapper, Lusardi, and Van Oudheusden, 2015). Simi-

larly, results from the 2016 Allianz survey, which col-

lected evidence from ten European countries on money,

financial literacy, and risk in the digital age, show very

low-risk literacy in all countries covered by the survey.

In Austria, Germany, and Switzerland, whic h are the

three top-performing nations in term of financial kn ow-

ledge, less than 20% of respondents can answer three

questions related to knowledge of risk and risk diversifi-

cation (Allianz, 2017).

Other surveys show that the findings about financial

literacy correlate in an expected way with other data.

For example, performance on the mathematics and sci-

ence sections of the OECD Program for International

Student Assessment (PISA) correlates with performance

on the Big Three and, spe cifically, on the question relat-

ing to interest rates. Similarly, respondents in Sweden,

which has experienced pension privatization, performed

better on the risk diversification question (at 68%), than

did respondents in Russia and East Germany, where

people have had less exposure to the stock market. For

researchers studying financial knowledge and its effects,

these findings hint to the fact that financial literacy

could be the result of choice and not an exogenous

variable.

To summarize, financial literacy is low across the

world and higher national income levels do not equate

to a more financially literate population. The design of

the Big Three question s enables a global comparison

and allows for a deeper understanding of financial liter-

acy. This enhances the measure’s utility because it helps

to identify general and specific vulnerabilities across

countries and within population subgroups, as will be

explained in the next section.

2.3 Who knows the least?

Low financial literacy on average is exacerbated by pat-

terns of vulnerability among spe cific population sub-

groups. For instance, as reported in Lusardi and Mitchell

Table 2 Findings from the FLat World project across 15 countries

Authors Country Year of

data

Interest rate Q Inflation Q Risk divers. Q All 3

correct

(%)

At least

1 do not

know (%)

Correct

(%)

Correct

(%)

DK (%) Correct (%) DK (%)

Lusardi and Mitchell (2011c) USA 2009 64.9 13.5 64.3 14.2 51.8 33.7 30.2 42.4 1488

Van Rooij, Lusardi, and Alessie (2011) Netherlands 2010 84.8 8.9 76.9 13.5 51.9 33.2 44.8 37.6 1665

Bucher-Koenen and Lusardi (2011) Germany 2009 82.4 11.0 78.4 17.0 61.8 32.3 53.2 37.0 1059

Sekita (2011) Japan 2010 70.5 12.5 58.8 28.6 39.5 56.1 27.0 61.5 5268

Agnew, Bateman, and Thorp (2013) Australia 2012 83.1 6.4 69.3 13.0 54.7 37.6 42.7 41.3 1024

Crossan, Feslier, and Hurnard (2011) New Zealand 2009 86.0 4.0 81.0 5.0 49.0 2.0 24.0 7.0 850

Brown and Graf (2013) Switzerland 2011 79.3 2.8* 78.4 4.2* 73.5* 13.0* 50.1* 16.9* 1500

Fornero and Monticone (2011) Italy 2007 40.0* 28.2* 59.3* 30.7* 52.2* 33.7* 24.9* 44.9* 3992

Almenberg and Säve-Söderbergh (2011) Sweden 2010 35.2* 15.6* 59.5 16.5 68.4 18.4 21.4* 34.7* 1302

Arrondel, Debbich, and Savignac

(2013)

France 2011 48.0* 11.5* 61.2 21.3 66.8* 14.6* 30.9* 33.4* 3616

Klapper and Panos ( 2011) Russia 2009 36.3* 32.9* 50.8* 26.1* 12.8* 35.4* 3.7* 53.7* 1366

Beckmann (2013) Romania 2011 41.3 34.4 31.8* 40.4* 14.7 63.5 3.8* 75.5* 1030

Moure (2016) Chile 2009 47.4 32.1 17.7 20.9 40.6* N/A* 7.7 53.1 14,463

Boisclair, Lusardi, and Michaud (2017) Canada 2012 77.9 8.8 66.18 16.13 9.36 31.29 42.5 37.23 6805

Kalmi and Ruuskanen (2017) Finland 2014 58.1 6.1 76.5 6.4 65.8 10.25 35.6 14 1477

*Questions that have slightly different wording than the baseline financial literacy questions listed in the text

Lusardi Swiss Journal of Economics and Statistics (2019) 155:1 Page 3 of 8

(2014), e ven though educational attainment is positively

correlated with financial literacy, it is not sufficient. Even

well-educated people are not necessarily savvy about

money. Financial literacy is also low among the young.

In the USA, less than 30% of respondents can correctly

answer the Big Three by age 40, even though many con-

sequential financial decisions are made well before that

age (see Fig. 1). Similarly, in Switzerland, only 45% of

those aged 35 or younger are able to correctly answer

the Big Three questions.

And if people may learn from

making financial decisions, that learning seems limited.

As shown in Fig. 1, many older individuals, who have

already made decisions, cannot answer three basic finan-

cial literacy questions.

A gender gap in financial literacy is also present across

countries. Women are less likely than men to answer

questions correctly. The gap is present not only on the

overall scale but also within each topic, across countries

of different inc ome levels, and at different ages. Women

are also disproportionate ly more likely to indicate that

they do not know the answer to specific questions

(Fig. 2), highlighting overconfidence among men and

awareness of lack of knowledge among women. Even in

Finland, which is a relatively equal society in terms of

gender, 44% of men compared to 27% of women answer

all three questions correctly and 18% of women give at

least one “do not know” response versus less than 10%

of men (Kalmi and Ruuskanen, 2017). These figures fur-

ther reflect the universality of the Big Three questions.

As reported in Fig. 2, “do not know” responses among

women are prevalent not only in European countrie s,

for example, Switzerland, but also in North America

(represented in the figure by the USA, though similar

findings are repor ted in Canada) and in Asia (repre-

sented in the figure by Japan). Those interested in learn-

ing more about the differences in financial literacy

across demographics and other characteristics can con-

sult Lusardi and Mitchell (2011c, 2014).

3 Does financial literacy matter?

A growing number of financial instruments have gained

importance, including alternative financial services such

as payday loans , pawnshops, and rent to own stores that

charge very high interest rates. Simultaneously, in the

changing economic landscape, people are increasingly

responsible for personal financial planning and for

investing and spending their resources throughout their

lifetime. We have witnessed changes not only in the

asset side of household balance sheets but also in the li-

ability side. For example, in the USA, many people arrive

close to retirement carrying a lot more debt than previ-

ous generations did (Lusardi, Mitchell, and Ogger o,

2018). Overall, individuals are making substantial ly more

financial de cisions over their lifetime, living longer, and

gaining access to a range of new financial products.

These trends, combined with low financial literacy levels

around the worl d and, particularly, among vulnerable

population groups, indicate that elevating financial liter-

acy must become a priority for policy makers.

There is ample evidence of the impact of financial lit-

eracy on people’s decisions and financial behavior. For

example, financial literacy has been proven to affect both

saving and investment behavior and debt management

and borrowing practices. Empirically, financially savvy

people are more likely to accumulate wealth (Lusardi

and Mitchell, 2014). There are several explanations for

why higher financial literacy translates into greater

wealth. Several studies have documented that those who

have higher financial literacy are more likely to plan for

retirement, probably be cause they are more likely to ap-

preciate the power of interest compounding and are bet-

ter able to do calculations. According to the findings of

Fig. 1 Financial literacy across age in the USA. This figure shows the percentage of respondents who answered correctly all Big Three questions

by age group (year 2015). Source: 2015 US National Financial Capability Study

Lusardi Swiss Journal of Economics and Statistics (2019) 155:1 Page 4 of 8

the FLat World project, answering one additional finan-

cial question correctly is associated with a 3–4 perce nt-

age point greater probability of planning for retirement;

this finding is seen in Germany, the USA, Japan, and

Sweden. Financial literacy is found to have the strongest

impact in the Netherlands, where kno wing the right an-

swer to one additional financial literacy question is asso-

ciated with a 10 percentage point higher probability of

planning (Mitchell and Lusardi, 2015). Empirically, plan-

ning is a very strong predictor of wealth; those who plan

arrive close to retirement with two to three times the

amount of wealth as those who do not plan (Lusardi and

Mitchell, 2011b).

Financial literacy is also associated with higher returns

on investments and investment in more complex assets,

such as stocks, which normally offer higher rates of re-

turn. This finding has important consequences for wealth;

according to the simulation by Lusardi, Michaud, and

Mitchell (2017), in the context of a life-cycle model of sav-

ing with many sources of uncertainty, from 30 to 40% of

US retirement wealth inequality can be accounted for by

differences in financial knowledge. These results show that

financial literacy is not a sideshow, but it plays a critical

role in saving and wealth accumulation.

Financial literacy is also strongly correlated with a

greater ability to cope with emergency expenses and

weather income shocks. Those who are financially liter-

ate are more likely to report that they can come up with

$2000 in 30 days or that they are able to cover an emer-

gency expense of $400 with cash or savings (Hasler,

Lusardi, and Oggero, 2018).

With regard to debt behavior, those who are more finan-

cially literate are less likely to have credit card debt and

more likely to pay the full balance of their credit card each

month rather than just paying the minimum due (Lusardi

and Tufano, 2009, 2015). Individuals with higher financial

literacy levels also are more likely to refinance their mort-

gages when it makes sense to do so, tend not to borrow

against their 401(k) plans, and are less likely to use

high-cost borrowing methods, e.g., payday loans, pawn

shops, auto title loans, and refund anticipation loans

(Lusardi and de Bassa Scheresberg, 2013).

Several studies have documented poor debt behavior

and its link to financial literacy. Moore (2003)reported

that the least financially literate are also more likely to

have costly mortgages. Lusardi and Tufano (2015)showed

that the least financially savvy incurred high transaction

costs, paying higher fees and using high-cost borrowing

methods. In their study, the less knowledgeable also re-

ported excessive debt loads and an inability to judge their

debt positions. Similarly, Mottola (2013) found that those

with low financial literacy were more likely to engage in

costly credit card behavior, and Utkus and Young (2011)

concluded that the least literate were more likely to bor-

row against their 401(k) and pension accounts.

Young people also struggle with debt, in particular

with student loans. According to Lusardi, de Bassa

Scheresberg, and Oggero (2016), Millennials know little

about their student loans and many do not attempt to

calculate the payment amount s that will later be associ -

ated with the loans they take. When asked what they

would do, if given the chance to revisit their student

loan borrowing decisions, about half of Millennials indi-

cate that they would make a different decision.

Finally, a recent report on Mille nnials in the USA (18-

to 34-year-olds) noted the impact of financial technology

(fintech) on the financial behavior of young individuals.

New and rapidly expanding mobile payment options

have made transactions easier, quicker, and more con-

venient. The average user of mobile payments apps and

technology in the USA is a high-income, well-educ ated

male who works full time and is likely to belong to an

ethnic minority group. Overall, users of mobile pay-

ments are busy individuals who are financially active

(holding more assets and incurring more debt). How-

ever, mobile payment users display expensive financial

Fig. 2 Gender differences in the responses to the Big Three questions. Sources: USA—Lusardi and Mitchell, 2011c; Japan—Sekita, 2011;

Switzerland—Brown and Graf, 2013

Lusardi Swiss Journal of Economics and Statistics (2019) 155:1 Page 5 of 8

behaviors, such as spending more than they earn, using

alternative financial services, and occasionally overdraw-

ing their checking accounts. Additionally, mobile pay-

ment users display lower levels of financial literacy

(Lusardi, de Bassa Scheresberg, and Avery, 2018). The

rapid growth in fintech around the world juxtaposed

with expensive financial behavior means that more at-

tention must be paid to the impact of mobile payment

use on financial behavior. Fintech is not a substitute for

financial literacy.

4 The way forward for financial literacy and what

works

Overall, financial literacy affects everything from

day-to-day to long-term financial decisions, and this has

implications for both individuals and society . Low levels

of financial literacy across countries are correlated with

ineffective spending and financial planning, and expen-

sive borrowing and debt management. These low levels

of financial literacy worldwide and their widespread im-

plications necessitate urgent efforts. Results from various

surveys and research show that the Big Three questions

are useful not only in assessing aggregate financial liter-

acy but also in id entifying vulnerable population sub-

groups and areas of financial decision-mak ing that need

improvement. Thus, these findings are relevant for pol-

icy makers and practitioners. Financial illiteracy has im-

plications not only for the decisions that people make

for themselves but also for society. The rapid spread of

mobile payment technology and alternative financial ser-

vices combined with lack of financial literacy can exacer-

bate wealth inequality.

To be effective, financial literacy initiatives need to be

large and scalable. Schools, workplaces, and community

platforms provide unique opportunities to deliver finan-

cial education to large and often diverse segments of the

population. Furthermore, stark vulnerabilities across

countries make it clear that specific subgroups , such as

women and young people, are ideal targets for financial

literacy programs. Given women’s awareness of their

lack of financial knowledge, as indicated via their “do

not know” responses to the Big Three questions, they

are likely to be more receptive to financial education.

The near-crisis levels of financial illiteracy, the adverse

impact that it ha s on financial behavior, and the vulner-

abilities of certain groups speak of the need for and im-

portance of financial education. Financial education is a

crucial foundation for raising financial literacy and

informing the next generations of consumers , workers,

and citizens. Many countries have seen efforts in recent

years to implement and provide financial education in

schools, colleges, and workplaces. However, the continu-

ously low levels of financial literacy across the world in-

dicate that a piece of the puzzle is missing. A key lesson

is that when it comes to providing financial education,

one size does not fit all. In addition to the potential for

large-scale implementation, the main components of any

financial literacy program should be tailored content,

targeted at specific audiences. An effective financial edu-

cation program efficiently identifies the needs of its

audience, accurately targets vulnerable groups, has clear

objective s, and relies on rigorous evaluation metrics.

Using measures like the Big Three questions, it is im-

perative to recognize vulnerable groups and their spe-

cific needs in program designs. Upon identification, the

next step is to incorporate this knowledge into financial

education programs and solutions.

School-based education can be transformational by

preparing young people for important financial deci-

sions. The OECD’s Programme for International Student

Assessment (PISA), in both 2012 and 2015, found that,

on average, only 10% of 15-year-olds achieved maximum

proficiency on a five-point financial literacy scale. As of

2015, about one in five of students did not have e ven

basic financial skills (see OECD, 2017). Rigorous finan-

cial education programs, coupled with teacher training

and high school financial education requ irements, are

found to be correlated with fewer defaults and higher

credit scores among young adults in the USA (Urban,

Schmeiser, Collins, and Brown, 2018). It is important to

target students and young adults in schools and colle ges

to provide them with the necessary tools to make sound

financial decisions as they graduate and take on respon-

sibilities, such as buying cars and houses, or starting re-

tirement accounts. Given the rising cost of education

and student loan debt and the need of young people to

start contributing as early as possible to retirement ac-

counts, the importance of financial education in school

cannot be overstated.

There are three compelling reasons for having finan-

cial education in school. First, it is important to expose

young people to the basic concepts underlying financial

decision-making before they make important and conse-

quential financial decisions. As noted in Fig. 1, financial

literacy is very low among the young and it does not

seem to increase a lot with age/generations. Second,

school provides access to financial literacy to groups

who may not be exposed to it (or may not be equally ex-

posed to it), for example, women. Third, it is important

to reduce the costs of acquiring financial literacy, if we

want to promote higher financial literacy both among

individuals and among society.

There are compelling reasons to have personal finance

courses in college as well. In the same way in which col-

leges and university offer courses in corporate finance to

teach how to manage the finances of firms, so today in-

dividuals need the knowledge to manage their own fi-

nances over the lifetime, which in present discounted

Lusardi Swiss Journal of Economics and Statistics (2019) 155:1 Page 6 of 8

value often amount to large values and are made larger

by private pension accounts.

Financial education can also be efficiently provided in

workplaces. An effective financial education program

targeted to adults recognizes the socioeconomic context

of employees and offers interventions tailored to their

specific needs. A case study conducted in 2013 with em-

ployees of the US Federal Reserve System showed that

completing a financial literacy learning module led to

significant changes in retirement planning behavior and

better-performing investment portfolios (Clark, Lusardi,

and Mitchell, 2017). It is also important to note the de-

livery method of these programs, especially when tar-

geted to adults. For instance, video formats have a

significantly higher impact on financial behavior than

simple narratives, and instruction is most effective when

it is kept brief and relevant (Heinberg et al., 2014).

The Big Three also show that it is particularly import-

ant to make people familiar with the concepts of risk

and risk diversification. Programs devoted to teaching

risk via, for example, visual tools have shown great

promise (Lusardi et al., 2017). The complexity of some

of these concepts and the costs of providing education

in the workplace, coupled with the fact that many older

individuals may not work or work in firms that do not

offer such education, provide other reasons why finan-

cial education in school is so important.

Finally, it is important to provide financial education

in the community, in places where people go to learn. A

recent example is the International Federation of Fi-

nance Museums, an innovative global collaboration that

promotes financial knowledge through museum exhibits

and the exchange of resources. Museums can be places

where to provide financial literacy both among the

young and the old.

There are a variety of other ways in which financial

education can be offered and also targeted to specific

groups. However, there are few evaluations of the effect-

iveness of such initiatives and this is an area where more

research is urgently needed, given the statistics reported

in the first part of this paper.

5 Concluding remarks

The lack of financial literacy, e ven in some of the world’s

most well-developed financial markets, is of acute con-

cern and needs immediate attention. The Big Three

questions that were designed to measure financial liter-

acy go a long way in identifying aggregate differences in

financial knowledge and highlighting vulnerabilities

within populations and across topics of interest, thereby

facilitating the development of tailored programs. Many

such programs to provide financial education in schools

and colleges, workplaces, and the larger community have

taken existing evidence into account to create rigorous

solutions. It is important to continue making strides in

promoting financial literacy, by achieving scale and effi-

ciency in future programs as well.

In August 2017, I was appointed Director of the Italian

Financial Education Committee, tasked with designing

and implementing the national strategy for financial lit-

eracy. I will be able to apply my research to policy and

program initiatives in Italy to promote financial literacy:

it is an essential skill in the twenty-first century, one that

individuals need if they are to thrive economically in to-

day’s society. As the research discussed in this paper well

documents, financial literacy is like a global passport

that allows individuals to make the most of the plethora

of financial products available in the market and to make

sound financial decisions. Financial literacy should be

seen as a fundamental right and universal need, rather

than the privilege of the relatively few consumers who

have special access to financial knowledge or financial

advice. In today’s world, financial literacy should be con-

sidered as important as basic literacy, i.e., the ability to

read and write . Without it , individuals and societies can-

not reach their full potential.

6 Endnotes

See Brown and Graf (2013).

Abbreviations

DB: Defined benefit (refers to pension plan); DC: Defined contribution (refers

to pension plan); FLat World: Financial Literacy around the World;

NFCS: National Financial Capability Study; OECD: Organisation for Economic

Co-operation and Development; PISA: Programme for International Student

Assessment; SCF: Survey of Consumer Finances; SHED: Survey of Household

Economics and Financial Decisionmaking

Acknowledgements

This paper represents a summary of the keynote address I gave to the 2018

Annual Meeting of the Swiss Society of Economics and Statistics. I would like

to thank Monika Butler, Rafael Lalive, anonymous reviewers, and participants

of the Annual Meeting for useful discussions and comments, and Raveesha

Gupta for editorial support. All errors are my responsibility.

Funding

Not applicable

Availability of data and materials

Not applicable

Author’s contributions

The author read and approved the final manuscript.

Competing interests

The author declares that she has no competing interests.

Publisher’sNote

Springer Nature remains neutral with regard to jurisdictional claims in

published maps and institutional affiliations.

Received: 22 October 2018 Accepted: 7 January 2019

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