Economic and Financial Education
Financial education enables people to make better life decisions when managing economic matters and financial choices. Two excellent definitions of financial education and financial literacy are:
- Financial education is a combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing (OECD International Network on Financial Education).
- Financial literacy is not only the knowledge and understanding of financial concepts and risks but also the skills, motivations and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial wellbeing of individuals and society, and to enable participation in economic life (Annamaria Lusardi, Financial Literacy and the Need for Financial Education: Evidence and Implications, Swiss Journal of Economics and Statistics (2019) 155:1).
Why?
Solid economic and financial education is critical for achieving numerous short- and long-term personal goals, such as:
- Setting aside some income as savings
- Investing one’s assets according to an informed profile of expected return and risk
- Renting or purchasing an apartment, possibly accumulating conservative levels and forms of debt
- Taking on debt to maintain consumption level
- Planning ahead for retirement
- Investing money and time in professional training courses
How to Improve
How can financial literacy be improved?
To make good decisions in these areas, it is necessary to develop not only technical knowledge, such as that of financial instruments and markets – along with the rules of those markets – but also broadened aptitudes and awareness. Some examples include clarity of one's long-term goals, a plan to pursue those goals, and determination and confidence in one's ability to act.
As with other aspects of our life, improvement in economic and financial education is the result of teamwork, the basis of which must be each person’s learning motivation. Who are the key players?
Individual responsibility: every person learns only when they really set their mind to it. Recognizing that motivation is derived from many elements, related to character and to personal situations especially, we recall that a person has incentives to progress in financial literacy if they understand its practical impact; in other words, if they perceive a positive link between knowledge and outcomes within the economic and financial field.
Schooling: school curriculums are the basis of learning for many relevant matters of our life. The basic skills of mathematics, one’s native language, foreign languages and science are learned during compulsory schooling and are generally deepened during secondary school. Economic and financial education is part of the school curriculum in many countries.
Family: family environment plays a crucial role in learning, especially through lifestyle conveyance, conversations regarding world events, shared experiences and emotional bonding as well as guidance. Parents can help their children improve, even receiving inspiration/prompts from them regarding economic and financial topics.
The State and policymakers: lack of financial education creates negative external effects and calls into question public funds when individuals/families in need must turn to the public safety net. So, the State not only has a duty from an ethical standpoint, but it is also in its self-interest to help people learn more about financial education.
Financial regulators and their authorities: they have the task of contributing to the proper functioning of intermediaries and markets, thus holding an interest in helping all individuals make financially informed decisions.
Businesses have long been taking – based on individual perception and/or pressure from financiers – an increasingly stakeholder-centric approach, of which includes: workers, customers, suppliers, the environment, the local community in which the business predominantly operates, and other communities of reference also pertaining to customers and suppliers. In this growing social role, businesses have an interest in improving welfare by disseminating economic and financial education.
Financial intermediaries are businesses and thus share the considerations made above, with a special sense of responsibility toward their customers, who must use their knowledge of financial education to better interact with them in order to select solutions compatible with expectations and demands.
What are the consequences?
The consequences of a solid economic and financial education are evident on several levels:
Individual wellbeing: the availability of sufficient economic resources is the best guarantee of independence and freedom for any person. Economic and financial education helps us plan and, most likely, better manage our life.
Social wellbeing: a financially-literate society succeeds as a whole in achieving a greater allocation of resources, managing overall capital better, and growing in a more significant and balanced way.
Sustainability: the growing focus on sustainability highlights the many relevant forms of capital in addition to productive capital. Economic and financial education can be considered one of the significant sources of capital, allowing for better use and growth of other sources of capital relevant to sustainable growth as well.
Diversity: an important part of sustainable growth concerns inequalities not only in economic terms, but also in terms of freedom and the opportunities offered to groups such as women, young people and the elderly. International findings show strong disparities in terms of economic and financial knowledge, which correspond to negative effects on some elements in particular.
