The Initiative for Financial Decision-Making at Stanford University is led by scholar Annamaria Lusardi. She discusses the potential impact of financial education on modern living in a conversation with Srijana Mitra Das:
Q. What is the key of your studies?
A. I study financial education and private banking. I do my studies on these subjects, which are the foundation of the majority of financial decisions. I’ve created tools to measure financial education around the world. Because financial awareness is crucial for people and aggregate economies, even the global economy, many people don’t possess such knowledge, and I’ve been attempting to educate policymakers about this. Consider the financial crisis of 2008, which had implications beyond just money for people. I’ve even been in charge of the Italian Financial Education Committee, which developed and put into practice a national plan for financial education.
Q. Why is economic education so crucial when the majority of us study mathematics in school?
A. Even if people know math well, that isn’t enough. This topic goes beyond knowing formulas to knowing your rights and obligations and supporting the system around you.
Q. Which economic knowledge is most required for the twenty-first era?
A. We need to start with the basics. Consider risk growth, inflation, or interest compounding; these are unlikely to become out of style anytime soon. We may also advance our understanding that people need the best tools to make financial choices in a world where technology and resources are constantly evolving.
Q. What does your studies reveal that many people believe Americans to have exceptional financial information?
A. Even the US, the nation with the most advanced financial markets, can’t take this knowledge for granted, according to our data, which we have collected through numerous studies and international comparisons. This is very minimal even among the young, and this is not an adequate level of financial education. A failing class would be issued to adults who could only respond to half of the survey questions. Even in the G7 bloc, the most developed economies don’t enjoy high financial literacy. As this isn’t taught in school, most people are actually left financially illiterate. This is a very new situation in which 35 US states today require financial education.
Q. Which nations have the highest levels of financial literacy, and does this contribute to increased federal endurance?
A. Drawing from our files, these are mostly the Nordic states, Canada and the UK. They excel in financial education and have a solid education system. This is important because, according to research on datasets across nations, those with greater financial education are less economically illiterate or more resilient to surprises. This is especially crucial in a time when we are dealing with shocks at a global scale, such as the pandemic or climate change, as well as standard disturbances. Additionally, the data indicates that nations with strong financial literacy may perform properly. People planning correctly for bills, retirement, plans, etc., offer excellent benefits. We should add financial education as a measure in the regional records, just like information for funding, use, money, etc.
Q. In comparison to men, how well-versed in the financial world are people?
A. One of the findings of our global study revealed that there is a female distinction in most nations regarding this. It’s very popular worldwide. We discovered this because disproportionately more women from all over the world responded to questions about financial literacy with “I don’t know.” Women displayed a higher propensity to say they were not educated about this and weren’t willing to make guesses. This is against the custom of people. The result shows women don’t know and they know they don’t know. They may become more mindful and hesitant to take challenges as a result. In one task, we took away the ‘I don’t know’ alternative — we had then calculate how this difference, comprising one-second of the female space, comes from a lack of trust. If women don’t feel confident about the correct answer, they are not willing to reply. This is crucial when designing personal finance courses because it is crucial that we promote women’s trust in addition to promoting awareness.
Q. What simply, as your job puts it, is the ‘nervous reality’ between cellular obligations and financial literacy?
A. Some years ago, we primarily used technology to make payments, but now apps can be used to do much more. However, the data shows that those who are financially underprepared frequently end up doing worse, for instance, they are more likely to overdraw their accounts than those who don’t. If we make transactions extremely simple, it might be the case that people spend more and don’t keep track of what they’re doing because technology makes decisions very quickly and in an invisible manner. Interestingly, people with higher financial literacy benefit more from such technology, increasing the inequalities this knowledge gap generates. Therefore, technology is not a substitute for financial literacy; it is a complement to it.