Constantinos Herodotou: Financial literacy and education in Cyprus -
challenges, lessons from other countries and the way forward
Welcome address by Mr Constantinos Herodotou, Governor of the Central Bank of
Cyprus, at the International Conference on "Financial Literacy and Education in Cyprus:
Challenges, lessons from other countries and the way forward", Limassol, 10 March
2023.
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Your Excellency member of the Parliament Dr Mavrides,
Your Excellency Deputy Minister to the President Ms Piki,
Dear guests,
Ladies and Gentlemen,
It is with great pleasure that I welcome you today to the Central Bank of Cyprus
International Conference on Financial Literacy and Financial Education in Cyprus. This
Conference is a landmark event for our country. It marks the beginning of coordinated
and collective efforts to implement the National Strategy for the promotion of financial
literacy and education in Cyprus. The National Strategy was adopted by the Council of
Ministers last June, following a proposal by the competent Committee, which was
headed and coordinated by the Central Bank of Cyprus. This Conference, with its many
distinguished participants, highlights the importance of financial literacy for the
wellbeing of our citizens, but also for the collective welfare in Cyprus.
The Benefits of Financial Literacy - a global perspective
At its core, financial literacy refers to the ability of individuals to understand and manage
their finances prudently and effectively. It is about the knowledge and skills but also the
behaviour and attitudes necessary for the individual to make prudent and informed
decisions about financial matters, such as saving, investing and borrowing. It is an
essential competency for individuals to navigate the increasingly complex financial
landscape.
At a global level, in recent years, we have seen a significant increase in the complexity
of financial products and services, making it more difficult for individuals to make
informed decisions that safeguard their financial well-being. What is alarming is the fact
that the level of financial literacy globally is very low. International research finds that,
only 1 in 3 adults worldwide are financially literate. This is worrisome not only because
of the negative repercussions at the individual level, but also, because of the potential
impact it may have at the broader level of a country's economy, including financial
resilience and stability. For instance, there are studies indicating that poor financial
decision-making, including excessive risk-taking by individuals, preceded financial
crises in the past. This phenomenon appears to be accentuated when the preceding
prosperous periods have a longer duration than usual, as described by Minsky's
Financial Instability Hypothesis. Examples include the Global Financial crisis, where
many people became over-indebted to purchase real estate, as prices appeared, at
least to them, to be ever-increasing. When the bubble eventually burst, they were
unable to cope with their financial obligations creating a domino of bankruptcies thus,
raising further financial stability risks.
The negative repercussions of financial illiteracy and of other shortcomings of financial
markets, especially on financial stability, can be addressed by enhancing the efficiency
of financial regulation. Nevertheless, strengthening the financial literacy of individuals
constitutes a key complementary and preventive tool, which enables financial regulation
to achieve its goals more effectively. In fact, the European Banking Authority (EBA)
which is, the independent Authority responsible for ensuring effective and consistent
prudential regulation and supervision across the European banking sector, stresses the
importance of financial literacy. For instance, the EBA 2020 Report called for greater
efforts to promote financial education and literacy across Europe. It also urged
policymakers, financial institutions and other stakeholders to work together to develop
effective financial education programs.
Financially knowledgeable citizens, in combination with a well-regulated financial
system, are critical components and prerequisites for safeguarding a country's financial
resilience and stability. Financially literate citizens in addition to being able to protect
their own financial well-being, also contribute to the efficiency of the economy and
to sustainable long-run economic growth.
Against this background, in recent years numerous countries have taken steps to
improve financial education and promote financial literacy among their citizens. Many of
these countries have now adopted or are in the process of adopting a National Strategy
for the promotion of financial literacy, using as a common basis the relevant guidelines
prepared by the Organisation of Economic Co-operation and Development (OECD).
Cyprus has recently joined this group of countries.
Financial literacy, the Cyprus perspective and the role of the Central
Bank of Cyprus
In December 2020, an ad-hoc Committee was established in Cyprus with the aim of
formulating a National Strategy for the promotion of financial literacy and financial
education in the country. The CBC has coordinated the work of the ad-hoc Committee,
which consists of members from the CBC, the Ministry of Finance, the Ministry of
Education, Sport and Youth, the Cyprus Securities and Exchange Commission and two
academic experts from the two public universities in Cyprus. The Committee was also
supported by a Secretariat from the CBC and external scientific collaborators, all of
whom are here with us today.
The formulation of the National Strategy drew heavily from the results of the CBC
survey on financial literacy. A key finding of the survey was that the average financial
knowledge score in Cyprus is below the minimum level considered by the OECD as
sufficient for someone to be counted as financially literate. The results of the survey
also indicate specific population groups, which are in greater need for financial
education such as the young, the unemployed, women, low income and lower
education citizens, and individuals who did not take economics courses during
secondary education. They also indicate specific domains where lack of financial
knowledge is evident, namely, interest compounding and diversification.
One of the main parameters of the National Strategy to promote financial literacy and
financial education in Cyprus relates to the need of the establishment of a permanent
Committee, which will be responsible for the national strategy implementation. The ad
hoc Committee continues to operate for a transitional period until this permanent
Committee is convened. For the time being, significant preparatory work has been
undertaken by the CBC, particularly as regards the designing of the detailed
governance structure of the new permanent Committee.
Another piece of preparatory work undertaken since the adoption of the National
Strategy last June, is the launching of an OECD technical assistance project, in the
context of a 250,000 euro grant from the European Commission, in relation to the
implementation of specific actions for the promotion of financial literacy in Cyprus. The
work on the agreed pillars of the project is progressing according to plan, with close
collaboration between CBC staff and OECD technocrats. These pillars are, first, the
conduct of an updated national survey on financial literacy in Cyprus, second, the
development of a website and application for smart devices that would provide useful
information and financial calculators and tools to the public, and third, the development
of a "train the trainers" program for adults, which would focus on strengthening financial
education.
The abovementioned preparatory work undertaken at the CBC, will be utilised as input
by the permanent Committee for the implementation of the National Strategy in
Cyprus. In addition to this work, let me also mention a few other areas related to
financial literacy where the CBC is currently actively involved.
First, since 2022 the CBC has assumed a coordinating role for the Global Money Week
in Cyprus, a global public-awareness campaign coordinated by the OECD annually,
aiming at raising awareness among young people on the importance of strengthening
financial literacy, skills, attitudes and behaviours. In fact, this conference is organised in
the context of the Global Money Week in Cyprus for 2023. Also, the CBC has recently
become a full member of the International Network on Financial Education (INFE) of the
OECD, in which it aspires to have an active role in the Network's activities.
Finally, I would like to mention that the CBC continues to devote resources on research
of this topic, particularly in examining the link between financial literacy and financial
stability. According to preliminary findings from the 4th wave of the Household Finance
and Consumption Survey in Cyprus, financially illiterate individuals are 7-11% more
likely to have late loan payments, providing evidence on the negative correlation
between the level of financial literacy and financial stability risks. The analysis is still
work in progress. More extensive results on the issue are expected from further
analysis as well as from the new more elaborate survey on which we are collaborating
with the OECD.
Concluding remarks
Let me conclude by reiterating that this Conference is a milestone event and sets the
pace for a new era in Cyprus. An era whereby all efforts for the promotion of financial
literacy and education in Cyprus are coordinated under the National Strategy umbrella,
so as to enhance the well-being and prosperity of Cypriot citizens and to support the
financial resilience and sustainable economic growth in the country.
As Governor of the Central Bank of Cyprus my promise is to assist the new permanent
Committee's role in implementing the National Strategy, as we also ensured that the
CBC prioritises and leads this initiative since the very first establishment of the
committee in December 2020.
In this Conference, we brought together a top-notch group of experts from both Cyprus
and abroad, that can exchange expert views and share with us their knowledge on best
practices from other countries' experiences. I would like to mention by [surname]
alphabetical order,
Professor Panayiotis Andreou from the Cyprus University of Technology,
Dr Sophia Anyfantaki from the Bank of Greece,
Professor Adele Atkinson from the University of Birmingham,
Dr Maria Demertzis from Bruegel,
Professor Michael Haliassos from Goethe University Frankfurt,
Professor Alexander Michaelides from Imperial College London,
Professor Andreas Milidonis from the University of Cyprus,
Dr Elena Miteva from the Organisation of Economic Co-operation and Development
(OECD),
Professor Dennis Philip from Durham University and
Dr Ernesto Villanueva from the Bank of Spain.
We are very appreciative and grateful for their participation.
In addition to the experts we physically have with us, we are also delighted to have
through a digital connection, the pioneer academic and distinguished researcher in the
field of financial literacy, Professor Annamaria Lusardi, a Professor of Economics and
Accountancy at the George Washington University, in Washington DC. I have had the
pleasure of meeting bilaterally with Professor Lusardi in Washington DC on different
occasions while I'm there for the annual IMF meetings. Needless to say that her
academic credentials, but also her passion and perseverance in promoting financial
literacy across the globe, have left a great impression on me. I am thankful that she has
accepted my invitation to be our key-note speaker in this event.
Without further ado, I wish you all very productive and fruitful discussions during the
Conference.
Thank you.