The impact of digitalization on financial education and inclusion
Luigi Federico Signorini
Senior Deputy Governor of the Bank of Italy
Tenth Annual Meeting of the International Federation of Finance Museums
4 October 2022
I am delighted to welcome you to the Tenth Annual Meeting of the International
Federation of Finance Museums, hosted this year by the Bank of Italy together with the
Museum of Saving.
The theme for this year's meeting is the impact of digitalisation on financial outreach,
education and inclusion. Digitalisation in finance has spawned a host of innovative
products and channels, and is a new challenge for financial education; at the same time,
it offers new tools for making education more effective. Our common goal is to rise to
the challenge, and to make good use of the tools.
As a challenge, digitalisation perhaps only exacerbates certain inherent difficulties in
financial education that those involved in it know well. I would like to take this opportunity
to share with you a few thoughts on why these difficulties exist, and what can be done
to overcome them1. In so doing, I shall make reference to the experience of the natural
sciences, and the recent specialised subject of 'Science of Science Communication'.
This discipline2 looks for the factors that may undermine the effectiveness of scientific
information and education and proposes methods to mitigate these effects.3 Most of its
contributions relate to physics, chemistry, biology and medicine; however, there is little
doubt that similar issues are also relevant for the economy and finance.
It is true that interpreting the picture of a black hole calls for different skills from those
required to read a bank statement. However, if we turn our attention from the skills to be
taught to the method for teaching them, many similarities become apparent. Whatever
the subject, all popularising and educational activities consist in attracting your attention
to a complex concept and explaining it in words that you can understand. In this sense,
teaching you how to wash your hands correctly (and why it matters), how to calculate
compound interest (and why it may be useful), or how people have come to the conclusion
the earth is round (and why it's good to know) are not such different tasks, if one looks at
the cognitive obstacles that come up and the methods that can be used to overcome them.
A further, important similarity consists in the fact that many of the messages that
both scientific communication and financial education would like to convey concern
the rational evaluation of the risks and benefits of technology. Think of biotechnologies,
artificial intelligence, nanotechnologies-but also of the technology of finance. In each
case, individuals and societies face trade-offs between risks and opportunities: whether to
eat less meat, vaccinate our children, install a cellular radio tower in the neighbourhood;
and similarly, how much to save and in what form, whether to buy insurance or
borrow money, or what the implications of a higher public debt are (a technology
that shifts the cost of some public goods from one generation to the next). Individuals
(or societies) may well have different preferences or needs concerning the ultimate effects
of those technologies. However, well-known cognitive shortcuts may result in biased or
inconsistent choices with respect to one's own deep preferences. The aim of scientific
education is not to tell people what their preferences should be, but how to make the
best use of the available information when choosing between technical alternatives that
are not easy to understand.
The problem of economic (and financial) education
'The problem of economic education' is the title of a long article, published in July 1893 in
the Quarterly Journal of Economics, which begins with this sentence: 'The fact that there
is a wide divergence between many of the practical conclusions of economic science,
as laid down by its professional exponents, and the thought of the public at large, as
reflected in current discussion and in legislation, is one with which all are familiar'.4
The author (Simon Newcomb, an American mathematician) goes on to comment on
many examples of false beliefs, prejudices and misunderstandings, in particular on the
advantages and disadvantages of free trade between nations,5 which hinder the dialogue
between economists and public opinion.
The latter point is a good example of a 'divergence' that persists. More than a century
later, in 1996, Paul Krugman again went through the nature of the cognitive obstacles
that stand in the way of understanding the theory of comparative advantage.6
I will get back to Krugman's article later. First, however, let me point out that, although
the popularisation of the natural sciences has a much longer and richer history, attempts
to make economics more accessible or to introduce the study of economics into school
curricula have not been lacking. In recent years, the great financial crisis of 2008 further
raised the general awareness of how good communication and financial education for
non-experts is important. Most central banks are now actively engaged in financial
education and/or the popularisation of economics,7 with a variety of aims, including the
protection of consumers of financial products.8 At the Bank of Italy, financial education
is now established as one of its key functions. With a view to exploiting synergies, a few
years ago we created a Department responsible both for promoting financial education
and for supervising the transparency and fairness of intermediaries.
This rising awareness extends beyond the world of central banks. In a recent book,
Economics for the Common Good (2017), Jean Tirole makes a strong appeal to economists
to engage in public debate. Financial education, he says, should go beyond equipping
people with skills that are useful for making personal financial decisions. It should try
to explain what the use of finance is, and why it is necessary to achieve the common
good. It is no easy task. Finance is an even trickier issue than comparative advantage as
a subject for reasoned discussion of pros and cons. Many will harbour deep suspicions
as to the usefulness of the financial industry itself, and they will often be unwilling to
accept the opinion of 'experts' (in inverted commas) about its products. In the words
of Andrew Haldane, a former chief economist at the Bank of England, a 'great divide' in
trust separates the vast majority of people who buy financial services and the minority of
those who produce them.9
Two things, besides its sheer complexity, make finance an especially tricky subject,
and may ultimately reinforce the public's scepticism. One is the potential confusion or
overlap between independent, scientific opinion, and the concrete financial advice people
receive from persons that are as much salespersons as advisers. The other is that even
academic or institutional economists disagree about many things, so what is the truth?
Financial education should therefore (a) recognise that being, and being perceived as,
free from even the slightest suspicion of conflict of interest is a key prerequisite for being
credible; (b) exploit synergies with conduct regulators, in order to find ways to ensure
minimum standards for professional advice; and (c) concentrate on basic, counterintuitive
but robust, 'round earth'-type concepts, like the surprising effects of compound interest,
the non-obvious advantages of diversification and the often overlooked trade-off
between risk and return. So, start by proving the flat-earthers wrong, and keep the finer
points of non-Euclidean space geometry for the curious and willing. Is such an approach
too basic to be worthy of institutional effort? No, it is not; surveys on the level of financial
knowledge among the general public provide ample evidence of this.
How to explain oneself well
In a 2009 paper entitled 'Le vie della divulgazione scientifica' ('How to popularise science'),
Piero Angela - the dean of Italian popularisers, who passed away on 13 August and
whose great professional and civil merit we cannot but honour and commemorate on
this occasion - said that those who want to explain complex concepts need two qualities:
to 'be engaging', i.e. able to capture an audience's attention, and to 'be clear', i.e. avoid
the use of specialised language or words that are not in common use.10
These qualities, difficult as they may be to teach or put into practice, are prerequisites.
Failing to master them, or using them in an amateurish or 'excessive' way, can cause
collateral damage that outweighs the benefits of the educational endeavour. We therefore
need to discuss them in some detail before moving to the third and final step: how to
'be convincing', i.e. how to overcome the cognitive obstacles that are the main subject
of the Science of Science Communication.
Be engaging
As all teachers know, those who have a spontaneous interest in a topic will learn and
master it better than those who are either uninterested or driven by a secondary motive
(such as avoiding a bad grade). Distinguishing between popularisation and education in
the stricter sense may be useful. Popularisation aims to generate interest and curiosity,
and is often pursued through promoting one-off or short-term activities, such as visiting
a museum or watching a documentary. Education aims to provide the basic skills needed
to form opinions, interpret information or use tools and techniques in an efficient way;
it requires a longer and more structured learning process.
Well-managed popularisation is thus a way to provide the interest that helps make
educational activities successful: the goal is to make a subject as attractive as it is
objectively important.11 Conversely, poor popularisation may reduce the effectiveness of
education,12 just like poorly taught mathematics in school could result in a lifelong lack
of interest in scientific topics.
With all that, the fact remains that some topics are perceived to be inherently more
interesting than others. Is economics more or less likely to be engaging than the natural
sciences? There is, in fact, no obvious answer. On the positive side, money being almost
ubiquitously necessary for survival and material needs, most of us, whatever our higher
aspirations, may be curious to understand both how the 'wealth of nations' is formed,
and, on a more personal level, how our income is determined or our wealth can be wisely
managed and invested. We are confronted with some of these issues on an almost daily
basis, and certainly more frequently than with those relating to the life cycle of dolphins
or the origin of galaxies. On the negative side, while curiosity about dolphins is usually
unalloyed in those that nurture it, issues about the economy, both personal and general,
may be a source of anxiety, a reminder of problems to be solved, or of strife and conflict.
Finance, which mainly deals with uncertainty and the future, may also suffer from human
beings' instinctive preference for the short term-a feature whose evolutionary rationale
I shall not venture to discuss, but whose existence is plain. Akerlof and Shiller say: 'when
we discuss the power of compound interest with our young students, their eyes glaze over.
They see that they might live a much better retirement, but they find it hard to imagine
what the difference in retirement would be. They cannot visualize their older selves well
enough to know what they will want to spend. [...] It is as if they cannot attach any clear
meaning to the ultimate purpose of saving, of providing for the future'.13 Anna Maria
Lusardi, in her pioneering work on educating citizens about social security choices, finds
this lack of interest a major obstacle to financial education.14 Her work is quoted by Akerlof
and Shiller as evidence of people's non-rational indifference towards their own financial
future.15 There are a few more problems that hinder the popularisation of economics:
for example, finance museums have fewer 'wonders' to showcase than science museums;
they are rarely capable of producing what popularisers call the 'wow effect'.16
What can we do? Lack of interest in economics and finance (not to mention mistrust of
those who work in these fields) should be a driver rather than a barrier, and encourage us
to look for innovative ideas. There is no shortage of inspiring success stories,17 which show
that providing high-quality, engaging financial popularisation is possible by e.g. creating
connections to history, art and other subjects. The way we designed our museum, and
the decision to place it alongside the financial education directorate, are meant to foster
synergies between popularisation and education. And yes, we are working hard to ensure
that our museum will contain some objects that are unusual and interesting enough to
elicit a few 'wows' from visitors!
Be clear
Once one has managed to capture the public's interest, the next challenge one faces is
language, or, more generally, any factors that can make communication easier, or more
difficult, to understand. Besides the right choice of words, this requires alertness to the
fact that many concepts that experts take for granted may be quite unfamiliar to those
outside the discipline.
Clarity and simplicity, however, often come at a cost. When you try to make complex
concepts accessible by using basic vocabulary, metaphors or other logical stratagems,
even if you succeed in making the recipient understand the general way in which a
certain phenomenon works, you may have to pay the price of a blurred perception of its
actual complexity.18 In some cases, it is a fair price to pay; in others, it is a risky shortcut,
given all the side effects it produces. The 'easiness effect of science popularisation'
comes up in a number of empirical studies.19 Beyond undue simplification, there may
be undue generalisation: some people who read popularised science material, having
understood the specific message, tend to overestimate their general knowledge
of the subject. When subsequently confronted with specific choices, they may be
overconfident, and underestimate the need for competent advice.20 Here too,
the issue is potentially more dangerous when the subject is medicine or finance,
rather than (say) cosmology.
What can we do? The literature also provides hints as to how to minimise side effects,
for instance by following the simplified explanation of a given phenomenon with clear
warnings about its inherent complexity, the loss of accuracy resulting from popularisation,
and the existence of any alternative explanations. With this issue in mind, the Bank's
financial education programme for schools provides, alongside simplified reading
material for students, more advanced, topic-specific Teacher's Guides; we also have a
comprehensive programme of courses for teachers. The approach must be different for
museums, where the attention span of visitors is typically shorter. Our plan is to offer
visitors additional material (brochures, apps or web channels) at various points along the
way for those who wish to explore an issue further.
As I just mentioned, another trap to avoid is for science communicators to over-rely
on previous knowledge by recipients. Numbers, and in general everything to do
with statistics and mathematics, are a case in point. Experts often assume everyone
has some knowledge of what for them are very basic skills, such as the concept
of probability or the cancelling of fractions. In fact, mastery of such skills is rare.
In the preface to his book The Road to Reality, Roger Penrose tells the story of a
friend whom he used to tutor in mathematics and who, faced with simple fractions,
was completely unable to cancel them because she kept picturing the nominator
and the denominator as 'two separate things'.21 This fact is also relevant to financial
education and to the protection of banks' customers. As I have said on other occasions,
the rules that provide for transparency on (various definitions of) annual percentage
rates of interest are not particularly useful to those consumers - a non-negligible
share, according to surveys - who are not fully familiar with the concept of interest
rates itself.
What can we do? In 1948, Maria Montessori, one of the most renowned Italian educators,
wrote that 'a person without mathematical training today is like an illiterate person was
when everything depended on literary culture'.22 Nearly 80 years have passed, during
which the truth of this concept has (if anything) increased, as has the awareness of the
need to introduce statistics and probability into school curricula as early as primary school.
The 'fear of maths' is one big reason why too many people are unable to appreciate,
not just the beauty of some scientific truths, but also the usefulness of economic and
financial calculations.23 Having said that, until everybody gets enough statistics training
at school, there is no alternative to carefully crafting teaching materials or museum
explanations that do not assume a mathematical mind, and suggest intuitive, possibly
entertaining ways of understanding quantitative issues or solving practical problems,
including financial ones.24
One final word about the need to 'be clear'. In designing our Museum, we found the
interaction between economists with little grasp of communication, and good popularisers
with only a smattering of economics, extremely useful, interesting-and, at times, fun.
Be convincing
Let us go back to Krugman's dismay at people's inability to understand comparative
advantage. The frustrating fact here is that a counterintuitive concept cannot be explained
even to people who are keen to understand, and educated enough to follow the experts'
explanations. 'What I am concerned with - he writes - are the views of intellectuals,
people who do value ideas, but somehow find this particular idea impossible to grasp'.25
The problem in this case is not that the communicators are insufficiently clear or
engaging. The problem is that the listener has pre-formed convictions, alternative 'truths'
that are perceived as intuitive and obvious, and clash with those of the expert. This is
what makes the latter's arguments unpersuasive. The Oxford Handbook of the Science
of Science Communication (2017) lists many sources of alternative 'truths'. They may be
classified into four areas:
1) Naïve science. Psychologists have long theorised that human beings innately possess
some sort of pseudo-explanation for (almost) every phenomenon. In recent years, many
empirical studies have found evidence of folk physics, folk biology, folk economics and so
on. An article published in Scientific American in 2006 puts it as follows: 'Folk astronomy,
for example, told us that the world is flat, celestial bodies revolve around the earth, and
the planets are wandering gods who determine our future. Folk biology intuited an élan
vital flowing through all living things, which in their functional design were believed to
have been created ex nihilo by an intelligent designer. Folk psychology compelled us
to search for the homunculus in the brain - a ghost in the machine - a mind somehow
disconnected from the brain. Folk economics caused us to disdain excessive wealth,
label usury a sin and mistrust the invisible hand of the market'.
Experts aver that 'a fascinating feature of naïve theories is their ability to survive empirical
disconfirmation'.26 That is why scientific communication cannot just dole out scientific
truths, but must find a way to dry up the sources of intuitive 'truths'. This is what financial
education programmes inspired by behavioural economics attempt to do: if folk
economics is a form of cognitive distortion,27 the evolutionary outcome of a very long
period in human history during which trade and finance were often a zero-sum game,28
then education should not just aim to teach skills, but also to challenge the instinctive
suspicion that prevents us from seeing the potential benefits to all parties of a mortgage,
a financial investment, an insurance product or - back to Krugman - free trade.
2) Disputes and hype in science. It is perfectly normal for scientists to disagree on
the explanation of a given phenomenon. The inexact science of economics is second
to none in this respect. Scientific communication, especially the sort that aims to help
you in making informed choices, should mostly be about the ABCs of disciplines,
and therefore largely unaffected by disputes at the frontier of knowledge. However, if you
assume that truths about nature must be immutable, coherent and all-encompassing,
disagreement between experts is a potential source of mistrust even for the most basic
facts of science.
A specific problem arises when the public becomes aware of some 'resounding
breakthrough', which makes the headlines as a result of an ambitious researcher, or
a journalist of a sensationalist bent trying to gain visibility, even if what is presented
may only consist in preliminary findings described in a working paper. That hype can
prove harmful to scientific dissemination, and sometimes even to people's health, was
shown clearly by an article published in 1998, which suggested a correlation between
the measles, mumps and rubella (MMR) vaccine and some forms of autism.29 It took as
long as 12 years for the article, which had been recognised as not just wrong but also
fraudulent, to be taken out of circulation.30 By then, however, fear and suspicion had
become rooted across broad sectors of the population-and, one surmises, this fact
contributed to the suspicion towards vaccines during the recent pandemic. Based on
other case studies too, such as that on mad cow disease, the scientific community has
responded with strategies that make it faster to 'delete' fake theories.31
3) Fake news. If it is hard enough to keep the spread of erroneous information within the
scientific community under control, the challenge becomes quite daunting on the Web
and in the media generally. A 2019 report prepared for the European Parliament finds
that about half of European citizens say they are unable to distinguish between fake and
trustworthy science news, and recommends that the school system take upon itself the
task of educating minds on how to recognise 'false truths'.32
4) Antagonistic cultural meaning. As shown by several Science of Science Communication
studies, in fact the credibility of science is not systematically in doubt. On the contrary,
'the number of issues that actually display the science-communication problem is orders
of magnitude smaller than the number that do not, but plausibly could'.33 In fact, in the
vast majority of cases, the public does not mistrust the opinion of experts. Almost no one
- regardless of educational attainment or political or religious persuasion - differs with
the assessments of experts regarding the best way to build an airplane. The issue typically
arises in connection with certain topics, such as global warming or the risk-benefit ratio
of vaccines, which are more easily influenced by interests, values and cultural identities.34
Economics and finance are more exposed to this risk than other fields.
Whether they come from our brain, our community's values, social media, or even the
scientific community itself, prejudices are multiplicative-in the sense, first, that failing
to remove even just one can nullify the whole communication effort; second, that even
when they are conceptually independent, they tend to interact and reinforce one another.
What can we do? Despite evidence that it is not always impossible to change (erroneous)
epistemological beliefs, including through short-term educational measures,35 there still
remain 'a host of interdependent complexities for science communication, many of which
we are only beginning to understand empirically'.36 The conclusion that the Science of
Science Communication has reached so far is that there cannot be a popularising or
educational solution that fits all topics and all audiences; that if we ignore the existence of
cognitive obstacles, rely on a one-way style of communication and do not ask ourselves
what the target audience's knowledge, opinions and prejudices are, we are bound to fail.37
The interdependency of channels can work in the communicator's favour, too. When the
person or institution that sends a message is perceived as independent, authoritative
and credible, the 'drag' of impeding factors decreases. One hopes that central banks will
often fit the bill in most people's eyes. This is, I believe, one important reason why they
are natural candidates for taking on an educational role.
Does digitalisation help or hinder financial education?
The digitalisation of finance creates both benefits and risks for consumers.38 Innovation
allows the financial and payments industry to offer new products (and thus serve
a broader range of needs), to lower costs, and to improve accessibility. One scarcely
remembers that to carry out the simplest banking operations, like checking the balance
of one's account or making a money transfer, there was once no alternative to taking
the time to go to a physical bank branch and queue up at a teller. Or that POS or online
electronic payments did not exist. However, innovation also enables agents to create
complex and often opaque products, whose risk structure is difficult to understand and
whose economic rationale is not always obvious. The greater ease in making payments,
borrowing money or investing savings that technology affords is itself not an unmixed
blessing, in that it may be conducive to hasty, imprudent or uninformed choices. Hence
the need to improve all areas of consumer protection, and to increase customers' ability
to understand risks and rewards, to assess the suitability of products for their particular
needs, and more generally to exploit the undisputed advantages of innovation while
avoiding its pitfalls.
Financial education itself, like all kinds of education, can leverage on new technologies
that make it possible to reach a much vaster public, to tailor didactic content to specific
needs, to use novel teaching tools, and to design efficient and effective surveys to test
the results achieved. It must, on the other hand, avoid the risk of turning the digital divide,
geographical or generational as it may be, into another source of financial exclusion.39
The Bank of Italy has taken on the challenge of digitalisation in its educational projects.
Our financial education portal, 'Economics for everyone', has been online since the end
of 2019, and has over 50,000 hits per month. The portal's content is supplemented by
interactive and multimedia tools meant to encourage the general public to engage and
identify with it, especially people who are less expert, and to stimulate them to learn
more about personal finance.
Let me now conclude by mentioning two facts that could make educational challenges
even more complex in a digital environment.
The first is linked to the well-known 'cognitive bubble' and 'echo chamber'40 effects.
The web contains all sorts of information, including academic debates that were once
confined to academia, or technical advice that was once the preserve of a selected few.
In principle, abolishing the barriers to the circulation of information is a good thing.
However, to make sense of the almost infinite amount of information available, a finite
mind needs criteria and filters. When choosing from an enormous menu, both human
inclination and the logic of search engines tend to act selectively and confirm initial
bias. While in theory everyone can access all information, in practice self-contained
bubbles may emerge (naturally or by deliberate action), whereby many web users receive
information, whether genuine or fake, that tends to reinforce their views, and conversely,
they become relatively insulated from information that might put them into question.
Breaking vicious circles generated by fake or biased information is thus one key challenge
for effective science communication.
The second challenge concerns the ever greater complexity of whatever is offered on
the market. The precise way cars, phones, or medical treatments actually work has long
been beyond the comprehension of most customers, but the phenomenon is very much
on the increase. While it was once conceivable for a car user to understand the practical
working of a carburettor or a spark plug, nowadays a car's many electronic parts are a
black box, even to a specialised mechanic, and almost all repair is based on automated
diagnosis and replacement. As products become more complex, simplification, the key to
popularisation or basic education campaigns, becomes, if I may, more difficult. Linked to
this is the growing invisibility and abstract nature of innovation: in certain cases, such as
bio- or nanotechnologies, this has led to suspicion, fuelled conspiracy theories and made
the various online information channels even more fervid.
Finance, which is a form of social technology, is no exception: innovations make it more
efficient, but also further removed from the possibility of its advantages and risks being
understood correctly by non-experts. The gradual dematerialisation of monetary and
financial instruments, the depersonalisation of the procedures involved in disbursing
loans, the fact that physical bank networks are becoming rarer, in short, the growing
'invisibility' of finance, risks fortifying old suspicions and encouraging the spread of
emotional reactions ranging from pessimism to repulsion.
The last claim, admittedly, begs the question of why then some people are so
attracted to crypto-assets, which are even more 'invisible' than comparable traditional
instruments-and much, much riskier, when unbacked or algorithmic. This seems
yet another worthy topic for digital-era financial education, and - quite possibly -
for educational financial museums. I wonder whether the next speakers will have any
thoughts to offer on this matter.
Thus, because of digitalisation, the educational challenge is simultaneously becoming
easier and more complex. Perhaps we need to cultivate methods of teaching that,
besides basic technical literacy, aim to augment 'epistemic understanding',41 i.e. the
critical thinking that helps in selecting sensible theories and reliable sources, in finance
just as elsewhere.
This concludes my introduction. I am sure that today's keynote lecture, the round table
and the afternoon session on research will provide rich food for thought on all these
topics.
Note
1
Thanks are due to Giovanni Iuzzolino for his valuable input.
2
'Ironically, those communicating science often rely on intuition rather than scientific inquiry, not only to
ascertain what effective messaging looks like but also to determine how to engage different audiences
about emerging technologies and get science's voice heard. For decades, one plausible explanation for
this state of affairs was the relative absence of empirical work in science communication. This is no longer
a problem'. Kahan D, Scheufele D. A., Jamieson, K. H. (2017), Introduction: Why Science Communication?,
in Kahan D, Scheufele D. A. and Hall Jamieson, K. (eds.) The Oxford Handbook of Science of Science
Communication, Oxford University Press, New York, p. 1.
3
Although the first attempts at spreading knowledge about science go back a long way (the Natural
History Museum in London was established in 1753), the broad popularisation of science in all the forms
available to us today has taken place in the last few decades. In 1985 the Royal Society of London, the
oldest scientific institution of the modern world, published its 'Bodmer Report: The Public Understanding
of Science (A report by a Royal Society ad-hoc Group', 1985, London).
4
Newcomb, S. (1893), 'The problem of Economic Education', The Quarterly Journal of Economics, Vol. 7,
No. 4 (July, 1893), pp. 375-399. https://www.jstor.org/stable/1882282.
5
'One of the most marked points of antagonism between the ideas of the economists since Adam Smith
and those which governed the commercial policy of nations before his time is found in the case of
foreign trade. Before such a thing as economic science was known arose the theory of the "balance
of trade" [...] An immediate corollary from this view was that trade between two nations could not be
advantageous to both, because the values which each exported to the other could not both be greater
than those received from the other. This doctrine was denied by the Physiocrats, and shown to be
wholly fallacious by A