ep BANCA D'ITALIA

EUROSISTEMA
WY)

OECD-Bank of Italy Symposium on Financial Literacy
and Empowerment: Data, Policies and Evaluation

Opening Remarks by Luigi Federico Signorini
Senior Deputy Governor, Banca d'Italia

Rome, 17 November 2023

Understanding finance has never been easy, but with the growing range and complexity
of the financial products that are currently available, a minimum of financial literacy has
become essential to take informed decisions, exploit opportunities and manage risks as
best each of us can.

The benefits of financial education, however, may not be confined to personal well-being.
There is a case that basic economic and financial skills could also result in a better informed
public opinion and, hopefully, in better aggregate economic and financial outcomes as a
consequence. A growing body of literature' makes this case, citing e.g. a clearer discussion
of macro policies (such as budgetary and monetary policies) or structural reforms (such as
pension reforms); greater trust in public institutions; increased democratic participation in
civic and social life; a more stable and efficient financial system.

At the very least, awareness of the functions of key financial-policy institutions, such
as central banks, seems important to build trust in the system and in the institutions
themselves. In the case of central banks, the picture of their main functions appears
sometimes to be blurred in the public's eyes; and where knowledge is limited or biased,
trust in institutions may in turn be undermined. A 2021 survey by the ECB? showed that
people asked to pick what they perceive to be the tasks and objectives of the ECB from a
list, often select topics that are unconnected to the ECB's mandate. Poor understanding

Thanks to Daniela Marconi and colleagues for assistance in the preparation of this speech.

1 Fornero, E., & Lo Prete, A. (2023). 'Financial education: From better personal finance to improved citizenship',
Journal of Financial Literacy and Wellbeing, 1(1), 12-27. doi:10.1017/flw.2023.7; Murtinu, S., Piccirilli, G. and
Sacchi, A. (2017). Fiscal Policy, Government Polarization, and the Economic Literacy of Voters (April 4, 2017).
Available at SSRN: https://ssrn.com/abstract=2863016 or http://dx.doi.org/10.2139/ssrn.2863016.
Buch, C. (2018). Financial literacy and financial stability. Available at Claudia Buch: Financial literacy and
financial stability (bis.org). Buch et al. (2023). Financial Literacy, Human Capital and Long-Run Economic
Growth, CEPR Working Paper 2012/23.

2 Knowledge & Attitudes (K&A) survey. ECB Communication with the wider public (europa.eu).

of the central bank's tasks may make communication of monetary policy more difficult,
and a key tool, influencing inflation expectations, less effective.

However, economic and financial education is no easy task. The literature supplies ample
evidence that the general public (both households and firms) often sees economic issues
through the lens of potentially misleading pre-conceptions, and that it is not easy to
convey complex, often counterintuitive ideas.4 Misconceptions stem from a variety of
sources, including cognitive bias and simple heuristics, a fact that has long been known.°
While the wealth of information that today can be accessed on line could in principle
enrich one's ability to form better views, in practice it is at least as likely to exacerbate
the prevalence of false certainties, which are by no means in short supply on the Web.

Questioning false certainties that look intuitively appealing is therefore one of the main
issues in financial education. Financial education programmes addressed to the general
public should be kept as simple and focused as possible; or, as I put it on another occasion,
should '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'. Therefore - I added -
'start by proving the flat-earthers wrong, and keep the finer points of non-Euclidean
space geometry for the curious and willing'. (Not least, let me add here, because economists
themselves often disagree on such finer points).

There are even more basic concepts, which may look absolutely obvious to professionals
but are not to most people, and therefore must not be overlooked, or deemed unworthy
of our attention. Consider e.g. the difference between nominal and real interest rates,
or the pros and cons of fixed and variable interest rates: both concepts that are highly
relevant to financial reasoning especially these days, on the personal as well as the
societal level, but, as surveys make clear, are not always fully understood. If we want to
be effective, we need to be humble.

Financial innovation makes it easier to access financial services and products, from
payments to credit to investment, and can thus foster inclusion and offer individuals a
richer menu for managing lifetime financial risks, potentially increasing their well-being.
However, it requires a certain degree of awareness and certain basic financial skill, the
lack of which could hinder well-being and inclusion instead of promoting them'.

3 See Christelis, D., Georgarakos, D., Jappelli, T. and Van Roij, M. (2020). Trust in the Central Bank and
Inflation expectations, International Journal of Central Banking, Vol 16, No 6, December 2020.

4 McMahon, M. and Naylor, M. (2023). Getting Through: Communicating Complex Information, CEPR
Discussion Paper DP18537.
Leiser, D. and Shemesh, Y., (2018). How we misunderstand economics and why it matters. Routledge.

6 Newcombe, 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.

7 Bianco, M., Marconi, D., Romagnoli, A. and Stacchini, M., (2022), 'Challenges for financial inclusion:
the role for financial education and new directions, Banca d'Italia, Questioni di Economia e Finanza
(Occasional Papers), 723, October 2022.

Being financially literate is in fact critical to avoiding many common mistakes.® The
empirical literature has documented a positive relationship between financial literacy
and financial outcomes, such as a higher propensity to save for retirement and greater
portfolio diversification, sophistication and efficiency.? Hence, raising the financial
literacy levels especially of the most vulnerable segments of the population can
effectively support their financial decision-making."°

For years the Bank of Italy has promoted and conducted a range of financial education
initiatives. Our activity is mostly addressed to schools, from primary schools to upper
secondary schools, but is being increasingly extended to specific audiences in the adult
population (women, small businesses, the disadvantaged).

School-based education has been conducted over the past 15 years in cooperation with
the Ministry of Education, and is focused on teacher training. Course materials have
been periodically refreshed and updated based on the best pedagogical standards. The
programme has expanded over time, with more and more teachers and schools expressing
an interest in integrating this topic into their curricula as supplementary material, since
financial education is not yet a mandatory subject in Italian schools (though this may
soon change, as I shall say in a minute).

What works, when and for whom are key practical questions for financial education
policies. Financial education programmes should ideally be accompanied an assessment
of their effectiveness, not only in the name of efficiency and accountability, but also to
provide input for improvement. We have always valued this point.

Concerning schools, for example, we recently conducted two randomised controlled
trials (in primary and lower secondary schools, respectively), to evaluate the effectiveness
of our financial education programmes." The experiment was conducted in collaboration
with Politecnico di Milano, a university, and INVALSI, the public agency for school
evaluation. In general, programmes were seen to have a significant impact on students'
abilities. Two other interesting facts emerged. First, while programmes are effective for
all, socioeconomically disadvantaged students appear to profit the most. Second, the
impact of a programme is positively affected by the teacher's familiarity with financial
and economic topics, which underlines the importance of well-focused training.

Several countries have introduced or are about to introduce financial education as a
mandatory subject in schools. The models adopted vary; often financial education is
taught as part of civic education, a recognition of the contribution it could make to

8 Della Vigna, S., (2009). 'Psychology and Economics: Evidence from the Field', Journal of Economic
Literature, 2009, 47:2, 315-372

9 See Gomes, F., Haliassos, M., and Ramadorai, T. (2021). Household Finance. Journal of Economic Literature
2021, 59(3), 919-1000, for a review of main findings.

10 Lusardi, A., Michaud, P., and Mitchell, O., (2017). Optimal Financial Knowledge and Wealth Inequality,
Journal of Political Economy, 2017, vol. 125, no. 2. Gambacorta, L., Gambacorta, R. and Mihet, R. (2023).
FinTech, investor, sophistication and financial portfolio choices. BIS Working Paper, n. 1091.

11 Agasisti, T., D'lgnazio, A., lannotta, G., Romagnoli, A., and Tonello, M. "As soon as possible - The
effectiveness of a financial education programme in Italian schools". Mimeograph.

fostering active citizenship; or as a cross-disciplinary subject. In fact, financial education
can provide an additional perspective on history, geography, art and literature; or show
how mathematics and statistics apply in real-life situations.

In Italy, a bill proposing to include financial education in the civic education curriculum is
currently being considered by Parliament. We see it as an important step towards better
integrating economic and financial topics into school curricula.

If this plan is enacted, a key challenge will be meeting a higher demand for teacher
training. The medium-term goal should be to enable schools to take care of this aspect
themselves. The Bank of Italy plans to roll out a "train the trainer" programme, under which
trained teachers will in turn train other teachers in their school network, and different
networks will be able to connect with one another and share experiences and teaching
materials. We are also ramping up our efforts to provide financial education training to
university students enrolled in primary teacher education programmes. We cooperate
with universities and text book publishers, and plan to continue to offer teachers online
learning material and e-learning resources.

There are several tools that can be used to pursue the aim of elevating people's financial
awareness; formal courses are only one of them. Many central banks and other institutions,
for example, offer "museums of money", or similar initiatives, to stimulate the public's
attention for economic and financial matters in a way that is meant to elicit curiosity and
wonder.

Our own 'Museo della moneta', or MUDEM, is under construction. We plan to offer a
mix of stimuli. A collection of valuable objects, dating from the most remote historical
antiquity, through the Middle Ages, to modern times, will be on display. These objects will
be the anchor of a multi-media experience that is meant to suggest a few key concepts
of economics and finance, and to show how those concepts have taken concrete shape
at certain junctures in humankind's history. Surely, an hour's visit will not be enough
to enable visitors to master subtle concepts once and for all. The idea is to make them
aware of things that are not obvious, that concern their own lives even more than they
thought, and that can be fascinating. Hopefully, as a result, this experience will motivate
some visitors to undertake financial learning on a more systematic basis. An anticipation
of parts of the future MUDEM is on display close by, at the Palazzo delle Esposizioni; I do
hope many of you have had or will have the chance to visit it.

Economic and financial choices play an important role in our well-being, both as
individuals and as members of society. Our common commitment to financial education
should be made even stronger at a time when the financial environment is growing richer
and more complex. I wish you all a fruitful and thought-provoking Symposium.

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