**Any program to improve financial education should be rigorously tested.** Techniques of delivering financial education have been well tested in the US, Europe and elsewhere over the last 30 years<sup>38</sup> but their impact on levels of financial literacy is still unclear. Yet even more unclear is the impact on consumer behavior. Taken together, financial literacy and consumer behavior determine the level of financial capability in households. The issues of consumer protection and financial literacy (and capability) are directly linked as “two sides of the same coin.” It is not practical to consider measures of improving financial consumer protection without also looking for ways of strengthening financial literacy. Financial education should therefore be encouraged in developing countries, but it should be rigorously tested and evaluated and be viewed as a long-term investment.

**Experience in developed countries suggests that financial education should be focused on “teachable moments.”** To be successful, financial education needs to provide information “at the time that the consumer wants it and in the form that the consumer wants it.”<sup>39</sup> Studies in the US have found that consumers are very receptive to financial education at certain points in their lives, for example, when they first provide a mortgage for a house or apartment. Other teachable moments include times when consumers start to plan for eventual retirement. Financial education is also effective for children under the age of 12 years when they need to learn about financial well-being, as well as the fact that financial health is as important as physical health. In high school, interactive computer games (for example, simulating investments in the stock markets) are also effective in teaching students about how to invest for their futures—and the need to become financially literate.

**Middle- and high-income countries should have national strategies on financial education and financial literacy.** Few countries have such strategies in place. The US Financial Literacy and Education Commission has developed a national strategy on financial literacy, bringing together financial education programs provided by government agencies, non-government organizations and private sector institutions. Financial institutions—or their professional associations—should also assist in providing financial training for consumers through web-based financial planning programs and other easy-to-learn financial tools. Low-income countries should also adopt programs of financial education but may not want to use limited institutional resources in building a national strategy on financial education and financial literacy.

**More resources should be channeled to consumer protection associations for increasing the financial literacy of the consumers.** Financial literacy is a necessary condition of responsible borrowing as financially literate consumers are more able to understand and assess their financial situation and the credit products on offer by different providers, and make an informed choice on the most suitable product for them. However this is not a sufficient condition for consumers to borrow responsibly. Financial consumer protection programs should cover both facets for responsible borrowing.

**The first step in developing a national program of financial education is to conduct a national survey of financial literacy.** A rigorous survey is needed as a starting point for developing a national education program. The survey should be broken down by geographic area, socio-economic level, years of formal education, gender, age and other standard variables for sociological studies. A 2005 report by the OECD reviewing financial literacy surveys worldwide found that consumers are often intimidated by issues of personal finance. The report noted that in Australia, 67 per cent of respondents indicated that they understood the concept of compound interest. Yet when asked to solve a problem involving compound interest, only 28 per cent were successful. A survey by the Royal Bank of Canada found that respondents considered choosing the right investments for a retirement savings plan to be more stressful

> 38 For a summary of programs, see Shaun Mundy, _Financial Education in Schools: Analysis of Selected Current Programmes and Literature – Draft Recommendations for Good Practices_ , published in proceedings of OECD-US Treasury International Conference on Financial Education, Washington DC, 7-8 May 2008, Volume II

> 39 Quote from Lewis Mandell, leader of the US Jump$tart Financial Literacy Survey, which reviews the levels of financial literacy for high school students in America.

33