francois villeroy de galhau : special address on the french national strategy for financial education speech by mr francois villeroy de galhau, governor of the bank of france, at the 4th oecd / gflec global policy research symposium to advance financial literacy " addressing the needs of youth ", paris, 24 may 2017. * * * accompanying slides. your highness ( queen maxima of the netherlands ), mr. secretary general, ladies and gentlemen, i am delighted to be here with you today for this symposium on financial literacy. indeed, french citizens have high expectations about financial education : [ slide 2 ] 78 % believe that financial literacy should be taught at school and 65 % believe that access to it would reduce overindebtedness and financial vulnerability. 1 academic research by annamaria lusardi and olivia mitchell2 confirms its importance, as does our own research in france3 [ slide 3 ]. if we consider the three " standard " questions used to assess awareness of interest rates, inflation and risk diversification, only 30 % of those surveyed answered all three questions correctly, which is lower than in other european countries. furthermore, in france some of the worst results were obtained by the youngest age group, as well as the oldest. however, there is more at stake : this represents a challenge for democracy. providing our fellow citizens with the keys to understanding complex economic debates is a matter of respect. there's no use in complaining about " populism ", which incidentally is a label that is too easily used, if we can't provide the " people " with the ability to ask the right questions and then evaluate the answers. france has therefore made a firm commitment to implement a strategy for financial education based on the principles set out by the oecd and endorsed by the g20 leaders. work on the strategy began in 2013 and on 20 december of last year, the minister of the economy called the first meeting of the national committee for financial education. this committee brings together relevant administrations and institutions, consumer associations and finance sector professionals, and gives the political impetus at the very highest level. the minister also reaffirmed the role entrusted to the banque de france of conducting the national strategy. before continuing with a presentation of our first collective achievements, i would like to focus on the role of the banque de france. * * * 1. the banque de france, the conductor of the national strategy [ slide 4 ] the banque de

takes a large but plausible macroeconomic shock as a starting point and analyzes its impact on the balance sheets of banks or other sectors of the economy. the bank now has two main stress - testing models to help monitor risks to the financial system. these models can also be used to assess the potential impact of policy tools or regulatory actions in mitigating financial system risks. assessing risks from elevated household debt the first, the household risk assessment model, or hram, is a microsimulation model that assesses how the debt burden of canadian households can affect financial stability. using microdata from household balance sheets, the model allows us to estimate how various shocks would affect the distribution of debt within the household sector. the simulations take into account changes over time in individual debt levels, as well as changes in household wealth from savings and fluctuations in the value of financial assets. tracking the asset side of household balance sheets gives us a more accurate picture of systemic risk since changes in wealth affect households ’ ability to pay their debt. household vulnerabilities depend not only on the average level of debt, but also on how debt is distributed across individuals. one strength of the model is precisely its ability to account for this distribution. for instance, while record - low interest rates in recent years have contributed to a relatively low aggregate household debt - service ratio, the share of canadian households that are considered most vulnerable – those with a debt - service ratio equal to or higher than 40 per cent – has climbed to above - average levels, as has the proportion of debt held by these vulnerable households ( chart 2 ). using hram, we estimate that if interest rates were to rise to 4. 25 per cent by mid - 2015, the share of highly indebted households would rise from slightly above 6 per cent in 2011 to roughly 10 per cent by 2016, while the proportion of debt held by these households would rise from 11. 5 per cent to about 20 per cent over the same period. so while the aggregate household debt - service ratio paints a somewhat rosy picture, taking into account distributions gives us a clearer and more cautionary indication of how vulnerable our financial system actually is to household debt. see c. borio and m. drehmann, “ assessing the risk of banking crises – revisited, ” bis quarterly review ( march 2009 ) : 29 – 46. the bank of canada is also conducting research on approaches to combine indicators. for example, logit and probit models are used widely to