mr. backstrom discusses the economic situation in sweden speech by the governor of the bank of sweden, mr. urban backstrom, at a seminar organised by the swedish shareholders association, held in malmo on 10 / 10 / 98. first of all i should like to express my thanks for the invitation to visit malmo to discuss the economic situation. a major phenomenon in the current economic situation is, of course, the international financial turbulence. the crisis in the japanese economy has been developing throughout the 1990s and the problems in asia as a whole are now in their second year. the asian crisis, which is having widespread real economic repercussions in that region, has in turn accentuated the problems in russia and, to some extent, in latin america, with associated contagious effects in western financial markets. stock exchanges have fallen around the world and some players in the financial markets have incurred losses. this in turn raises a number of questions about the global economic trend. how negative may the real economic effects become in the united states and europe? what part are the central banks playing? the us federal reserve has recently lowered its instrumental rate and so have other central banks. will that affect the riksbank ’ s actions? matters to do with world economic development and what should be done - not just to mitigate the short - run effects but also to construct systems and institutions so that similar events can be avoided in the future - have been high on the agenda for economic policy discussions in various fora this autumn. the latest instance is the 1998 annual meeting of the international monetary fund in washington d. c. earlier this week. in connection with that meeting, finance ministers and central bank governors from all over the world assembled in various groups to discuss the situation. background to the global economic problems just a year or so ago, many observers foresaw a golden future for the world economy. there was talk in some places of a new economic era, with strong growth and permanently low inflation, at least in the united states. today, the discussion has shifted in general to deliberations about the risks of a world economic slowdown. the challenges the global economy is facing at present are a combined result of several factors. one of these factors is, of course, the situation in japan, where the economic problems, as i just said, have been at work throughout this decade. the inability to take sufficiently resolute action has led the japanese economy into a serious decline. japan has the world ’ s

obviously, falling into financial distress is not solely the result of lack of knowledge about finance. but in many cases such knowledge could avoid or ameliorate the negative consequences of uninformed decisions. thus, in considering means by which to improve the financial status of families, education can play an important role. while data to measure the efficacy of financial education are not plentiful, the limited research available is encouraging. for example, a recent study by one of the nation's largest purchasers of home mortgages finds that homebuyers who obtain structured homeownership education have reduced rates of loan delinquency. similarly, an evaluation conducted by the national endowment for financial education on its high - school - based programs found that participation in financial - planning programs improved students'knowledge, behavior, and confidence with respect to personal finance, with nearly half of participants beginning to save more as a result of the program. another study of the relationship between financial behavior and financial outcomes revealed that comprehension of the general principles of sound financial behavior, such as budgeting and saving, is actually more beneficial in producing successful financial results over time than specific and detailed information on financial transactions. these findings underscore the importance of beginning the learning process as early as possible. indeed, in many respects, improving basic financial education at the elementary and secondary school level can provide a foundation for financial literacy, helping younger people avoid poor financial decisions that can take years to overcome. in particular, competency in mathematics - both in numerical manipulation and in understanding its conceptual foundations - enhances a person's ability to handle the more ambiguous and qualitative relationships that dominate our day - to - day decisionmaking. for example, through an understanding of compounding interest, one can appreciate the cumulative benefit of routine saving. similarly, learning how to conduct research in a library or on the internet can be instructive in where and how to look for information to evaluate decisions. educational efforts to improve fundamental mathematic and problem - solving skills can foster knowledgeable consumers who can take full advantage of the sophisticated financial services offered in an ever - changing marketplace. many of you are involved in institutions that are working hard to enhance basic education about economics and finance, and it is a challenge the federal reserve takes seriously as well. gary stern, president of the minneapolis federal reserve bank, has been an inspiration in the fed as well as within national council on economic education. the economic educators of the federal reserve system have recently launched