{"id":2150,"date":"2024-05-16T20:21:11","date_gmt":"2024-05-16T18:21:11","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=2150"},"modified":"2024-05-27T18:01:25","modified_gmt":"2024-05-27T16:01:25","slug":"personal-finance-silicon-valley-shows-the-way","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/05\/16\/personal-finance-silicon-valley-shows-the-way\/","title":{"rendered":"Personal Finance: Silicon Valley Shows the Way"},"content":{"rendered":"

When Stanford University introduced a financial education course it was an immediate success. Today, we are faced with crucial decisions in our lives that require a deeper understanding of financial issues. This is why it should be taught in schools, even in Italy.<\/span><\/i><\/p>\n

The first time it was offered, 362 students enrolled immediately, along with professors, university administrators, and visiting researchers. Over the years, demand has increased so much that the course is offered several times throughout the year, along with the creation of a similar program for alumni, including those who graduated years ago. An additional course has been started for master’s students and students from various specialization schools. Which other university course has been so successful? It is no coincidence that the university at the heart of Silicon Valley is at the forefront of issues concerning the future, aware that the financial choices we face have become very complex and require a scientific approach, ideally supported by technology. The same awareness is held by students who will soon face a continuously evolving job market, post-pandemic: they know they will immediately face critical demands on how to manage their money, including how to invest the pension offered by their employer. But in America, not only universities, but also high schools have embraced the topic of financial education.<\/span><\/p>\n

Why Financial Education Should Be Taught in Schools<\/b><\/h3>\n

The choice is not specific to the United States; it extends to many countries around the world, including Italy, which is preparing to introduce financial education in schools. “Finally!” one might say. And immediately add “this is great!!” Demographic changes, the complexity of financial instruments, rising inflation, and risks require us to make financial choices that are different from those of the past and that presuppose knowledge of the basic concepts of finance. These are important choices. For example, being able to respond to crises, small and large, affects our well-being and the ability to not deviate from our goals.\u00a0<\/span><\/p>\n

There are many reasons why personal finance education must become part of the school curriculum at all levels, from elementary to university and beyond. First, rigorous knowledge is required more than ever in today\u2019s world; the “rule of thumb” or common wisdom are no longer sufficient to cope with financial decisions relating, for example, to our pension or investments, or insuring against risks. Second, only through education can we give the necessary information to everyone, from North to South, from small towns to the city, from those coming from families with a high level of education to those with a low-education or income background. Financial decisions concern everyone.<\/span><\/p>\n

The Three Key Questions<\/b><\/h3>\n

Another reason for teaching the subject in schools is that financial knowledge in Italy is now very low, indeed we can say too low, compared to the complexity of financial decisions. This is evident, for example, in the comparison of basic financial knowledge between various countries, published in July 2023 in the <\/span>Journal of Financial Literacy and Wellbeing<\/span><\/i>. The questions used are the famous “big three,” listed below:<\/span><\/p>\n

    \n
  1. Suppose you have 100 euros deposited in a checking account that yields an annual interest rate of 2% with no management fees. How much do you think you will find in the account after five years without ever withdrawing?<\/span><\/em><\/li>\n<\/ol>\n
      \n
    1. More than 102 euros<\/span><\/li>\n
    2. Exactly 102 euros<\/span><\/li>\n
    3. Less than 102 euros<\/span><\/li>\n
    4. I don’t know<\/span><\/li>\n<\/ol>\n
        \n
      1. Suppose you leave 100 euros in a checking account that yields an annual interest rate of 1% with no management fees. Imagine also that inflation is 2%. After one year, with that amount, how much will you be able to buy?<\/span><\/em><\/li>\n<\/ol>\n
          \n
        1. More than today<\/span><\/li>\n
        2. Exactly the same<\/span><\/li>\n
        3. Less than today<\/span><\/li>\n
        4. I don’t know<\/span><\/li>\n<\/ol>\n
            \n
          1. The following statement: “Generally, investing in stocks of a single company is a less risky investment compared to investing in a mutual fund,” do you think it is true or false?<\/span><\/em><\/li>\n<\/ol>\n
              \n
            1. True<\/span><\/li>\n
            2. False<\/span><\/li>\n
            3. I don’t know\u00a0<\/span><\/li>\n<\/ol>\n

              (The correct answers are, respectively: 1, 3, 2)<\/span><\/p>\n

              The “big three” measure the ability to make simple calculations related to the interest rate, knowledge of inflation, and risk diversification. However, the study shows that from the United States to Japan, from Latin America to Eastern Europe, from Finland to Italy, these basic notions are mostly unknown to a large part of the population. In Italy, for example, only 44% of the population understand these concepts, and the percentages are similar in other European countries and in the United States.<\/span><\/p>\n

              The Most Vulnerable Groups<\/b><\/h3>\n

              Not only is knowledge very low in general, but it is particularly lacking among potentially vulnerable groups, such as young people, women, and those with a low level of education or income. For example, in Italy, only 31% of young people (under 35) understand these three concepts. Moreover, there are large regional differences, with very low knowledge in the South and Islands (38%) compared to the Northeast (51%). These are not new results. In 2014, for example, together with a group of researchers from the World Bank, we highlighted how financial knowledge in the world \u2013 in more than 140 countries \u2013 was very low, including in the G7 or G20 countries. Today’s novelty is rather that financial knowledge has little improved over the years. That’s why it’s necessary for financial education to be taught in schools at all levels and to spread throughout society from there. Countries such as England, New Zealand, or Australia have long introduced financial education in schools. Others, like Portugal, have made it mandatory since 2018. In the United States, individual states make decisions about education in schools, and 35 state administrations have opted for mandatory teaching of this subject. But how to include financial education in school curricula? One possibility is to add it to subjects that are already mandatory, such as civics education. Of course, it is essential to have teachers who know the subject (and since it is a new course, training is needed) and appropriate material. And if financial education was initially met with scepticism, studies on the evaluation of its effectiveness have instead shown how it can influence not only young people’s knowledge but also their financial well-being. The goal of Stanford University’s choice is to make personal finance a “normal” subject, like history, mathematics, or science. Perhaps, it is a goal that we can all share, to keep up with the times.<\/span><\/p>\n

              Annamaria Lusardi<\/strong> is a Senior Fellow at the Stanford Institute for Economic Policy Research and a Professor of Finance at the Stanford Graduate School of Business. She was the Director of the Committee for the Planning and Coordination of Financial Education Activities.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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