Financially illiteracy takes a serious toll on the personal and economic lives of people across the globe. An expert on the field says there is cause for concern even in wealthy Switzerland where parts of the population suffer from large knowledge gaps.
In an interview with NZZ am Sonntagexternal link, professor Annamaria Lusardi says financial illiteracy is most pronounced among young people, women, the elderly and people with low income or education levels.
In the United States, Lusardi has conducted pioneering research on the subject after observing that the financial situation of people with very similar social, educational and economic backgrounds had developed very differently by the time they retired.
“This made me realize that the development of wealth cannot depend solely on the level of income during working life,” says Lusardi, founder of the Global Financial Literacy Excellence Centerexternal link at The George Washington Univeresity.
The difference, she explains, reflects whether people know how to manage their money. Together with Olivia Mitchell, a professor at the Wharton Schoolexternal link, Lusardi has measured financial literacy in different population segments and countries.
The key questions in their surveys to assess financial literacy are:
1) How much money will you have in your account after five years if you neither deposit nor withdraw money during that time?
2) Suppose the interest rate on your savings account is 1% and inflation is 2%. How much can you buy with your money in your account after one year?
3) Is it riskier to invest the money in one investment or in several investments?
Financial decisions, notes Lusardi, are usually related to interested rates. Not everyone understands what they are or how they work. The questions also help gage whether people have enough financial knowledge to understand that inflation can reduce assets and that diversification reduces risks.
“Even in the USA, the country with the world's most important capital market, only 30% were able to answer the three questions correctly and thus had financial literacy,” she notes.
“Switzerland is in the upper midfield, with German Switzerland performing significantly better than French Switzerland,” adds Lusardi, who also teaches economics and accountancy at the George Washington University School of Business.
However, she cautions, a large part of the population in Switzerland also has “major knowledge gaps”.
The Organization for Economic Co-operation and Development conducts an annual international study of education worldwide known as PISA. Since 2012, the Program for International Student Assessment external linkhas also been examining financial literacy. Switzerland has never participated in that component of the international survey.
Financial literacy, notes the newspaper, is not a separate subject in the Swiss school curriculum. But under the new curriculum for compulsory schooling in German-speaking Switzerland, "economics" is part of the compulsory subject area "Economy, Work and Household". At secondary schools, "Economics and Law" is a compulsory subject.
The implementation of the new curriculum is slowly being rolled out across Switzerland.
“We expect that in the next five years financial literacy in schools will become more important,” Agnes Würsch from the Financial Literacy Network told NZZ am Sonntag.