Several countries around the world have implemented or are in the course of implementing a national strategy for financial education, aimed at raising citizens’ financial competencies. As pointed out by the OECD, the design and the development of a national strategy rest on a few, fundamental steps: mapping the existing initiatives; assessing the needs of population; consulting the stakeholders; promoting national awareness and communication. These actions require the definition of objectives and priorities, targeting of the audiences, design of delivery mechanisms and assessment of results. Each of these steps poses challenges that may impair the effectiveness of the strategy and that might be best addressed within a carefully developed methodological framework. 

Consob Research Paper no. 84 (Challenges in ensuring financial competencies. Essays on how to measure financial knowledge, target beneficiaries and deliver educational programmes), tries to give food for thought with regard to methods and tools that may foster effective initiatives and coordination among academia and stakeholders involved in the design and delivery of educational programmes. Occasioned by Consob participation in the World Investor Week (WIW), the Research Paper touches some of the most important issues that need to be addressed along the roadmap for a National strategy defined by the OECD, with the aim to contribute to the initiatives already undertaken in Italy as well as to the activities of the recently established Italian National Committee for financial education, joined also by Consob. 

The Research Paper is a collection of essays gathering the views of several researchers engaged in the field of economics, sociology, psychology and pedagogy on how to gauge financial knowledge, elicit personal attitudes, target beneficiaries and deliver educational programmes according to a perspective combining theoretical and empirical approach. 

The Paper consists of four Parts. Part I recalls the education needs of Italian households, the role of financial literacy as ascertained in the empirical literature and the precautions to be followed in gauging the level of financial education. In detail, our essay reviews the evidence gathered in the Report of investment choices of Italian households about the low level of financial knowledge of Italian decision makers, and sheds lights on the need of educational campaigns raising knowledge, awareness, and personal engagement in the full range of economic choices, from financial control to financial market participation and investment choices. 

Di Cagno and Panaccione recall the well-known positive relation between literacy and stock market participation and wonder about the challenges that this relation may pose to investor protection if it is not driven by a true enhancement of competencies but rather by overconfidence. They point to unbiased professional advice and report experimental evidence on how professional advice seeking may either rise or decline with financial knowledge, depending on the effect of overconfidence and on its relationship with financial education. 

Reliable analyses on the impact of financial literacy rest on unbiased measures. The essay by Nicolini recalls the definitions of literacy used in the literature and compares several gauging methodologies developed so far, discussing some practical recommendations for delivering policy makers a powerful evidence-based tool for the design of educational programmes.

Part II recalls the many factors governing financial decision-making process beyond knowledge, such as cognitive biases and emotions. Ploner reviews the seminal contributions about the most important biases in financial decision-making that relate to loss aversion, such as the status quo bias and the myopic loss aversion. These in turn may prompt inertia and lower the willingness to take risk. 

Beyond loss aversion, many other biases may mislead individual risk perception. Lucarelli discusses how objectively measured risk is filtered through subjective perception, which in turn may adversely affect the appreciation of the level of risk taken. This drawback may be exacerbated by unawareness of one’s own risk attitude and may lead decision makers to take excessive risk compared to their risk capacity (either emotional or/and economic). Cognitive psychology, however, shows that fostering self-awareness could contribute to improve individuals’ mental processes and to defuse pitfalls driven by biased risk perception.

Full understanding of the individual decision-making process cannot neglect financial anxiety, which has proven to be among the most relevant emotional statuses hampering individuals’ financial capability. In his essay, Brighetti explores the so called financial anxiety often affecting individuals involved in saving and investment intertemporal choices. The author discusses how anxiety is related to anticipatory representations of possible future events and how uncertainty disrupts the so called Episodic Future Thinking (EFT), an imagery-based cognitive process allowing to imagine or simulate experiences that might occur in one's personal future and to work out preparatory behaviour. 

Part III highlights how behaviour can systematically differ across individuals depending on personal traits and gender. In particular, Cervellati draws on the theories of financial personalities showing that individuals (and their mental processes) can be categorised into psychological types, each characterised by a specified set of personal traits, cognitive biases, emotional carryovers, and motivations. Taking into account personality types may contribute to improve segmentation of beneficiaries, identification of the weaknesses to be addressed and ‘personalisation’ of communication.

Rinaldi recalls the theoretical advances in sociological literature that explain gender gaps in terms of differences in inclination towards money, socialisation patterns and mathematical skills and pleads for the development of an interdisciplinary approach, building on the existent literature and evidence, in order to support policy makers in the implementation of gender-sensitive educational programmes. 

Part IV focuses on the delivery channels of educational programmes. Evidence on financial behaviour and decision-making process questions the channels traditionally used to deliver financial education and asks for a deep reconsideration of both communication strategies and educational tools. 

Viale challenges the behavioural literature looking at financial education as a de-biasing tool and evokes financial education programmes informing individuals about the use of heuristics, according to a Bounded Rational Adaptive Nudge approach. Exercises and practices based also on psychological strategies and unbiased communication should be employed to strengthen the learning process. 

Martelli argues that neuroscience may be of great help in improving teaching methods based on so called experiential learning, which strengthens the learning achievements by allowing individuals to directly experience a specific situation (both in terms of contents and context) and to reflect on that situation. 

Alemanni underlines that simplicity, reference to real and practical events, emotional connections, and proper goal framing are key to engage people in virtuous conducts. Moreover, to account for heterogeneity across individuals, communication cannot apply a one-size-fit-all approach, but needs to be attuned to the profile of the targeted audience. Once again, psychological and behavioural studies may provide important clues for the design of salient communication strategies, tailored to the characteristics of a specified target. 

Financial education may also be challenged by difficulties in reaching out the targeted beneficiaries. With regard to youth, drawing from the preliminary results of a field survey on a financial education class, Agrusti, Ferri and Giannotti suggest teachers should be committed to long-term educational strategies. Teachers should also be trained to engage students and to prevent biases that might be prompted by financial education, such as overconfidence. Finally, a multidisciplinary approach and reliance on interactive tools could significantly benefit the effectiveness of teaching strategies and increase students learning. 

As regards adults’ involvement in educational programmes, time constraints and reluctance to deal with financial matters may be detrimental. Moreover, if programmes are not compulsory, self-selection may weaken the effectiveness of the initiatives, given that only the most motivated individuals may enroll. Steering adults towards suitable financial decisions may therefore require the engagement of financial system players. Cruciani and Rigoni show that trust may be a channel and that information delivery from advisors to clients may nurture trust, provided that such delivery goes beyond formal compliance. Fostering trust in advisors promotes delegation, thus benefiting clients receiving and following unbiased advice. These findings suggest a further topic to be investigated, i.e. how financial education and trust associate, and possibly a further channel through which education may impact on individuals’ choices. 

The evidence presented in the Consob Research Paper is not conclusive, of course, nor does it cover key topics that require further investigation. Among these, the assessment of educational initiatives is crucial. As recalled by the OECD, ‘one of the main challenges facing public authorities implementing national strategies is to find ways of changing financial attitudes and behaviours of the population’. The forthcoming National Strategy for Financial Education will hopefully make the most of the best domestic and international practices, involving all the stakeholders and professionals which may contribute to raise Italians’ financial literacy.

Nadia Linciano and Paola Soccorso are researchers at the Commissione Nazionale per le Società e la Borsa (CONSOB). The opinions expressed in this post are the authors’personal views and are in no way binding on Consob.