To Learn How to Save and Invest, You Need to Set Goals

"If not now, when?" one might wonder. With the economic crisis caused by the pandemic and inflation rising again, investing in the financial education of Italians has become more urgent, considering it wasn't adequate to start with. So, we'd better take action and exploit the upside of a pandemic which, like all periods of economic contraction, pushes citizens to have better knowledge and information on financial issues. Why? "Because every crisis leads many households to experience first-hand the costs imposed by low financial knowledge. And the data tell us that there is a correlation between financial knowledge and financial resilience, those who know more are better protected from the blows of the crisis," replies Annamaria Lusardi, Bocconi alumna, University Professor of Economics and Accountancy at George Washington University, in the US capital, and head of the Italian government committee for the planning and coordination of financial education activities, set up in 2017. "Not only that, with rising inflation and a lot of savings remaining on bank accounts," adds Lusardi, "we see, today more than ever, how financial knowledge is necessary and useful." This is why the committee headed by Lusardi has for some time been fielding a series of initiatives aimed at everyone, young people and adults, men and women, ranging from Netflix-style web series to school initiatives, to the introduction of the Month of Financial Education, and from live events in public places to ad hoc contributions to the screenplay of Un posto al sole (A place in the sun), the most popular soap opera in Italy.

Is the situation so serious?
Yes, it is. We have faced a two-year pandemic. About a third of European families said they do not have sufficient means or savings to go even a single month without a salary. This situation requires not a step, but a leap forward. Furthermore, it should be emphasized, in the specific case of Italians, that the statistics indicate a low financial knowledge, both in absolute terms and compared to other countries. There is no familiarity with basic financial notions such as the risk-return ratio. Investing savings is too hard a decision for many. But the goal is not to make everybody a financial expert, but rather to convey the notion that those who have at least a basic grasp of financial knowledge live better.

Yet our parents and grandparents didn't seem to have this kind of concerns...
Certainly, because the world was different: people invested in government bonds that guaranteed good returns, bought houses and public pensions were generous. Today, we are facing very low or even negative interest rates. Investment alternatives are many, diverse, almost disorienting given the breadth and variety of financial products and services. Nor should we forget the aspect of retirement, which we should care about well ahead of time. For these reasons, financial education has now become so important. And, under certain conditions, promoting a satisfactory level of knowledge is an attainable goal, a "mission possible".

What kind of conditions?
Deciding to invest in a series of educational initiatives, first shaping an economic mindset and then trying to encourage a more balanced set of investment behaviors. For example, a quarter of Italians claim not to set economic goals in the medium to long term for themselves, according to data from the Edufin-Doxa Committee. If this is so, people will never start a savings and investment plan. If, on the other hand, people grasp the importance of setting goals for themselves and their families, things change. In this way, we do not fall back into the spiral whereby those who are ignorant of economic and financial issues not only do not invest, but not event start saving, or save less.

Are parts of society more exposed to the risk of financial ignorance?
There are certain categories we need to pay more attention to. I want to point out two in particular: young Italians, who are less prepared than their foreign peers. And for them the world of tomorrow will be very different from the world of yesterday. And I want to mention women. In Italy there are strong gender disparities in financial knowledge. And unfortunately, these gender differences start very early, as they are already present among 15-year-olds.

Parents open current accounts for their children at an early age. Is it a good idea?Once the assessment is a made on a case-by-case basis, the sooner you start the better it is. First of all, children are intrigued by money. We need to talk to them about money and financial decisions, to socialize them on these issues. In Paglieta, province of Chieti, for example, some classes of young students started by tending a vegetable garden, then moved on to selling the cultivated produce online and finally, through the school, they bought the vegetable plot by taking out a mortgage. The greatest benefit of this experience is that, when they grow up, they won't be held back by the fears instilled by low financial knowledge.

Bio
Annamaria Lusardi graduated in Economics from Bocconi University and earned a PhD in Economics from Princeton University. Of her studies at Bocconi, she remembers her friendships, born there and lasting over time, and the monetary economics lessons of Professor Mario Monti, who was advisor for her thesis. "I owe to him my interest in the economy, the desire to continue my studies abroad and embark on an academic career," says Lusardi. "Studying at Bocconi was fundamental: my studies at the time and my job experience persuaded me that learning the ABC of finance is as necessary as learning how to read and write. I am proud to be able to work on these issues for my country".