The lockdown has been crippling for many people and now that the number of infections is once again on the rise, there is an even greater risk of further setbacks for the finances of businesses and families alike. Italy’s Committee for the Planning and Coordination of Financial Education Activities (EduFin Committee) has spent recent weeks building an understanding of the impact the health crisis has had on people’s finances, and putting in place a series of initiatives aimed at giving them the skills to help them cope.
The third edition of the “Financial Education Month” organized in October by the EduFin Committee aimed to provide citizens with the tools to help them face the crisis with a total of 600 events and toolkits published on the portal Quellocheconta. Having an understanding of and learning about financial topics have proved to be essential to better cope with times of hardship such as the one we are currently experiencing. This is especially true for women and the young, those whose financial situations have been most impacted. We spoke with Annamaria Lusardi, economist and director of the EduFin Committee, about the specific issues and how they can be overcome.
Ms. Lusardi, according to a recent survey carried out by EduFin and Doxa, almost 60% of Italian families stated that they struggled to make ends meet, and even before Covid 36.6% had insufficient resources to get by for more than 2 months without an income. What else emerged from your survey?
Back in March, we commissioned Doxa to gather data on the financial situation of Italians and their financial resilience, in other words their ability to withstand shocks and how they react to overcome them. Firstly, we learnt that financial vulnerability existed well before this crisis; many households reported that they would not be able to withstand the shock of even a relatively small crisis. So, this is a systemic problem, which has worsened during the pandemic. We also discovered that basic financial know-how offered some protection against these shocks. Those who have this basic financial know-how also have greater financial resilience. Additionally, many studies show that those who have a deeper knowledge of financial principles manage their finances better, make better investments, are less likely to become indebted and invest more in their children’s education. Today it can be said that financial literacy also helps to deal with crises and uncertainty, it has become the kind of know-how everyone should have. To use an analogy, sailing lessons and navigation skills come in useful on a stormy sea.
Which groups are more at risk during this coronavirus crisis?
Our research has put the spotlight on two particular groups: the young and women, because they were identified as being the most vulnerable during the crisis and vulnerability has a cost. But if we believe that prevention is better than cure, then we have to invest more in those two groups. We now have the opportunity to redesign our future. We should not aspire to return to normal, because ‘normal’ wasn’t working any more: we have to do better. We need to invest in young people because they are our future, and in women, because they have been carrying the weight of the crisis on their shoulders and by so doing, they have supported the economy. If we do not invest in these two groups, there will be no real recovery.
Today it can be said that financial literacy also helps to deal with crises and uncertainty, it has become the kind of know-how everyone should have. To use an analogy, sailing lessons and navigation skills come in useful on a stormy sea.
October was Financial Education month. How were young people and women involved?
The whole month embraced the mission in our organisation’s name, “Committee for the Planning and Coordination of Financial Education Activities”. Most of the activities organized over the month were aimed at young people and schoolchildren. For the younger ones we organized a contest called ‘I colori del risparmio’ (colour in your savings): children sent in their drawings about savings which we then posted on social media. We also drew up a set of guidelines to teach young people about finances with content aimed at social studies courses starting at primary school level. We also launched a competition called ‘un’idea per il futuro’ (an idea for the future): it’s about developing an app to allow university students to teach their peers about social security. We also developed guidelines for the financial education of adults. A first app is a being developed with Soroptimist and Banca d’Italia, and we are evaluating other specific initiatives.
What needs to be done to create greater awareness around the importance of financial education?
To be really effective, financial education should start at a local level, understanding people and their needs. Recently, the mayors of a few small towns created a series of events and lectures for local inhabitants. That is a real useful way to educate people on their finances, by averting the kind of problems that those mayors could find themselves having to deal with in the future. I mean poverty, retraining and skills, and also by supporting entrepreneurship and young people.
What do financial education and the retraining of workers have in common?
People often believe that financial education means talking about investing in stocks, but it is really about all those decisions we make that have an impact on our finances, including education. As Benjamin Franklin indeed said: “An investment in knowledge pays the best interest.” This is even more true in the 21st century. It is crucial that we invest in education and financial know-how. In the Doxa survey we also measured how much Italians know about finance, about compound interest rates, inflation, and the risk-reward ratio for instance. It emerged that our know-how is very poor, too poor to be of any use in today’s world. It only takes a click to open a current account and also to clean it out.
Our know-how is very poor, too poor to be of any use in today’s world. It only takes a click to open a current account and also to clean it out.
Where are Italians weakest when it comes to financial literacy?
Unfortunately, statistics show that Italians do not fare very well, neither in know-how nor in skills. Despite the fact that Italy is a country of savers, these savings are inconsistent. In recent times, people have been saving more because as uncertainty increases then people put more money aside, but this money is left sitting in their bank accounts. One figure in particular is significant: 25% of Italians do not have medium or long-term goals. This entails a number of risks: firstly, short-term decisions could be made in haste and people are more likely to make mistakes when they only think about the here and now. Generally speaking, few Italians have a supplementary pension, yet in a country with an ageing population where pensions will shrink, this exposes people to considerable risk. Many countries are currently borrowing huge amounts of money and this places significant limitations on the future. Insurance is another topic: having an additional insurance policy is especially useful to deal with setbacks in these pandemic times. From earthquakes to environmental disasters, it is a good idea to actively think about how to protect yourself and be resilient. On our portal we have published five golden rules, the first is ‘take care of your money’. It is essential that we all take care of our personal finances to build resilience, and not just to deal with the impact of this crisis.
Let’s talk again about the groups most impacted by the crisis. What can be done to protect them from the financial risks of coronavirus?
We clearly saw just how vulnerable women and young people are during the pandemic. The latest report from Caritas has confirmed that poverty has the face of a woman with children. The recovery needs to start with them. That’s why we are sending out a message to policy makers, asking them to invest in the future and to change course. Steps must be taken to invest, educate, reskill and steer young people towards the jobs of the future. This crisis could be an opportunity, it has made us realise that we have to invest in the future. I would even say we need a revolution. If we only take small steps forward, we will be too slow. International research reports that 15-year-old Italian schoolchildren are below the European average when it comes to financial knowledge and what’s more, this country is the only one with gender issues on this topic. We have to bridge these gaps and to do that we need to start in schools. This crisis has to be the time to break with the past.