A Basic but Necessary Skill for the 21st Century
What does the average American really know about the basics of personal finance?
How does his knowledge – or lack therefore – about money compare to that of others around world?
Professor Annamaria Lusardi, Denit Trust Distinguished Scholar in Economics and Accountancy, is on a mission to measure financial literacy and to educate people on the basic financial knowledge and skills that they need to survive in the modern world. Whether conducting research, teaching, delivering lectures, giving interviews, blogging or testifying before Congress, Lusardi is a tireless advocate for financial literacy. Lusardi founded the Global Financial Literacy Excellence Center (GFLEC), which has positioned itself to be the world’s leading center for financial literacy research and policy. She has played a key role in measuring levels of financial knowledge in the U.S. (the National Financial Capability Study) and internationally (the Programme for International Student Assessment).
It is clear to Lusardi that financial knowledge is more important now than ever before in human history. “Financial literacy is a basic, necessary skill for the 21st century,” she said. “The world has changed. There are so many opportunities, so much available credit, and a proliferation of alternative financial services. At every stage of life, we need to be equipped to make informed financial decisions.”
“There is a low-level of financial literacy – people are not equipped with the knowledge they need,” she said, adding that it’s never too early to begin learning the ABC’s of finance. “Early education very important – perhaps the most important financial decisions you make are at age 20.”
While early financial education is indeed vital, Lusardi has most recently been conducting research on the financial factors affecting older individuals. Lusardi’s research (with longtime writing partner Olivia Mitchell, professor of insurance and risk management at the Wharton School of Business) on debt and debt management among adults on the verge retirement has found that Americans today are more likely to arrive at retirement with debt than in the past. Not only has the number of people holding debt increased, but the value of that debt has grown sharply. The bottom line is that a growing number of people who should be close to their peak wealth accumulation are, in fact, “financially fragile” – especially susceptible to financial shocks (more than 35 percent report that they could not come with $2,000 within 30 days to cover emergency expenses, for example).
It is impossible to overstate the importance of having a solid understanding of basics of finance and why the current low level of financial literacy presents such a challenge to society. As Lusardi and Mitchell write at the conclusion of their report, “the costs of raising financial literacy are likely to be substantial, but so too are the costs of being liquidity-constrained, over-indebted, and poor.”