Financial Literacy for
Folks Like Us

By Robert Preer
Photography: Abby Greenawalt
Published: Spring 2011

Annamaria Lusardi, professor of accountancy and economics, has gained a reputation as one of the world’s leading economists in a field that is dominating the headlines: financial literacy.

Once an obscure specialty in economics, financial literacy in recent years has gained a high profile in both academic and policy circles. The U.S. financial crisis exposed the many unwise, if not foolhardy, financial decisions made by ordinary Americans. President Barack Obama established a Council on Financial Capability, and the president and Congress declared April as Financial Literacy Month. At the same time, the Dodd-Frank financial reform law—the most sweeping financial reform since the Great Depression—recognized the problem with a series of provisions designed to protect and empower consumers.

“There is growing sense of urgency around the issue today,” Lusardi said. “The financial crisis has made both governments and individuals acutely aware of the costs of financial illiteracy. This is not specific to the United States but has been happening in many countries around the world, and I have been traveling to Europe, Asia and Latin America to talk about the causes and consequences of financial illiteracy.”

Lusardi, who joined the GW School of Business faculty in the fall, has won prestigious awards for research and teaching. She has consulted for top government officials in the United States and abroad. She was on the Dartmouth College faculty for nearly two decades and held appointments at the University of Chicago, Harvard Business School and Princeton University. The online business school resource bschool.com ranks her blog as one of the top 50 in economics.

As she prepares to launch GWSB’s Financial Literacy Center, Lusardi underscores the need for the research center by pointing to her own research.

“We found that financial illiteracy is widespread in the whole population,” Lusardi said.

But exposing financial illiteracy is not enough. Lusardi wants to fix it, too. And that’s what prompted her to join GWSB. She hopes the Financial Literacy Center will lead a global campaign to promote financial knowledge.

“In doing this work, I became more and more connected to Washington,” Lusardi said. “This is where the debate is happening. It’s where I want to be.”

The center is still in a formative stage. For the past year and a half, Lusardi has been director of a financial literacy center that is a shared undertaking of Dartmouth, the Wharton School and the RAND Corp. It develops programs to improve consumers’ understanding of finance. Lusardi hopes to move some, if not all, of that center’s activities to GWSB.

Dean Doug Guthrie expects Lusardi’s initiative to enhance the School’s mission to be a national leader at the intersection of research and policy. “Annamaria Lusardi cares deeply about being involved with the policy world,” Guthrie said. “This is a perfect melding of rigorous research with public engagement.”

Because of her groundbreaking work, Lusardi, 48, finds herself interviewed or cited in almost every media report on financial literacy. “I have become what you might call the go-to person in financial literacy,” she said. “I want GW to be the go-to place.”

At Dartmouth, the University of Chicago and other teaching posts, Lusardi was a student favorite, a dynamic teacher known for engaging those in her classes. “I care about my students,” Lusardi said. “I care about what they learn, and I want them to do well. I think they understand that.”

Colleagues speak highly of Lusardi as a person with a broad spectrum of interests.

“Her laugh fills up a room,” said Peter Tufano, a Harvard Business School professor who has collaborated with Lusardi. “She is warm and genuine, funny, engaging and tenacious. She loves opera. She loves good food.”

Wharton School Professor Olivia Mitchell, who also worked with Lusardi, described her as a dedicated teacher. “She is widely regarded as a mentor to the next generation of researchers and policymakers in the financial literacy field,” Mitchell said.

Lusardi spent her early years in rural Italy near Milan. She was greatly influenced by her grandmother, who lived with Lusardi’s family and managed a family farm. “I come from a family where women played an important role,” Lusardi explained. “My grandma inherited a farm at a very young age after her husband died. It was unusual then for a young woman to do that.”

When she finished high school, Lusardi left her home outside of the mid-sized city of Piacenza for Bocconi University in Milan. “The longest journey of my life was not from Milan to the United States, but from Piacenza to Milan, only 50 miles away,” Lusardi said.

Had she stayed in Piacenza, Lusardi believes she might have landed a job in a local bank and made her career there. But in Milan, she was exposed to a broader world view.

At Bocconi, she met students who had studied in other countries and traveled the world. Some classes were in English. She recalled her first day in an introductory class with several friends from high school. They met an upperclassman, who told them he planned to get a master’s degree after graduation. “When we met after class,” she said, “we all asked each other, ‘What is a masters?’ ”

Lusardi excelled in college and spent a semester of her junior year at New York University. “This opened a world of possibilities. I saw that I could live, work and study outside of Italy,” she said.

She earned her doctorate at Princeton in 1992. Her dissertation was on consumption and savings behavior.

After a year teaching at Princeton, she accepted a faculty post at Dartmouth, where she rose from assistant professor to associate professor to full professor and, finally, to an endowed chair.

Her consumer research led to the field of financial literacy. “I realized there are differences among people that traditional models could not explain. You would see people with the same age, economic background and education levels, yet they behaved very differently. I began to investigate whether economic knowledge made a difference.”

Lusardi’s work with the three questions boosted her to prominence in research and policy circles. She is in demand to speak at conferences and to consult with governments and nonprofits around the world. She spends much of her time in airports.

A couple of times during the year, Lusardi takes a two-month break from travel to focus on research. Lusardi, who is single, also returns to Italy whenever she can.

“I like to be home. I still have my family there,” she explained. “I have my college friends who I’ve stayed in touch with. Sometimes we spend vacations together.”

The fact that so many people are unprepared to manage personal finance is only part of the global financial literacy problem, according to Lusardi. She also discovered a gender gap, which cuts across age, culture and socioeconomics. On financial literacy tests, women tend to score lower than men. Lusardi is exploring that gap by examining financial literacy around the world.

While widespread financial illiteracy probably is nothing new, the consequences of it in the United States are more serious today. “We have put people in charge of very difficult financial decisions—providing for financial security in retirement, for example,” Lusardi said. She added that mortgages, credit cards and other borrowing options were much simpler decisions in the past.

Lusardi wants to see GWSB’s Financial Literacy Center design programs for schools, businesses, libraries, governments and nonprofits. She intends to be a frequent visitor to the halls of power in Washington, D.C., raising her voice on the importance of protecting, informing and empowering consumers.

And she sees the workplace as an area where a focus on financial literacy is critical.

“The workplace is where people are, and it's where they have to make important decisions, like where to invest their retirement savings,” she said. In March, the NYSE Euronext Foundation—a philanthropic organization set up by the New York Stock Exchange—gave Lusardi a $150,000 grant to develop an effective low-cost roadmap for workplaces that want to improve their employees’ financial literacy.

“We need to take advantage of teachable moments, those times of the year when people have to make decisions, like when they have to pay taxes,” she said.

Lusardi added that government can provide the public with essential information, disseminated through the Internet, traditional media and in libraries.

She envisions GWSB as the place where these issues are discussed and where policy is formulated, backed by the latest research.

“I want to build a center that will involve students and faculty, as well as alumni,” she said. “I want to engage the institution. GW