Cartagena, Colombia, 11 March 2010

Designing and Evaluating a National Strategy for Financial Literacy

Annamaria LusardiJoel Z. and Susan Hyatt Professor of Economics

Director, Financial Literacy Center

Relevance

• Increase in individual responsibilityDemographic changes: agingLabor market changes: more mobilityPension changes

• Financial markets more complexGlobalization of financial markets

• Cost and consequences of financial mistakes at the aggregate levelWelfare system will be affected

• Well informed citizens lead to more stable markets and better use of resources

Why a national strategy?

Road map What is a national strategy? The institutional framework Identifying the issues Defining financial capability National survey Preliminary assessment Objectives: Long-term vs. short-term Designing interventions Targeted population sub-groups Evaluation Take-away

What is a national strategy

- A vision for financially capable citizenry

- Aggregate stakeholders

- Identify the gaps

- Define a framework of action- Identify targets to be achieved in a specific time

frame

- Plan initiatives

- Evaluation of initiatives

Defining a national strategy

Benefits of a national strategy

- Guidance and coordination- Public and private initiatives

- Avoid duplication of effort

- Share expertise

- Promote best practices

- Cost effectiveness

Benefits

Institutional framework

Identify all stakeholders involved Identify a national agency/institution to

coordinate Useful to create a Financial Capability Steering

Committee sponsored by the coordinating agencies, involving all the stakeholders

(examples, UK and Ireland)

Some structure

Identifying the issues

Some examples: Pensions or changes in pensions Low saving rates High default rates on loans Fraud and scams Others

What are the problems?

Defining financial capability

Broad definition• What does it mean to be financially capable?

Knowledge versus behavior

Country-specific elements of the definition

Financial capability/competency

Measurement: A national survey

- Picture of current levels of capability

- Identification of areas of intervention

- Identification of at-risk population categories

- Establishing a baseline for evaluation- Useful for both public and private sector

- Building a base for longitudinal evaluation: a new survey every 3-5 years

Benefits of a national survey

Case study: U.S. National Financial Capability Study

1. Making ends meet

2. Planning ahead

3. Managing Financial Products

4. Financial Knowledge and Decision-Making

Four key components:

Preliminary assessment

Existing initiatives Identify gaps in the provision of resources and

avoid duplication of initiatives Agencies and organizations already involved

with financial capability

Assessment of what exists

Long term and short term objectives

Long-Term vs. Short-Term Objectives• Long-Term = Improvement of financial

literacy/capability for the entire population

• Short-Term = specific problems to solve. Focus on specific subgroups (those more at risk)

Objectives

Designing intervention

Every objective (long term or short term) requires an intervention. For every intervention, these points should be considered:

- Target/beneficiary—who is it?- Current situation- Reasons for changes- Providers- Delivery methods- Budget- Design of evaluation- Pilot program- Evaluation

What to consider

Intervention: Some examples

School: Learning money matters Young adult: Helping young adults make sense

of money Workplace: Make the most of your money Consumer communication Online tools New parents: Money box Money advice

UK experience

Targeted population

Different population sub-groups have different needs and would benefit from targeted programs

Example: Maori people in New Zealand, Native Americans in the United States. But also the elderly and women may benefits from targeted programs

Different programs for different needs

Evaluation

Must evaluate• Accountability

• Efficient allocation of resources

Standardized framework for evaluation• Use scientific methods

- Many biases

• Measurement of success- Indicators of knowledge/behavior

Disseminate results widely and share experience

The importance of evaluation

Longitudinal evaluation

Can evaluate the national strategy itself Redo a national survey

• Re-adjust objectives

• Focus on areas in need

• Tailoring interventions

Allocate resources efficiently

over time

In the long run

Some issues about evaluation

Have to design evaluation at the beginning of program not at the end

It needs resources and expertise Independence It is a requirement: we need to know what

works and what does not work

OECD can provide guidelines on evaluation

Evaluation is part of the program design

Take-away

Need for direction Importance of coordination Many stakeholders Different targets Importance of evaluation at every stage Efficient use of resources Share experience across countries

Importance of a strategy and its evaluation

The cost of ignorance

“An ignorant people is the blind instrument of its own destruction”

Simon Bolivar, 1819