Cartagena, Colombia, 11 March 2010 Designing and Evaluating a National Strategy for Financial Literacy Annamaria Lusardi Joel Z. and Susan Hyatt Professor of Economics Director, Financial Literacy Center

Relevance Increase in individual responsibility  Demographic changes: aging  Labor market changes: more mobility  Pension changes Financial markets more complex  Globalization of financial markets Cost and consequences of financial mistakes at the aggregate level  Welfare 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