Finance is in the daily lives of all of us. Understanding it is important for these three reasons

In Edufin month, the sixth edition of the month for financial education, we immediately clear up a possible misunderstanding: we are not talking here about being financial experts, about being able to "beat the market" in making intelligent investments. When we talk about "understanding finance", about economic-financial education, we are referring to the importance of understanding some basic concepts of personal finance and economics that allow us to move easily in everyday life and to read the reality that surrounds us with some tools to interpret it.

The benefits of financial knowledge begin with increased well-being

The first reason: to feel better, today and in the future. Finance is now part of the economic system in which we move and work, of our very lives. We think both about important choices such as purchasing a house (and therefore taking out a mortgage), and about often everyday ones such as purchasing goods online with various electronic payment instruments. But also to the evaluation of how much to spend immediately and how much to save and therefore how to plan your finances; or pension choices (to be made increasingly in advance). Financial systems offer ever greater opportunities (think of the benefits of digitalisation) but also require being equipped with respect to possible risks. Having some skills helps you make better choices for yourself and your loved ones, avoid mistakes, and know who to turn to in case of difficulty. A growing literature actually identifies a significant link between economic-financial skills (measured both as knowledge of basic concepts and the main financial services, and as appropriate behaviours) and a set of variables that describe the well-being of individuals (their wealth, including pensions; their "resilience", the ability to manage temporary financial difficulties; the ability to get into debt correctly and make investment choices consistent with one's needs...) and of businesses (their productivity and growth). So basic financial skills are essential to our well-being, both immediately and in the long term.

The second reason: to reduce inequalities. The above is even more true and important for some groups of individuals. First, young people, who will benefit from less generous pension systems and are likely to have more fragmented working lives, and therefore are even more in need of some basic financial skills; who are certainly better equipped on the digital front, but perhaps less aware of the risks and generally less averse to such risks. Secondly, women, who have a higher average expected lifespan and a lower average income, can be exposed to forms of violence, including economic violence; Basic financial skills are an important shield and insurance for a potentially longer life. Again, migrants, for whom active participation in economic life requires access and use of the financial system (at least with a current account) and therefore knowing how to choose correctly, including how to send remittances to their loved ones in an economical and safe way. Finally, the elderly, often with fewer digital skills and therefore more exposed to some of the risks of digitalisation in the financial field, such as increasingly sophisticated IT scams. In short, the opportunities and risks of a complex and increasingly digital financial system are in principle greater for some potentially more fragile categories (and these are those that have lower average levels of financial literacy). Also with respect to this, empirical evidence suggests that the countries where the greater the financial skills of individuals are, the lower the inequalities. Therefore widespread basic financial skills are a factor of equality.

A third reason: to be more active and aware citizens. Basic knowledge in economics and finance is increasingly a skill of active citizenship, the tool for understanding a reality whose economic-financial dimension has become very relevant and for therefore making more informed citizenship choices. Also in this case there is evidence that in countries where these skills are higher on average, the exercise of the right to vote is greater, and the understanding of some policies (for example pension reforms) is higher.

The Bank of Italy and its renewed commitment to financial education

In short, having economic-financial skills is beneficial for individuals and for countries. But there is another category for which the potential benefit of adequate financial skills is increasingly clear: very small and small businesses. The (few) investigations that have only recently become available show how very small businesses often lack some essential financial skills to adequately exploit the opportunities that financial systems offer, especially in the digital field (and limit the risks). Some evidence available for Italy (where the weight of small and very small businesses is much higher than in the main countries) shows the positive effects (for example in terms of access to digitalisation or resilience in the face of the pandemic).

It is therefore clear that the investment to increase these skills is really important, especially in a country like Italy where these skills remain low compared to other countries, both among students and - even more so - among adults. To attack the causes of this backward position (the lack of teaching in schools but also cultural factors) it is essential to include elements of economics and finance in school curricula, accompanying the inclusion with adequate teacher training. But it is also necessary to face the "emergency" relating to the lack of skills among adults, with awareness initiatives for the general public and programs dedicated to specific groups of recipients (young people, women, elderly people, migrants, micro-enterprises...), to keep account of different needs and use appropriate methods to effectively reach recipients. Initiatives aimed at these groups are growing, as part of the National Strategy for Financial Education. The Bank of Italy, in particular, has developed over time, in addition to a dedicated portal with many news, cards, information, calculators, games, a project dedicated to the school, with specific materials and evaluations of effectiveness and initiatives aimed at different groups: women, migrants, more recently very small businesses (brochure).

It will be important to continue to carefully monitor the effectiveness of all initiatives, because the contribution they can offer to the country's sustainable and equitable growth will depend on it.