A reader, Blanca Cañamero, warns me that the next PISA report, in which emphasis should be placed on mathematics, will also have an important part of evaluating the financial knowledge of our young people. The OECD has prepared a document detailing how this evaluation will be done. Today I want to tell you if financial education is necessary, if the school can serve to provide it and if it is appropriate to introduce it now. The answers are yes, yes, and depend, respectively.
I cannot resist the temptation to start with a couple of anecdotes. In the family I have a certain reputation as a financial guru. And not for my scientific articles, but for some small successful advice from the past. In the year 2000, shortly before the outbreak of the tech bubble, I told a brother-in-law not to make his first serious investment in Terra, whose price had recently multiplied by a large factor.
If you want to invest in something, put the eggs in more than one basket, I answered. Around that time, a cousin told me that he had been offered to invest in a company that guaranteeda return of at least 15% per year. My immediate reaction, after finding out what the company called AFINSA was investing in, was to say that someone who offered that guarantee by investing in stamps was a thief or a fool, and you do not want to give your money to either of them.
None of my advice required being an expert in finance, but a very basic knowledge of history and financial theory. And it was not about people with low levels of education or intelligence, quite the contrary. The first of my interlocutors is an engineer, the second doctor in history and a graduate in law and politics. But both were unaware of some elementary financial issues, which they could correct fairly quickly once they were explained.
This is more than an anecdote. I believe that the Spaniards, and many citizens of very varied countries, have committed enough financial errors in recent years so that certain knowledge of financial matters is an almost public health issue. The question is whether the education system can perform that function. My conclusion after reviewing some existing evidence is that it probably can.
As Bernheim, Garret and Maki tell us29 American states introduced school curricula on consumer education subjects between 1957 and 1985. Up to 14 of those cases, the subject had to cover personal finance problems, such as budgeting, controlling credit, notions of compound interest and other principles financial These authors use data from a Merrill Lynch survey from 1995. In this survey, unlike others (such as the Survey of Consumer Finances or the PSID), respondents were asked directly if they had received financial education during the secondary and what kind. They also had standard demographic information (including income, wealth and asset types in which it was invested) and some questions about savings rates.
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