Why Europeans need to learn more about money
This article is part of the FT Financial Literacy & Inclusion Campaign’s seasonal appeal. The appeal is supported by lead partner Experian which is generously match-funding other donations.
Tucked away in Turin’s old Roman district, there is an unusual museum: a place where children and adults come not to look at art or learn about history, but to know more about money.
Through games and interaction with the museum’s multimedia installations, including a miniature cinema and a collection of piggy banks dating back to the 1600s from over 100 countries, a class of nine-year-olds learns about the importance of savings.
“My grandparents gave me a bank account where they put a certain amount of money every month, and with that I want to buy a small horse,” says Eleonora.
Lorenzo, her classmate, has accumulated €100 from pocket money and gifts, but wants to “save up another €100 so I can buy all the toys I want”.
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“I’m keeping it for when I’m older,” says Cecilia, of her own savings. “So I could buy a small house if I want to live on my own.”
The children discuss their financial plans with none of the usual awkwardness that hinders adult conversations around money. But their openness is not typical in Italy.
Forty per cent of Italians aged 18 to 34 never speak about money at home, and the same proportion feel uncomfortable discussing finances, according to a survey by Italy’s central bank.
The reluctance to tackle money talk is the result of educational, institutional and cultural failures, says Giovanna Paladino, founder and director of Turin’s Museum of Saving, a project funded by Italy’s largest lender by assets, Intesa Sanpaolo.
“We come from a Catholic and Latin culture where money has a negative connotation, it’s associated with greed and avarice,” she says. “But understanding money as an end in itself is wrong. Money is a tool that allows us to realise personal and collective desires and projects.” It is a message that the museum tries to teach to its 15,000 annual visitors and to the 120,000 students that access its digital materials on financial education every year.
In Italy, as elsewhere, reticence about money translates into low levels of financial literacy — with negative consequences for individuals, as well as for society as a whole.
Italy has the least financially literate population among developed nations surveyed by the OECD. Fewer than four in 10 Italians can correctly answer questions about basic concepts like inflation, compound interest and risk diversification, compared with an OECD average of almost six in 10 people.
In Brussels, financial literacy has moved up the policy agenda as legislators try to counter Europe’s sluggish growth rates and mounting fiscal pressures from an ageing population.
The European Commission recently unveiled a bloc-wide strategy to tackle low financial literacy, aiming to boost consumer confidence, deepen retail participation in capital markets, and reduce financial vulnerability.
A more investment-savvy European public would help mobilise some of the €11tn in private savings that largely sit idle in bank accounts, the thinking goes.
But when financial knowledge is low, collective costs can be “incredibly high”, says Stefano Cappiello, director-general for financial regulation and supervision at the Italian finance ministry and a member of the national committee on financial education, a body founded in 2017 to improve Italians’ financial abilities.
Uneducated investment choices can build into financial bubbles when naive customers are sold complex products. And a lack of understanding can impede citizens from turning their earnings into long-term savings, weighing on already-stretched public finances.
“Financial education becomes education about current and future needs. So if you don’t ensure that all citizens are aware and educated, it will have a tremendous social cost,” Cappiello says.
The importance of financial literacy, defined as the knowledge and skills that allow individuals to make informed financial decisions, was first recognised in the aftermath of the global financial crisis, when risky products were sold to unwitting consumers with disastrous consequences.
Research shows that there’s a strong correlation between financial literacy and participation in the stock market and, conversely, the more financially illiterate the population, the higher their cash savings.
The EU’s plan includes awareness campaigns, a code of conduct for private educators, dedicated “financial literacy ambassadors” and new funding and data tools. The initiative is part of Brussels’ broader push to build stronger and deeper capital markets in the EU.
“When we look at financial literacy, it’s not just about teaching people how to distinguish between different investment possibilities,” says Maria Luís Albuquerque, the EU’s commissioner for financial services.
“For some other people, it starts way back. How do you keep your household budget under control? How do you go to the supermarket and buy what you need, spending as little as possible?” she adds.
“How do you use a credit card without getting into debt? The basic knowledge. Because there are too many people who actually don’t know how to handle these things because no one ever taught them.”
About 64 per cent of Europeans hold a medium level of financial literacy, according to an EU-wide survey done in 2023 testing respondents’ understanding of concepts like inflation and compound interest, with the rest equally distributed between more and less knowledgeable respondents.
But across the continent, there are huge differences. In the Netherlands, Denmark, Finland and Estonia about four in 10 respondents display a high level of financial knowledge. But in Romania, Portugal, Cyprus, Spain and Greece, that is halved to fewer than two in 10, with the remaining countries somewhere in the middle.
Those differences can be explained by a number of factors, including socio-economic background, level of education and gender. OECD surveys show that financial literacy is higher among highly educated, working-age males with higher income and living in urban areas.
But the upside is that scores improve in countries where financial education is embedded in school curricula.
“Financial education works. It is important to have programmes teaching financial education in schools and beyond, because it pays off,” says Carmine Di Noia, the OECD’s director for financial and enterprise affairs, in charge of the body’s financial literacy work. “The return is much higher than the cost, so it’s a great investment for the country.”
Teaching financial skills in schools from a young age can also act as an equaliser for other factors. “There’s a strong correlation between financial literacy and socio-economic background,” Di Noia adds. “That’s why it is even more important to teach financial literacy in schools, because otherwise you will keep on widening the differences between the wealthy, educated and the others.”
Sweden offers a case in point. Financial education is part of the school curriculum in Sweden from the first grade onwards, but in 2011 the Scandinavian country introduced compulsory financial education in its upper secondary school curriculum.
Rather than treat financial literacy as a standalone subject, Swedish schools integrate it into home economics, mathematics and social studies classes.
That has helped foster “a culture of even small savings from children that is transformed into investments,” Swedish minister for financial markets, Niklas Wykman, tells the Financial Times.
Just one year after that in 2012, Stockholm introduced the Investeringssparkonto (ISK), a user-friendly investment account that encourages individuals to hold shares, funds and other securities, benefiting from a tax incentive and a simplified tax declaration process.
“To increase retail participation it must be easy to use,” says Wykman. “You don’t need to spend hours and hours declaring your income. It’s pre-printed. It’s easy and there is a tax advantage.”
As a result, 46 per cent of Swedes hold an investment product (through funds, stocks or bonds) — almost double the EU average of 24 per cent.
It has also contributed to making Sweden’s capital markets among the most deep and successful in the bloc, by channelling retail and institutional investors’ savings towards innovative and profitable businesses, which in turn can grow at scale and pay back dividends.
“Households will not participate in financial markets over a long period of time if they don’t have a good return on investment,” says Wykman.
The implications for the public purse can be significant: as more people invest in the stock market, they beget more private income and thus pay higher taxes, as well as helping businesses grow.
“You can have a faster-growing economy which will eventually lead to higher wages and better welfare,” says Wykman.
Conversely, a population with a low savings rate or, like Italy, a high level of savings that are not profitably invested, adds to the pressure on pay-as-you-go pension systems already strained by ageing populations and shrinking workforces.
“We want people to really grow their savings because governments aren’t going to be able to provide generous pensions,” says Annamaria Lusardi, senior fellow at the Stanford Institute for Economic Policy Research, and an adviser on financial literacy to previous Italian governments.
As financial literacy can predict up to 40 per cent of individual wealth differentials close to retirement age, Lusardi adds, it should be a key lever for policymakers worried about the incoming wave of retirees.
“We should make financial education engaging and provide it where people can go and receive unbiased and rigorous information,” she says.
That is the key mission of Italy’s committee on financial education (Edufin), an independent body that includes the country’s finance and education ministries and central bank, as well as consumer organisations, insurance and pension regulators, and financial advisers.
A 2023 law made financial education compulsory in Italian school curricula, and 71 per cent of school headteachers interviewed reported to the committee that financial education initiatives and courses had since been launched.
Financial literacy is part of “civic education” classes, which for one hour per week teach students various aspects of citizenry such as the Italian constitution, online skills and environmental protection.
But exactly how it is taught in the curriculum is left to the initiative of individual schools, which often lacks the means or the knowledge to select appropriate content and educators. Unequipped, schools often rely on external providers, which in large part come from the private sector.
“The problem with offering financial education is the conflict of interest. Private and public providers have discovered it’s an extraordinary marketing tool,” says Donato Masciandaro, professor of economics at Milan’s Bocconi University and president of the committee.
That is also the case in the UK, where financial education is compulsory in secondary schools, but schools are free to plan how they teach it, and “the overwhelming majority of content provided, easily available, is bank branded”, says Aimée Allam, executive director of FT FLIC, a charity affiliated with this newspaper that develops up-to-date and ready-to-use content, which is used in around 900 schools across the country, as well as training teachers on how to deliver it.
“We want teachers to know that when they come to us the content is live, it’s accurate, it’s appropriate, free of charge, and free of any kind of commercial interest,” she adds.
The increasing use of marketing on social media through content creators and affiliate marketing can also make it harder for the public to discern independent advice from subtle advertising.
“People are finding new ways to make seemingly authentic recommendations, which are actually sales at the heart of it,” says Allam.
To counter the issue of impartiality, the Italian committee has set up a certification system awarded to financial educators that meet the criteria of quality, user-friendliness, free of charge and impartial, which school leaders can turn to when devising their curricula.
Efforts like these are starting to pay off. In a 2022 survey of financial literacy among 15-year-olds, Italian students scored, on average, 484 points — up from the 466 average score a decade earlier — and now rank slightly below the OECD average of 498 points.
“We are starting to see the effects [of financial education] now on 15-year-olds,” says Magda Bianco, head of consumer protection and financial education at Italy’s central bank, while acknowledging that “despite these slight improvements, we lag behind on the international scale”.
The hope is that, as more and more schools take up financial education and younger cohorts age into more financially literate adults, Italy will close the gap on financial literacy — a decades-long endeavour, but one that is worth pursuing.
“Financial literacy is not a gene that people are born with,” says Lusardi.
