Following the aftermath of the economic collapse, we have witnessed a flood of financial education programmes oriented towards students of different age groups. Consumer-side financial education interventions have the potential to increase awareness of financial products, and influence behaviour such as saving and financial planning. More precisely, in developed countries many programmes emphasise preparation for retirement, the importance of saving, and the upbringing of an informed and conscious youth. These beneficial functions of financial education are well known by scholars interested in the field. What, however, seems to have been largely ignored up to this point is the role that financial knowledge plays within the process of intergenerational life-course mobility. My recent research has therefore attempted to fill this gap by establishing a connection between financial education and the socio-economic analysis of intergenerational persistence.
The above-mentioned research combines three strands of topical interest: the economic and financial literature on financial literacy, the socio-economic analysis on equal opportunities, and the use of randomised experiments in education. As a background idea driving the whole work, the extent to which socio-economic family characteristics predict the lifetime outcomes of children is an indicator of the degree of equality in life chances. A limited number of studies (Lusardi et al., 2010) accurately document that there is a bond between family socio-economic status (be this measured by income, education or occupational prestige) and financial literacy levels. Those few studies provide prima facie evidence that children who are less financially literate are shown to disproportionately come from disadvantaged low-educated families. Conversely, an extensive number of authors (among others, Van Rooij et al., 2007; Lusardi and Tufano, 2009) show that financial literacy embodies a cognitive trait relevant to both job performance and labour market success. Stemming from the latter evidence, the intuition behind my research has been to further investigate the extent to which family socio-economic status determines financial literacy as a driving input of inequality later in life.
The study empirically investigates two surveys comparable in terms of financial literacy variables provided. The first source (National Longitudinal Survey of Youth 1997) allows to address the issue with a nationally representative sample of a cohort of young Americans. I was actually able to prove that the level of financial literacy of a youth crucially hinges upon family socio-economic status, whereas it is only partially driven by one’s schooling achievement. Hence, after showing that financial literacy has an influence on subsequent individual outcomes, my results indicate that the U.S. school system fails to provide equal opportunities for financial knowledge to students of equal skill. The analysis then shifts onto a randomised experiment conducted in Lombardy as part of a project led by Bocconi University (Milan) in collaboration with Citi Foundation. According to the design of the project, a randomly selected group of fourth-year high school students were presented a set of multimedia lectures on financial education and life planning. The sample consists of about one thousand students, divided between academic and vocational schools, so to enrich the analysis with students from heterogeneous family backgrounds. Replicating the analyses performed on the U.S. case, I have shown that the experimental intervention weakens the role of the family of origin in determining students’ financial knowledge, holding schooling achievement outcomes constant. A first experimental step towards improving students’ financial literacy provides signals of equal opportunities.
I believe this finding carries an interesting policy-relevant meaning, as it suggests that an external intervention may serve, at least temporarily, an equality-promoting function the educational system should take responsibility for. The bottom line is hence straightforward: why not providing financial education on a broader scale if this can be found to mitigate the effects of a youth’s socio-economic origin on his/her future life chances?
For those particularly interested in the topic, take a look at Professor Annamaria Lusardi’s blog on financial literacy and ignorance.