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Challenges in ensuring financial competencies
Quaderno di finanza (Working Paper)


Challenges in ensuring financial competencies
Essays on how to measure financial knowledge, target beneficiaries 

N. Linciano and P. Soccorso Editors

Quaderno di finanza (Working paper) No. 84 - October 2017 [PDF]

The present collective work gathers views on how behavioural finance, neuroscience, sociology, cognitive psychology and pedagogy may contribute to improve measurement of financial knowledge, elicitation of personal attitudes, targeting audiences and delivery of educational programmes. These issues are particularly relevant in Italy, where the recently established National Committee for Financial Education is going to set and implement a long called national strategy. Following a multidisciplinary perspective, the work is intended to give food for thought with regard to methods and tools that may foster effective initiatives and coordination among the academia and the stakeholders involved in the design and delivery of educational programmes.
In details, the essay by Linciano and Soccorso reviews the evidence gathered by Consob and published on a yearly basis in the Report of investment choices of Italian households. Consistently with the evidence documented in many national and international surveys, Consob Report confirms the low level of financial knowledge of Italian decision makers, and sheds lights on several emotional and cognitive attitudes potentially detrimental to sound financial choices. Indeed, preliminary analysis of the correlations among personal attitudes and observed behaviours claims for educational campaigns raising knowledge, awareness, and personal engagement in the full range of economic choices, spanning from financial control (i.e. planning, budgeting and saving) to financial market participation and investment choices.
It is however necessary to delve deeper into the direct and indirect links among education and financial choices by accounting for individual traits and motivations underlying learning and empowering. Indeed, the relationship between financial education, investment choices and risk taking may not be clear-cut, since knowledge may impact on self-confidence thus triggering unintended ‘second-order effects'.
Di Cagno and Panaccione review the experimental evidence generally highlighting a positive relation between literacy and stock market participation and wonder about the challenges that this relation may pose to investor protection if it is not driven by a true enhancement of competencies but rather by overconfidence. They point to unbiased professional advice and report experimental evidence on how professional advice seeking may either rise or decline with financial knowledge, depending on the effect of overconfidence and on its relationship with financial education. The authors conclude by recalling a research project, involving both Consob and the academia, dealing with the issues raised by technological developments and, in particular, by robo advice.
Reliable analyses on the impact of financial literacy rest on unbiased measures. The essay by Nicolini recalls the definitions of literacy used in the literature and compares several gauging methodologies developed so far. After exploring the technicalities underpinning a financial literacy survey, the author discusses some practical recommendations for gathering unbiased data and delivering policy makers a powerful evidence-based tool for the design of educational programmes.
Part II recalls the many factors governing financial decision-making process beyond knowledge. As it is well known, cognitive biases and emotions may severely hinder the appreciation of risk and the selection of the most suitable course of action.
Ploner reviews the seminal contributions about the most important biases in financial decision making that relate to loss aversion, such as the status quo bias and the myopic loss aversion. These in turn may prompt inertia and lower the willingness to take risk.
Beyond loss aversion, many other biases may mislead individual risk perception. Lucarelli discusses how objectively measured risk is filtered through subjective perception, which in turn may adversely affect the appreciation of the level of risk taken. This drawback may be exacerbated by unawareness of one's own risk attitude. The overall consequence is that decision makers can go through excessive risk taking relative to their risk capacity (either emotional or/and economic). Cognitive psychology, however, has shown that emotions can be deactivated through awareness. Fostering self-awareness could therefore contribute to improve individuals' mental processes and to defuse pitfalls driven by biased risk perception.
Full understanding of the individual decision making process cannot neglect financial anxiety, which has proven to be among the most relevant emotional statuses hampering individuals' financial capability. Recent studies in neuroeconomics have begun to shed light on the neurobiological basis of anxiety in intertemporal choices, i.e., tasks requiring individuals to make decisions whose consequences are delayed in time. Saving and investment choices, for instance, have individuals experience a delay in the resolution of the uncertainty about the consequences of their own current choices. Delving deeper into the decision processes activated by intertemporal choices requires to account for subjective probabilities and subjective time. Brighetti explores these features hinging on cognitive psychology, the theory of subjective probability and the conceptual framework of false belief in clinical psychology. The author discusses how anxiety is related to anticipatory representations of possible future events and how uncertainty disrupts the so called Episodic Future Thinking (EFT), an imagery-based cognitive process allowing to imagine or simulate experiences that might occur in one's personal future and to work out preparatory behaviour.
Part III highlights how behaviours can systematically differ across individuals depending on personal traits and gender. People are different and may react differently to the same information as well as achieve the same goals following different routes. This circumstance weakens the effectiveness of one-size-fit-all financial education initiatives and claims for a careful, evidence-based targeting of the audiences.
Cervellati draws on the theories of financial personalities showing that individuals (and their mental processes) can be categorised into psychological types, each characterised by a specified set of personal traits, cognitive biases, emotional carryovers, and motivations. Taking into account personality types may contribute to improve segmentation of beneficiaries, identification of the weaknesses to be addressed and ‘personalisation' of communication (which the author calls for, at least with reference to the four main temperaments discussed in the literature).
Gender differences in financial choices may be significant along several dimensions, ranging from knowledge, financial background, interest in financial matters, and self-confidence, as documented also by Consob Report on the investment choices of Italian households. Rinaldi recalls the theoretical advances in sociological literature that explain gender gaps in terms of differences in inclination towards money, socialisation patterns and mathematical skills. The author pleads for the development of an interdisciplinary, complete model, building on the existent literature and evidence, in order to support policy makers in the implementation of gender-sensitive educational programmes.
How can we empower financial decision makers? Which channels can be used to deliver educational programmes? Who should be involved in the implementation of long-term initiatives? These issues are debated in Part IV.
Viale, in an interesting thought-provoking essay, challenges the behavioural literature looking at financial education as a de-biasing tool. He argues that, in the complex and uncertain environment in which individuals are called to make financial decisions, heuristics (i.e., the simple rules of thumb that behavioural economics labels as errors and irrationalities) are indeed an adaptive toolbox enabling people to solve problems. Financial education should hence depart from standard training to inform individuals about the use of heuristics, according to a Bounded Rational Adaptive Nudge approach. Exercises and practices based also on psychological strategies, and unbiased communication should be employed to strengthen the learning process.
Evidence on financial behaviour and decision-making process questions the channels traditionally used to deliver financial education and asks for a deep reconsideration of both communication strategies and educational tools.
Martelli argues that neuroscience may be of great help in improving teaching methods, traditionally backed by seminars, books, specialized magazines, online personal finance software, etcetera. Neuroscience is unravelling how our brain works and learns, while educational neuroscience is uncovering the relationship among the subject taught, the brain networks involved and emotions. These advances provide grounds for the implementation of the so called experiential learning, which strengthens the learning achievements by allowing individuals to directly experience a specific situation (both in terms of contents and context) and to reflect on that situation. Games, simulations, and role plays are some tools that may foster experiential learning.
How communication can best be structured to reach out the target audience of an educational programme is discussed by Alemanni with specific reference to retirement choices. By drawing on the insights of behavioural finance, the author underlines that simplicity, reference to real and practical events, emotional connections, and proper goal framing are key to engage people in virtuous conducts. Moreover, to account for heterogeneity across individuals, communication cannot apply a one-size-fit-all approach, but needs to be attuned to the profile of the targeted audience. Once again, psychological and behavioural studies may provide important clues for the design of salient communication strategies, tailored to the characteristics of a specified target.
Beyond the issues reviewed so far, financial education may be challenged by difficulties in reaching out the targeted beneficiaries, such as youth and adults. The suitable involvement of key stakeholders has to be considered.
As for youth, the educational system has obviously a leading role. As claimed by OECD (2012), «including financial education in the official school curriculum is considered one of the most efficient ways to reach a whole generation on a broad scale. (…) Yet the successful integration of financial education in school curricula proves to be challenging in many respects owing to a vast range of constraints. These include: lack of resources and time; already packed curricula; insufficient expertise and know how; lack of quality materials; the variety of stakeholders involved; and the lack of strong and sustainable political willingness, commitment and overall accountability». These constraints can be addressed only through a strong coordination among Government, public authorities and schools, which the launch of a national strategy for financial education can suitably accomplish.
Agrusti, Ferri and Giannotti draw from the preliminary results of a field survey on a financial education class to elaborate on some principles that should inform the involvement of schools in financial education strategies. The authors suggest teachers should be committed to long-term educational strategies. Teachers should also be trained so as to engage students and to prevent biases that might be prompted by financial education, such as overconfidence. Finally, a multidisciplinary approach and reliance on interactive tools could significantly benefit the effectiveness of teaching strategies and increase students learning.
Involving adults in educational programmes is even more challenging than involving young people, because of their time constraints, reluctance to deal with financial matters, etcetera. If programmes are not compulsory, moreover, self-selection may weaken the effectiveness of the initiatives, given that only the most motivated individuals may enroll. Steering adults towards suitable financial decisions may therefore require the engagement of the actors of the financial system. Cruciani and Rigoni show that trust may be a channel and that information delivery from advisors to clients may nurture trust, provided that such delivery goes beyond formal compliance. Fostering trust in advisors promote delegation, thus benefiting clients receiving and following unbiased advice. These findings suggest a further topic to be investigated, i.e. how financial education and trust associate, and possibly a further channel through which education may impact on individuals' choices.
The present collective work confirms that financial education is paramount to the empowerment of individuals. In order to be effective, however, education programmes should not only deliver technical contents but also foster awareness and engagement. Accounting for individuals' heterogeneity and behavioral biases is key to the design of effective communication strategies. Leveraging on individuals' learning processes and on emotional triggers is key to the development of interactive and experiential learning tools. Combining multidisciplinary approaches in an integrated methodological setting, therefore, seems to be a promising, essential avenue to be explored.  

Nadia Linciano - CONSOB, Head of the Economic Studies, Research Department (
Paola Soccorso - CONSOB, Economic Studies, Research Department (

JEL Classifications: D1, D14, D15, D81, D83, G41.

ISSN 2281-1915 [online]