Financial Literacy and Ignorance

As I mentioned in one of my previous posts, I had many wishes for financial literacy this year. One came true last Thursday, May 24. A new Museum of Saving opened in Turin, Italy, with the objective to be a vehicle for financial education. As one of the academic advisors to the museum, I went to the inauguration and watched the ribbon cut by the mayor of Turin, toured the museum with the Welfare Minister, Elsa Fornero—a very strong supporter of financial education who has added financial education to Italy’s pension reform law—and gave a brief talk about the importance of financial education to the museum’s inauguration day attendees.

This is a big idea for financial education and a fantastic one. It is the brainchild of Andrea Beltratti, a professor of finance at Bocconi University in Milan and President of Intesa Sanpaolo, the bank that supported the initiative, and of Giovanna Paladino, who put the idea into action. Many Italians and tourists visit Italian museums every day to appreciate and learn about art throughout centuries of history. Now they can do the same to learn about economics and the workings of money and finance throughout the centuries, starting from the advent of money (estimated at VII century BC) and continuing to the collapse of Lehman Brothers (you could say we take a long run view in Italy). And they can do so in a very engaging way. The mascots of the museum are two little ants: For and Mika (combine the two words and you get “formika,” a slight modification of the Italian word for ant, “formica;” and since they are little, they are called the “formichine”) who guide visitors through the five rooms of the museum. As in the Aesop’s fable, they describe the importance of saving.

Each of the rooms has a designation, the first one is to “know,” the second to “learn,” the third to “tell,” the fourth to “dream” and the fifth to “experiment” the economic world. In the first room, the “formichine” describe the birth of money and trade from the beginning of time until today, and many topics can be pursued further by watching videos in elegant cubicles in the center of the room or by watching a movie in the multi-media room. At the end of the first room, there is a space for children to play financial literacy video games. In the second room, one can listen to a description of financial instruments and how they work; what is a stock, a bond, a derivative, and so on. They are described in a simple way by picking cards listing the topics and listening to their descriptions. In the “tell” room, one meets (virtually) Dante, Moliere, Shakespeare, and Hemingway. They describe the relationship with money during their lifetime and, in so doing, describe the economy in different time periods. And it is time to dream in the fourth room, where sixty-three monitors project snippets of famous movies covering saving and, in six of them, the role of money in society. The last room features an enormous dream ring on the ceiling with comments about financial instruments and the economy that are taken from economic studies (One of my papers is featured, and I admit, I am very, very proud of it). In that room, there is a possibility to experiment by playing games and simulation. One game is called Risky City, a Monopoly-type game in which one has to buy real estate (a risky game, in case people haven’t noticed yet). But my favorite is the This Is My Life game. It basically describes the actions that one has to take to realize a dream. The player chooses a dream and the game shows how, by saving, you can reach this dream. (My dream is to go back to Turin to see this museum again!) It is an important and powerful lesson: saving allows you to achieve your dreams.

When you enter the museum, in addition to many books dedicated to saving and economic topics, you can take a test to measure financial literacy. And yes, the questions are those used in the US Health and Retirement Study and now in the National Financial Capability Study, and one can take the test again when exiting the building (and researchers can figure out whether there are changes in the responses in the population, on average). The test also asks its takers to assess their own level of financial knowledge, and the hope is that witnessing the evolution of money, finance, and the economy over twenty-seven centuries of history can instill some humility as well as the desire to learn more.

Throughout the museum, you can hear interviews with experts and economists. At the moment, most of them are Italian (but more are to come) and feature Mario Draghi, the President of the European Central Bank; Ignazio Visco, the Governor of the Italian Central Bank; and also academics who have studied money, finance, and financial literacy. (I am not going to tell you whether I am interviewed; you have to go and visit the museum…). On the walls, you can read the phrases of famous writers and investors (including Warren Buffett) about saving, investing, and the economy.

As academic advisors, we had to think of how to assess the effects of the museum and we have designed several ways in which to do so. I did my first qualitative test on my little niece Giorgia. I took her on my lap and showed her the museum on my computer. Looking at the picture of the mascot, she smiled with joy and said, “I like this little kid, we have the same shoes. I am going to do some drawings now.” She saw a kid in the formichina right away, while I saw the shoes only after five iterations (you cannot beat the creativity of a five-year-old). Judging from the pile of drawings accumulating quickly on my desk, I am pretty confident this museum and the formichine are going to be a huge success! You can see them online at www.museodelrisparmio.it.