Monetary Policy & the Economy Q3–07

Q3/07 Monetary Policy & the Economy Monetary Policy & the Economy Economic andFinancialEducation Quarterly ReviewQuarterly ofEconomicPolicy Stability and Security. Q3/07 The OeNB’s quarterly publication Monetary Policy & the Economy provides analyses of cyclical developments, macroeconomics forecasts, studies on central banking and economic policy topics as well as research findings from macroeconomics workshops and conferences organized by the OeNB.

Editorial board Josef Christl, Peter Mooslechner, Ernest Gnan, Georg Hubmer, Doris Ritzberger-Grünwald, Martin Summer, Günther Thonabauer Editors in chief Peter Mooslechner, Ernest Gnan Coordinator Manfred Fluch Editorial processing Brigitte Alizadeh-Gruber, Karin Fischer, Susanne Pelz Translations Jennifer Gredler, Alexandra Majer, Rena Mühldorf, Irene Popenberger, Ingeborg Schuch Technical production Peter Buchegger (design) Franz Pertschi, Susanne Sapik (layout, typesetting) OeNB Printing Office (printing and production) Inquiries Oesterreichische Nationalbank, Communications Division Postal address: PO Box 61, 1011 Vienna, Austria Phone: (+43-1) 404 20-6666 Fax: (+43-1) 404 20-6698 E-mail: [email protected] Orders/address management Oesterreichische Nationalbank, Documentation Management and Communications Services Postal address: PO Box 61, 1011 Vienna, Austria Phone: (+43-1) 404 20-2345 Fax: (+43-1) 404 20-2398 E-mail: [email protected] Imprint Publisher and editor: Oesterreichische Nationalbank Otto-Wagner-Platz 3, 1090 Vienna, Austria Günther Thonabauer, Communications Division Internet: www.oenb.at Printed by: Oesterreichische Nationalbank, 1090 Vienna, Austria © Oesterreichische Nationalbank, 2007 All rights reserved. May be reproduced for noncommercial and educational purposes with appropriate credit.

DVR 0031577 Vienna, 2007

REG.NO. AT- 000311 Contents

Editorial 5 Klaus Liebscher, Josef Christl, Peter Mooslechner, Ernest Gnan

Analyses Robust Economic Activity in the Euro Area Inﬂ ation Remains Moderate 10 Andreas Breitenfellner, Johann Elsinger, Klaus Vondra

In Focus: Economic and Financial Education Economic and Financial Education: Concepts, Goals and Measurement 28 Ernest Gnan, Maria Antoinette Silgoner, Beat Weber

Financial Capability of Austrian Households 50 Pirmin Fessler, Martin Schürz, Karin Wagner, Beat Weber

Financial and Economic Education Products and Services of Austrian Institutions and Enterprises 68 Sabine Schlögl

Selected Central Banks’ Economic and Financial Literacy Programs 85 Manfred Fluch

Highlights Human Capital and Economic Growth – Summary of the 35th Economics Conference of the Oesterreichische Nationalbank 106 Jürgen Janger, Burkhard Raunig

Notes Abbreviations 116 Legend 117 List of Studies Published in Monetary Policy & the Economy 118 Periodical Publications of the Oesterreichische Nationalbank 121 Addresses of the Oesterreichische Nationalbank 124

Opinions expressed by the authors of studies do not necessarily reﬂ ect the ofﬁ cial viewpoint of the OeNB.

Monetary Policy & the Economy Q3/07 ◊ 3

Editorial

Over the past years, economic policy institutions have stepped up their efforts to enhance economic and financial literacy. Government agencies, banks, nonprofit organizations and last but not least central banks have launched initiatives all over the world to introduce new financial and economic education programs or to broaden and deepen already existing products and services. Based on a comprehensive assessment of existing economic and financial literacy initiatives, international organizations like the OECD, the G-8 or the European Commission have identified best practices and have issued related recommendations. There are several reasons for the growing importance of economic and financial literacy programs. With the interplay of economic forces becoming increasingly complex, individuals need to develop a better and broader understanding of how the economy and financial markets work if they are to be well informed to make important personal decisions. Increasing financial wealth and the trend toward individual retirement planning have made investment skills an important asset for long-term life planning. At the same time, economic policymakers have an interest in having economic agents understand their economic policy measures. For example, for central banks to be able to fulfill their key tasks of ensuring price and financial stability, it is crucial that citizens are well informed about economic and financial issues. The OeNB has provided economic education products and services for decades, including a multitude of teaching materials, seminars for teachers and journalists alongside its economics publications. In its education efforts, the OeNB has always actively sought out cooperation with other education providers in Austria and, in recent years, has especially fostered cooperation with other euro area central banks. Against this background, this special issue of “Monetary Policy & the Economy” takes stock of economic and financial literacy at the national and international level. The contributions in this issue present and analyze the content and objectives of economic and financial education programs, the level of economic and financial knowledge in Austria, education products and services available in Austria as well as other central banks’ financial and economic literacy programs. In the first study, Gnan, Silgoner and Weber examine concepts, goals and the measurement of economic and financial education. As the authors show, economic and financial education covers a very broad range of initiatives and activities. What knowledge areas and skills are targeted and how content is presented depends not just on the target group, but also on the different motives and goals of education providers. Central banks all over the world provide economic and financial education basically for five reasons: (1) to enhance the effectiveness of monetary policy, (2) to ensure the smooth functioning of financial markets, (3) to support sustainable, stability-oriented economic policies, (4) to promote economic and financial literacy as a public good, and (5) to build their reputation and promote their acceptance as competent state institutions useful for citizens. Ideally, an empirical survey of the level of knowledge among the target group and an identification of important knowledge gaps should precede every education initiative. The results of such a survey help evaluate the effectiveness

Monetary Policy & the Economy Q2/07 ◊ 5 Editorial

and efficiency of education initiatives, and they foster quality control and focused improvement of education initiatives. How adequate education measures are depends on the objective such measures are aimed at. Although this general principle makes obvious sense, it is not always observed. To demonstrate just how difficult it is to measure economic literacy, the authors use the best-known test, the test of economic literacy (TEL). A survey of the small number of recent surveys available for Austria shows that much remains to be done and that there is ample room for improvement of economic education in Austria. As a case in point, more than half the respondents of a survey conducted in 2006 rated their understanding of economic fundamentals in the range between “rather bad” and “very bad.” Not surprisingly, graduates of upper secondary commercial schools (Handelsakademien) displayed the highest level of economic knowledge among secondary school students. Fessler, Schürz, Wagner and Weber present an empirical survey of the Financial Capability of Austrian Households. “Financial capability” as used in this contribution is broader than the term “financial literacy.” While “financial literacy” emphasizes knowledge, understanding and awareness, “financial capability” stresses the relevance of attitudes (toward risks, specific financial operations, etc.), the application of knowledge in practice and decision-making. Based on a survey on financial capability conducted in 2004, four competence areas are examined, starting with managing money. 90% of respondents stated that they were always precisely informed about their financial situation. 45% of households kept a record of their finances; 80% stated that they always paid their bills immediately. 15% tended to overdraw their accounts. 43% of Austrians saved on a regular basis; only 15% stated that they would rather take out a loan than save for a long time to make a purchase. Generally, the propensity to manage one’s finances carefully was shown to increase slightly with age whereas there was hardly any correlation with income and education. The second topic was planning ahead. The share of households stating that they were putting money aside “for a rainy day” turned out to be roughly 85%. 82% of the households covered by the survey considered individual saving for retirement important. Private retirement provisions were shown to be considered more important among higher income and higher education groups; younger respondents deemed private old-age provision more important than older respondents did. Over half the respondents aged 30 to 60 stated that they had private pension savings. The third competence area covered was making financial decisions. The majority of Austrians continue to be risk averse in their savings decisions: only 16% of households own stocks, 11% own mutual fund shares. Just under half of all respondents check out various banks’ offers to find the best product, with the percentage rising among better-educated respondents. The fourth topic treated was getting financial advice and information. The most frequently used source of financial information by far is individual advice provided by respondents’ relationship bank (Hausbank) (69%). Advice by family members (31%), information provided by different banks (24%), advice by friends (23%), leaflets provided by banks (20%), information from newspapers (20%) and the Internet (19%) played a much smaller role. The number of information sources used declined with increasing age and rose with income and education level. In finance matters, respondents placed most confidence in the Austrian

6 ◊ Monetary Policy & the Economy Q3/07 Editorial

consumer affairs organization (Verein für Konsumenteninformation, 47%), banks and insurance companies (40%), the Chamber of Labor (33%) and the OeNB (24%); multiple responses were possible. 56% stated that they preferred to rely on individual advice from their bank’s account manager rather than on their own judgment. 59% of respondents said they enjoyed dealing with financial issues, 47% considered their knowledge about financial issues mediocre, 66% wished to have more information about financial issues, and 90% of respondents thought that financial education in Austria should be improved. In the third contribution, Schlögl provides an overview of Financial and Economic Education Products and Services of Austrian Institutions and Enterprises, which reviews the financial and economic education initiatives of ten Austrian providers. The study reveals that the different programs are not well coordinated: Many areas are covered by several providers at once, while others are (sometimes completely) neglected. In particular, there is hardly any suitable material for primary schoolchildren, nor are enough educational products available that would be appropriate for the age group of 11- to 15-year-olds. As compulsory schooling in Austria is completed around the age of 15, for those students that do not continue to go to school past the age of 15, lower secondary school provides one last chance to learn important basic literacy skills and financial capabilities. Therefore, improvements in economic and financial education in Austria should focus more intensely on target groups which have been largely neglected up to now. Moreover, different providers’ activities should be better coordinated, and the available material should be better organized. The last contribution, Selected Central Banks’ Economic and Financial Literacy Programs, authored by Fluch, takes us beyond the national level to review central bank initiatives worldwide. Some 30 central banks across the world provide partly quite comprehensive financial education products for different target groups, often in close cooperation with other institutions. Some central banks consider financial education a core competence. The main target groups of the information products are children, young people, students and teachers. In this context, multimedia and e-education packages are gaining ground on print products. Some central banks have invested considerable resources in the establishment of special visitor and education centers as well as money museums. However, central banks’ educational Internet resources differ extensively in scope and presentation. Generally, financial knowledge transfer appears to work best through simple media and products that are very strongly focused on individual benefit. The OeNB’s stocktaking shows that there is considerable demand in Austria for economic and financial education initiatives. Above all, appropriate material for some important target groups, such as primary schoolchildren and compulsory school-age children, appears to be quite scant. Addressing the need for suitable education programs to fill the gap will require considerable efforts in the years to come. Improving cooperation and coordination, and organizing and merging the material available on common platforms, would help raise the quality of educational products and services and would make them more accessible to consumers. The OeNB will respond to the strong

Monetary Policy & the Economy Q3/07 ◊ 7 Editorial

demand for economic education from the Austrian public by continuing its economic and financial education activities and by further improving its education products and services. In doing so, the OeNB will aim to complement the already available material optimally and to seek cooperation with other providers in Austria and in the European System of Central Banks.

Klaus Liebscher Josef Christl Peter Mooslechner Ernest Gnan

8 ◊ Monetary Policy & the Economy Q3/07 A n a l y s e s Robust Economic Activity in the Euro Area Inflation Remains Moderate

Andreas Breitenfellner, Global economic activity continued to look robust at mid-2007. In the U.S.A., however, it Johann Elsinger, is currently uncertain how large the impact of the August 2007 crisis in the real estate Klaus Vondra sector on the real economy will be. Strong growth in the second quarter of 2007 was primarily characterized by dynamic net exports but also by a very modest rise in private consumption. The U.S. Federal Reserve System first reacted to short-term liquidity constraints by unexpectedly cutting its discount rate. After having identified risks to growth, it later reduced the federal funds rate and again cut the discount rate. Economic recovery is slowing in Japan. The Bank of Japan is pursuing its supportive monetary policies and has injected additional liquidity into the money markets in the wake of the U.S. mortgage crisis. In Asia, the high pace of growth continues, with the Chinese economy in danger of overheating. The euro area economy may have peaked. Somewhat weaker growth in the second quarter of 2007 was driven by domestic demand, in particular. Current forecasts indicate GDP growth for 2007 to be close to potential. In addition, the labor market is developing favorably for cyclical and structural reasons. The rate of inflation rose above the 2% mark recently after having been below 2% for one year. Now the base effects and currency effects that had moderated energy price increases despite high crude oil prices are dissipating. Similarly, the feedthrough of the increase in VAT into German consumer prices proved smaller than expected. Nevertheless, the ECB Governing Council’s economic and monetary analysis indicates upside risks to price stability in the medium term. In the first quarter of 2007, the economies of the new EU Member States grew again more dynamically than that of the euro area. This is primarily attributable to robust growth in domestic demand. In the first half of 2007, the region registered a slight increase in inflation rates. The Austrian economy is currently experiencing a period of expansion. Growth continues to be led by net exports and investment. Although private consumption performed better in the second quarter of 2007, it still lags behind expectations. According to the current OeNB economic indicator, Austrian real GDP will amount to 0.8% and 0.7% in the third and fourth quarters of 2007 respectively. For 2007 as a whole, this would mean growth of 3.4%.

JEL classification: E2, E3, O1 Keywords: global outlook, euro area, central and (south-)eastern Europe, Austria.

1 Continued Global Eco- construction slowed, but neverthe- nomic Growth less dampened growth by 0.6 per- 1.1 U.S.A.: Key Interest Rate Cut centage point. While the consumer Due to Mortgage Market Crisis price index (CPI) – somewhat weaker Following very sluggish economic in August than in July – increased by momentum, real GDP growth accel- 2.0% year on year, the core rate (in- erated in the second quarter of 2007 flation excluding food and energy) to 3.8% (year on year). This spurt of rose by 2.1%, i.e. less strongly than growth was owing to two factors: a in the previous 16 months. marked increase in net exports and a In addition, the relatively favor- rise in public expenditure. Private able labor market situation is still consumption, however, expanded at keeping intact the prospects of a “soft Cutoff date for data: an extremely modest rate of 1.4%. landing.” Nonetheless, despite posi- September 28, 2007. The downturn in private residential tive signals from some short-term in-

10 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

dicators, the downside risks to eco- 4.75% in light of the increased risks nomic growth increased as a result of to economic growth. In addition to real estate and financial market tur- this first key interest rate cut in four moil. years, the FOMC reduced the dis- Following the long-term uptrend count rate by an additional 50 basis in U.S. real estate prices, which was points to 5.25%. These measures fueled by – initially – low key interest helped to calm the markets to some and mortgage rates as well as by very extent. generous credit conditions, including Owing to the expected weaken- subprime household lending, growth ing of private consumption from more in U.S. house prices came to a halt. restrictive terms of credit and to the This and, above all, the markedly decline in residential construction in- higher cost of some types of borrow- vestment, U.S. economic growth is ing – exacerbated by the phasing out likely to slow in 2007 and to remain of temporarily low interest rates for restrained in 2008 as well. Consensus borrowers – led to defaults and forced Forecasts recently predicted growth of sales, particularly in the subprime 2.0% in 2007 and 2.4% in 2008. The segment, and caused difficulties for curbing of the expansion should, in some financial institutions. turn, contribute to reducing infla- The homeowner mortgage mar- tionary risks. The risks to this eco- ket, which was primarily hit by this nomic outlook are primarily in con- crisis, has a volume of some 75% of tinued financial market turmoil. GDP. Approximately 15% – up to 25% when more cautiously defined – 1.2 Japan: Growth Leveled Off of these mortgage loans (i.e. 10% to In the second quarter of 2007, real 20% of GDP) can probably be classi- GDP in Japan contracted for the first fied as subprime. time in three quarters, dropping by Financial market participants lost 0.3% on the previous quarter. This confidence in the U.S. subprime mar- decline is attributable to a significant ket, pulled out of U.S. structured fi- slowdown in export momentum. nancial products and moved into in- Growth stimuli came from corporate ternational markets. Underlying this, investment; private consumption was no doubt, is the uncertainty about also up. In its six-monthly Outlook who has problem assets backed by se- for Economic Activity and Prices curitized mortgage loans in their (Outlook Report) for the fiscal year portfolio, and to what extent, as well 2007 beginning in April and for as about whether these assets repre- 2008, the Bank of Japan still consid- sent a solvency problem for the insti- ers the economy to be on track to tutions concerned. modest growth, which is driven by As a result, the U.S. Fed repeat- domestic demand. Given favorable edly increased liquidity in the U.S. competitive conditions, real GDP is money market and, on August 17, likely to expand by 2.1% in both 2007 2007, lowered the discount rate by and 2008. Consensus Forecasts sees 0.5 percentage point to 5.75% be- growth at 2.3% in the calendar year tween two regular meetings. On Sep- 2007, which would signify an in- tember 18, the Federal Open Market crease for the seventh year in a row. Committee (FOMC) cut the key fede- As downside risks, the Bank of Japan ral funds rate by 50 basis points to cites a sharp slowdown in the U.S.

Monetary Policy & the Economy Q3/07 ◊ 11 Robust Economic Activity in the Euro Area

economy and a detrimental impact of have often been associated with the turmoil in the U.S. mortgage political turmoil. The IMF sharply market on the profitability of the corrected its 2007 growth forecast Japanese banking system. upward to 11.2%, and the rating The core inflation rate (CPI ex- agency Moody’s upgraded its credit cluding fresh foods), which is crucial rating for China. Stock prices on the for monetary decisions, stood just strongly booming Chinese stock mar- below zero on an annual basis in the ket plunged repeatedly in spring 2007 first half of 2007, partly induced by but then rallied rapidly, bringing the falling oil product and telecoms stock index to an all-time high at end- prices. The Bank of Japan revised its August 2007. The country’s financial expectations for Japan’s core inflation markets meanwhile remain vulnera- downward: It now predicts a rise of ble to any unexpected increase in only 0.1% in the fiscal year 2007 and global risk aversion. In addition, real does not expect a rise to 0.5% until estate business in Chinese conurba- the fiscal year 2008. The Bank of tions may be witnessing signs of over- Japan pursued its highly supportive heating. monetary policy in the first half of The IMF expects the economic 2007 and, in the wake of the U.S. prospects for NJA to remain favorable mortgage crisis, repeatedly injected on the whole, although growth rates additional liquidity into the money are likely to slacken marginally until market. 2008.

1.3 Asia Booms, China in Danger of 2 Euro Area: Growth Has Overheating Peaked In non-Japan Asia (NJA), the econ- 2.1 GDP Growth Down Slightly omy continued to grow vigorously in In the second quarter of 2007, euro the first half of 2007. Both the do- area real GDP grew by 0.3% on the mestic economy and the external sec- previous quarter and by 2.5% year on tor remained, for the most part, year, according to estimates. This sig- pillars of growth. China adopted nifies a slowdown compared with the measures to counter the possible very dynamic GDP growth of the overheating of the economy and to previous quarters and represents the stabilize inflation expectations. With euro area’s weakest performance the help of an “appropriately tight” since end-2004. Broken down into its budgetary policy and a less accommo- GDP components, growth in the sec- dative monetary policy, annual real ond quarter of 2007 differed mark- GDP growth is to be restricted to edly from that of the first quarter. some 9%. Despite these steps, growth Recently, the key pillar of economic in the second quarter of 2007 accel- growth was private consumption, erated to 11.9% year on year, fueled while gross fixed capital formation by momentum in industry and the and government consumption stag- service sector. The consumer price nated; net exports, which are now index’s steep rise in July 2007 having a positive impact, were partly (+5.6%) exceeded its target of 3% for offset by changes in inventories. the fifth month in a row, attracting Growth was down in all four considerable political attention, as major economies of the euro area, periods of high inflation in the past especially in Italy but also in Germany

12 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

and France. Whereas the decline in i.e. a full two percentage points below German GDP growth as a result of its peak in mid-2004 and at its lowest the increase in VAT was in line with level in more than a decade. How- the figure predicted by the European ever, this drop is not only the result Commission, other euro area coun- of economic activity. The labor mar- tries lagged behind expectations. In- ket and welfare reforms of the past vestment growth appears to have few years have also reduced structural paused, particularly in construction unemployment, which means that investment, which had previously GDP growth is currently consider- benefited from the mild winter. The ably more employment-intensive than flagging investment cycle is also it was a few years ago. In 2006 alone, evident from the euro area’s indus- two million jobs were created in the trial capacity utilization, which may euro area as a result. In the second have peaked at 84.8% in the second quarter of 2007, employment growth quarter of 2007 according to a Euro- was 0.5%, i.e. higher than in the pean Commission survey. Export two previous quarters. The European growth is also likely to have peaked. Commission still has high expecta- This corresponds to the mature stage tions for employment in industry and of the economic cycle but may also the service sector. reflect either insufficient competitiveness or exchange rate effects. 2.2 Upbeat Growth Prospects Consumer demand failed to assume Economic indicators suggest some- the role of economic engine despite what weaker confidence in the econ- the favorable labor market situation, omy, thus signaling the possibility which may be traced back to modest that economic activity in the euro growth in disposable income, in addi- area may have peaked. Both the Euro- tion to a rising saving ratio and to pean Commission’s Economic Senti- rising lending rates. ment Indicator and Ifo’s Business Climate In July 2007, the euro area’s bal- Index for Germany deteriorated ance of trade registered a surplus of slightly since June 2007. Despite EUR 4.6 billion after also having trending down since early 2007, most shown a surplus in the previous industrial sentiment indicators remain months. In the second quarter of well above their long-term averages, 2007, the euro area had a current thus still signaling growth close to account deficit of EUR 7 billion potential. Although the European according to first estimates. Over the Commission’s consumer confidence previous 12 months, the current indicator, following a long-term up- account showed a cumulative surplus trend, has been falling since May of EUR 2.6 billion until June 2007. 2007, it remains at a high level. However, if the trade and current For the third quarter of 2007, the account balances are seen as a ratio of European Commission’s target range GDP, both are nearly in balance. indicator projects slightly downward The labor market situation con- revised growth of between 0.3% and tinued to improve in light of the sus- 0.8%. This target range is likely to tained economic momentum. Fol- widen only marginally in both direc- lowing its previous decline in May tions until the first quarter of 2008. 2007, the euro area’s seasonally In its spring forecast of 2007, the adjusted jobless rate stood at 6.9%, European Commission had revised its

Monetary Policy & the Economy Q3/07 ◊ 13 Robust Economic Activity in the Euro Area

Chart 1 Contributions of Real GDP Components to Euro Area Growth

Percentage points, quarterly change 2.0

1.5

1.0

0.5

0.0

–0.5

–1.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2000 2001 2002 2003 2004 2005 2006 2007 Net exports (goods and services) Government consumption expenditure Gross fixed capital formation Consumption expenditure of households and nonprofit institutions serving households Changes in inventories and statistical discrepancy GDP

Source: Eurostat.

growth expectations for the full year cording to their projections of Sep- 2007 up by 0.5 percentage point. tember 2007, GDP growth in 2007 However, the interim forecasts were will range between 2.2% and 2.8%. revised marginally downward again In 2008, growth is expected to range to 2.5% recently. Eurosystem experts between 1.8% and 2.8%. From the share this underlying optimism. Ac- current perspective the euro area real

Chart 2 Business Climate Indicators

2.5

2.0

1.5

1.0

0.5

0.0

–0.5

–1.0

–1.5

–2.0

–2.5

–3.0 July 00 Jan. 01 July 01 Jan. 02 July 02 Jan. 03 July 03 Jan. 04 July 04 Jan. 05 July 05 Jan. 06 July 06 Jan. 07 July 07 Euro area (industrial confidence, European Commission) Germany (Ifo business climate index) BNB indicator (Belgium, euro area) Euro area (Manufacturing Purchasing Managers’ Index; NTC) Source: European Commission, Ifo, NTC, BNB, OeNB. Note: Deviation from the mean value of the indicator relative to the standard deviation.

14 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

economy appears to have been af- higher in the previous year and so had fected only marginally by the finan- a favorable base effect, which will, cial market turmoil. however, become less significant from September 2007. 2.3 Inflationary Pressure as Inflation rose slightly for pro- Expected cessed foods, meaning that the global In August 2007 the inflation rate uptrend in food prices (referred to measured by the Harmonised Index as “agflation”) is apparently feeding of Consumer Prices (HICP) decreased through to the euro area HICP now. to 1.7%; for September, though, it is However, significant global demand estimated to come to 2.1%. The fact for food, beverages and tobacco, that inflation was below the 2% mark including the production of crude oil for a year is attributable above all to substitutes, has for months been energy prices, which benefited from reflected in consumer price inflation a more favorable base effect, which is in, for instance, the U.S.A. and the now coming to an end, however, as U.K. well as from the appreciation of the From early 2007 to July, import euro. In Germany, the impact of the prices rose by 1.7%. Energy price VAT tax reform was not fully passed effects, and possibly also a price in- on to consumers, presumably because crease in emerging Asian markets – of strong competition and good the dissipation of the inflation-damp- corporate profits. In Germany itself, ening effects of globalization, are at inflation rose at an above-average rate the heart of this rise. In August 2007, in the wake of the VAT reform and producer price growth in industry accelerated to 2.5% in September excluding construction continued to 2007 because of price increases for decline. Here, too, the development oil products as well as food, beverages in energy prices, which have been and tobacco. By contrast, the HICP exhibiting negative growth since was lower than or in line with the April, play a key role. In addition, this euro area average in France and Italy trend is attributable to growth in in August. In August 2007, euro area intermediate goods prices, in which inflation rose for the subcomponent the past few months’ development in food and stayed high for services. In commodity prices is reflected, albeit August, core inflation (all-items index with a lag. excluding energy and unprocessed To date, the risks to the forecast foods) augmented to 2.0%, the high- diagnosed by the European Commis- est level since end-2004. sion have not become reality either in After soaring by nearly 40% since the form of an increase in producer the start of the year, at end-Septem- prices or in unexpectedly high wage ber 2007 the price of crude oil (Brent) settlements. Wages have so far risen reached an all-time high of over USD modestly. After stagnating in the 80 per barrel. In August 2007, oil fourth quarter of 2006, unit labor prices had fallen in the wake of the costs in the euro area rose by 0.8% in financial market turmoil. In the same the first quarter of 2007. The com- month, energy prices in the euro area pensation of employees in the euro even made a negative contribution to area rose more quickly in the second inflation. This is because the price of quarter than in the previous quarter. oil denominated in euro had still been The favorable labor market situation

Monetary Policy & the Economy Q3/07 ◊ 15 Robust Economic Activity in the Euro Area

Chart 3 HICP Components: Contributions to Inflation

Percentage points, monthly data 3.0

2.5

2.0

1.5

1.0

0.5

0.0

–0.5 Jan. 04 July 04 Jan. 05 July 05 Jan. 06 July 06 Jan. 07 July 07 Food (including alcohol and tobacco) Nonenergy industrial goods Energy Services All-items HICP Source: Eurostat.

is likely to make higher wage settle- 2.4 Monetary and Lending Growth ments possible. Productivity growth at Record Levels went down slightly again in the sec- The three-month average of annual ond quarter. Since 2002, accelerating M3 growth came to 11.4% from June productivity growth has contributed through August 2007, the highest considerably to falling unit labor costs level since 1999. In particular, an in the euro area. Overall, however, increase in short-term deposit growth hardly any significant second-round underlies this trend. This may be for effects of the increase in oil prices on two reasons: first, the flight of inves- wages are identifiable. tors into liquid funds given the recent According to projections pub- financial market turmoil; second, in- lished by experts at the European creased interest rates for maturities Central Bank (ECB) in September up to two years that make investing 2007, the HICP inflation rate will in short-term assets more advanta- range between 1.9% and 2.1% in geous. In addition, sustained high risk 2007 and between 1.5% and 2.5% in aversion on the part of nonfinancial 2008. While they forecast that con- corporations and households is contributions to inflation from energy tributing to robust growth in mone- and raw materials, indirect taxes and tary demand. profit margins will decline gradually, In August, lending growth ex- rising unit labor costs will have an panded to 8.8%. Whereas lending inflation-boosting effect in line with to nonfinancial corporations acceler- forecasts. According to the Govern- ated, annual household lending ing Council of the ECB, the risks to growth continued to slow. Sustained the inflation outlook currently are on high demand for credit reflects cur- the upside. rently buoyant economic growth and fundamentally favorable financing conditions. Prior to the spillover of the U.S. mortgage market crisis, ad-

16 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

Chart 4 Euro Area: Development of M3 and Loans

Annual change in % 14

0 1999 2000 2001 2002 2003 2004 2005 2006 2007 M3, moving three-month average Loans to the private sector

Source: ECB. ditional factors were banks’ more monetary analysis. At the same time, relaxed lending practice and the the Council underlined that it would increased confidence of market par- never precommit to monetary policy ticipants. Steep growth in merger and decisions that had to be taken. acquisition activities within the euro The Governing Council of the ECB area may also have contributed to essentially expressed the same ap- the rapid expansion in corporate bor- proach at its meeting of September 6. rowing. The Governing Council confirmed that the medium-term outlook for 2.5 Further Hike in ECB Key price stability remained subject to Interest Rate upside risks and that the monetary On June 6, 2007, the Governing policy stance remained on the accom- Council of the ECB decided to raise modative side, but considered it appro- the minimum bid rate on main refi- priate to gather additional informa- nancing operations by 25 basis points tion before drawing further conclu- to 4.0%. This means that it has in- sions for monetary policy, given creased its key interest rate by a total increased uncertainty as a result of of 200 basis points since December financial market volatility. 2005. The latest hike was justified on The markets had largely antici- two counts: the favorable economic pated the key interest rate increase of climate and potential risks to price June, having already factored it into stability. the three-month interbank rates prior At its meeting of August 2, 2007, to the ECB Governing Council’s the Governing Council of the ECB decision. Since August 2007, the announced that it would follow eco- differences between the three-month nomic and monetary developments Euribor and interest on September with strong vigilance. This is an and December Euribor futures con- expression of implied upside risks to tracts have been negative, which may price stability over the medium term, be seen as a sign of flagging expecta- which were identified in the ECB tions of further increases in key Governing Council’s economic and interest rates. However, owing to the

Monetary Policy & the Economy Q3/07 ◊ 17 Robust Economic Activity in the Euro Area

current tensions in the money mar- basis. Conditions in European finan- ket, exceptional factors which limit cial markets have since eased to some this indicator’s meaningfulness re- extent. While quick tenders brought garding expectations about the future back the overnight rate close to the level of key interest rates should be minimum bidding rate, the trend in included in considerations. longer-term money market rates Since the start of the financial indicated somewhat greater uncer- market turmoil, the yield curve has tainty in the money markets, as well flattened, with long-term interest as increased risk premia. rates having fallen most pronouncedly. In the wake of these develop- While short-term money market ments, both euro area and U.S. stock rates edged up temporarily in the markets suffered severe setbacks, wake of the turmoil, short-term which, however, could be partly government bond rates fell at the recouped in September. The DJ EURO same time, signaling temporarily STOXX 50 and the S&P 500 have fallen higher credit risk premia in interbank by 6% and 2%, respectively, since trading. then. Implied volatilities of options on both stock indices rose substan- 2.6 ECB Stabilizes Money Markets tially, and yields on long-term gov- and Financial Markets ernment bonds declined markedly, to At the start of the U.S. mortgage recover marginally since then. Both market crisis, the Governing Council euro area and the U.S. earnings, of the ECB announced at its meeting which are calculated on the basis of of August 2, 2007, that it would fol- broad stock indices, remain close to low market events with close atten- their historical average since 1990. tion. When the financial market tur- These developments highlight in- moil subsequently led to strains in the vestors’ heightened uncertainty. Ac- euro area interbank market, the ECB cording to market reports, the U.S. injected the necessary liquidity into mortgage crisis, concerns about poten- the money market. At the same tial negative repercussions on the U.S. time, the ECB President Jean-Claude economy and the reduced availability Trichet appealed to market partici- of credit for corporate takeovers are pants to keep calm. He said that the depressing stock markets. current period of nervousness and Foreign exchange markets are also volatility in many markets should be currently suffering from the financial interpreted as a reappreciation of market turmoil. Although the U.S. risks. dollar firmed against the euro at the On August 22 and September 6, start of the crisis, it has recently 2007, the Governing Council decided moved firmly in the opposite direc- to carry out supplementary longer- tion. At the end of September, the term refinancing transactions with a EUR/USD exchange rate surpassed maturity of three months – a purely the symbolic mark of 1.40. The technical measure designed to facili- Japanese yen, too, was subject to tate the functioning of the euro extreme price movements, which money market. This injection of may be attributed to the liquidation liquidity did not affect the routine of carry trades (speculation on the longer-term refinancing transactions interest rate movements of foreign that are carried out on a monthly exchange loans). In nominal effective

18 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

terms, i.e. trade-weighted by the In the first quarter of 2007, GDP 24 main trading partner countries growth in most Central, Eastern and (narrow group of euro area trading Southeastern European countries partners), the euro was only margin- (CESEEs) was fueled by dynamic do- ally higher than the comparable 2006 mestic demand, although both private level. consumption and investment activity also provided significant stimuli. 3 GDP Growth in Central Only in Hungary and in the Slovak and Eastern Europe Republic did net exports constitute 3.1 Robust Economic Activity in the the largest component of growth. In First Half of 2007 the other CESEEs, the contribution In the first quarter of 2007, average of net exports to growth was insig- real GDP growth in the new EU nificant, and even strongly negative in Member States Bulgaria, Poland, Ro- Bulgaria and Romania. mania, the Slovak Republic, Slovenia, In all the countries currently un- the Czech Republic and Hungary der review (except for Hungary), pri- stood at 6.2% year on year. Growth vate consumption made a significant is likely to be only marginally weaker contribution to growth, and in fact in the second quarter. Following the largest contribution in Poland and average GDP growth of 6% in 2006 Romania. Several factors favored this as a whole, this means that economic particularly healthy development in momentum gathered pace in early household spending. In addition to 2007. GDP growth was particularly rapid lending growth, above all labor robust in the Slovak Republic and in market indicators improved in these Slovenia. In addition, Poland’s GDP countries. Over the past 12 months, grew at a more than average rate. dynamic GDP growth led to rising Only in Hungary, where consolida- employment rates and falling jobless tion measures to reduce an especially numbers. In some countries, such as high budget deficit (2006: 9.2% of Poland and the Slovak Republic, the GDP) substantially dampened growth, initial signs of an incipient labor was growth well below average. The shortage in certain sectors (primar- first quarter of 2007 saw considerable ily, construction and industry) are acceleration in Croatian GDP growth. already evident. In conjunction with

Table 1 GDP Growth in Selected Central, Eastern and Southeastern European Economies Annual change in real GDP growth in %

2005 2006 Q2 06 Q3 06 Q4 06 Q1 07

Bulgaria 6.2 6.1 6.4 6.7 5.7 6.2 Poland 3.5 5.8 5.5 5.8 6.4 6.9 Romania 4.1 7.6 7.8 8.3 7.7 6.0 Slovak Republic 6.0 8.3 6.7 9.8 9.6 9.0 Slovenia 4.0 5.2 4.7 5.6 5.5 7.2 Czech Republic 6.5 6.4 6.5 6.3 6.1 6.1 Hungary 4.2 3.9 3.7 3.9 3.3 2.7 Croatia 4.3 4.8 3.6 4.7 4.8 7.0

Source: Eurostat, national statistical offices.

Monetary Policy & the Economy Q3/07 ◊ 19 Robust Economic Activity in the Euro Area

this, the first quarter of 2007 wit- bution to growth in the Slovak nessed an increase in real wages, Republic and in Hungary, in Bulgaria which exceeded the long-term aver- and Romania their contribution to age by a wide margin in most cases GDP growth was strongly negative. (particularly in Romania and Bul- In the Slovak Republic, high produc- garia, but also in Poland). tion capacity levels in export-related Investment became more impor- industries have been created in recent tant as an engine for growth. In years (frequently financed via inward Slovenia and Bulgaria, it represented FDI), giving a vigorous boost to the key component of growth. In exports. In Hungary, a competitive Poland, investment also registered industrial sector contrasts with fall- extraordinarily buoyant growth ing domestic demand. The contribu- (+28%). A critical factor may have tion of net exports to growth has been the mild winter, which trig- therefore soared in recent quarters. gered unusually high levels of con- In Bulgaria and Romania, extremely struction investment. Another factor dynamic domestic demand generated was, of course, the positive impact of high import growth. In both coun- the prevailing industrial boom, which tries, furthermore, export activity is evident from high (and still grow- lost momentum, which – in Romania ing) levels of capacity utilization and – was primarily a result of the strong industrial production. Foreign direct currency. In Bulgaria, several sector- investment (FDI) stimulated invest- related temporary factors may have ment activity primarily in the two taken their toll, although import/ newest EU Member States, Bulgaria export data should be interpreted and Romania. However, Hungary and carefully and will probably have to be the Czech Republic no longer fit the revised owing to the change in the picture of increased investment mo- way the country’s statistics are now mentum in the region. As in the pre- recorded in the wake of the country’s vious quarters, investment expendi- accession to the EU. ture shrank in Hungary. This decline Economic growth in Croatia, an was entirely attributable to a substan- EU accession candidate, was driven tial decline in construction invest- by buoyant domestic demand. The ment. By contrast, investment in contributions of investment and, plant and equipment recovered, above all, private consumption to notching up positive growth in early growth increased significantly. The 2007 for the first time in three latter is ascribable to robust wage quarters. In the Czech Republic, growth and higher total household gross fixed capital formation advanced lending. In the first quarter of 2007, far more slowly than in the fourth the contribution of net exports to quarter of 2006. This development growth was slightly negative. Both was, however, more than offset by a import and export growth weakened particularly robust buildup in inven- to some extent. tories, which contributed 3.5% to growth. 3.2 Somewhat Higher Inflation The contribution of net exports In the first half of 2007, a trend to GDP growth developed in diver- in rising inflation was evident in gent ways across the region. Whereas CESEE; in the summer, though, net exports made the largest contri- inflation could be reined in again.

20 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

Table 2 Price Developments in Selected Central, Eastern and Southeastern European Economies Annual change of the HICP in %

2005 2006 Feb. 07 Mar. 07 Apr. 07 May 07 June 07 July 07

Bulgaria 6.0 7.4 4.6 4.4 4.4 4.5 5.3 6.8 Poland 2.2 1.3 1.9 2.4 2.2 2.3 2.6 2.5 Romania 9.1 6.6 3.9 3.7 3.8 3.9 3.9 4.1 Slovak Republic 2.8 4.3 2.0 2.1 2.0 1.5 1.5 1.2 Slovenia 2.5 2.5 2.3 2.6 2.9 3.1 3.8 4.0 Czech Republic 1.6 2.1 1.7 2.1 2.7 2.4 2.6 2.5 Hungary 3.5 4.0 9.0 9.0 8.7 8.4 8.5 8.3 Croatia¹ 3.4 3.2 1.2 1.8 2.3 2.2 1.9 2.1 Source: Eurostat, national statistical ofﬁ ces. ¹ CPI.

The Slovak Republic succeeded in stable or in decline in most cate- continuing the disinflation process. gories. Services and (processed and unpro- In July 2007, core inflation (all- cessed) foods accounted for the larg- items index adjusted for energy and est share of inflation measured in the unprocessed foods) ranged between region, with the latter being respon- 1.7% in the Slovak Republic and 7.3% sible for a good portion of the HICP in Hungary. In the first six months of rise in the Czech Republic, in Poland, 2007, a modest rise in this indicator Slovenia and, in recent months, in was evident in most CESEE coun- Bulgaria as well. Energy, the key price tries, perhaps signaling increasing in- driver in 2006, did not have a signifi- flationary risks in future. Such risks cant impact on price developments at are given, above all, by already high the start of 2007. The drop in infla- (and rising) levels of capacity utilization in the Slovak Republic was at- tion, rising employment, falling un- tributable to two factors. First, unemployment and, in this connection, processed foods made a smaller con- increasingly dynamic wage growth. tribution to inflation. Second, defla- Slovenia was the first new EU tion again became stronger in the seg- Member State of the 2004 enlargement of nonenergy industrial goods. ment round to introduce the euro in Furthermore, the appreciation of the January 2007. According to Eurostat, Slovak koruna also had an inflation- the introduction of the euro increased dampening effect. Among the CESEE inflation by 0.3 percentage point in countries currently under review, the changeover period to March Hungary remains the country with 2007. Apparently euro-related price the highest rate of inflation. How- increases in some goods and services ever, inflation – which had surged categories (e.g. restaurants and ho- after administered prices and taxes tels, personal services) were evident were raised within the framework of particularly in December 2006 and the aforementioned budget restruc- January 2007. However, the rise in turing measures – may have peaked inflation seen in recent months was in early 2007. Since April 2007, primarily attributable to soaring food contributions to inflation have been prices.

Monetary Policy & the Economy Q3/07 ◊ 21 Robust Economic Activity in the Euro Area

In March and April 2007, the 3.3 Divergent Current Account Slovak central bank (Národná banka Performances, Volatile Slovenska) cut its key interest rate by Exchange Rates 25 basis points in two equal steps to a At the start of 2007, Poland, the current 4.25%. In June 2007 and on Slovak Republic, Slovenia and the September 24, 2007, its Hungarian Czech Republic saw an improvement counterpart (Magyar Nemzeti Bank) in their respective current accounts, followed suit, lowering its key inter- primarily on the back of major est rate by a total of 50 basis points advances in their goods and services to 7.5%. Declining interest rates as balances, which were positive in well as the key interest rate cut by Slovenia and the Czech Republic and the Federal Reserve provided Magyar only slightly negative in Poland and Nemzeti Bank with the room for the Slovak Republic. There were two maneuver to take this step. reasons for this improvement: first, In August 2007, by contrast, the more vigorous economic activity in central banks of Poland (Narodowy the euro area and the related higher Bank Polski) and the Czech Republic demand for goods and services, and (Cˇeská národní banka) increased their second, a high degree of competitive- interest rates by 25 basis points to ness (which is evident from these 4.75% and 3.25%, respectively. As countries’ dynamic productivity growth anticipated, Narodowy Bank Polski in industry, falling unit labor costs raised its key interest rates. The grow- and improvements in the terms of ing pressure on wages and demand trade). The income balance is the big- justified this increase. For the same gest strain on these countries’ current reasons, Cˇeská národní banka unex- accounts. In most CESEE countries, pectedly raised its key interest rates the income balance is in strongly neg- for the second time since June 2007. ative owing to high profit repatriation Above all, robust private consump- levels. tion and falling unemployment may Current account deficits widened mean that the central bank might in Hungary, Bulgaria and Romania. miss the inflation target of 3% by In particular, Bulgaria and Romania ±1 percentage point (as measured by have large shortfalls in their respec- the CPI). tive current accounts. In both coun-

Table 3 Current Account Developments in Selected Central, Eastern and Southeastern European Economies % of GDP

2005 2006 Q2 06 Q3 06 Q4 06 Q1 07

Bulgaria –12.0 –15.8 –12.5 –5.1 –25.4 –27.3 Poland –1.6 –2.3 –2.0 –1.4 –3.5 –2.9 Romania –8.6 –10.4 –11.1 –9.8 –11.6 –15.3 Slovak Republic –8.7 –8.3 –9.6 –10.3 –6.9 0.9 Slovenia –2.0 –2.5 –0.7 –2.8 –5.6 –2.6 Czech Republic –2.1 –4.2 –5.7 –5.3 –6.0 –1.6 Hungary –6.9 –5.8 –6.6 –5.1 –4.4 –4.8 Croatia –6.4 –7.8 –15.3 –21.8 –17.4 –24.0 Source: National central banks.

22 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

tries, the dynamic economy, growing against the euro before firming mar- consumer confidence and high l ending ginally in September. The Hungarian growth are spurring a boom in con- forint was most severely affected, sumption and are thus deepening the whereas the Czech koruna continued deficit in the goods and services bal- to appreciate, unaffected by the crisis. ance. In both Bulgaria and Romania, The reason was above all the liquida- current account trends should be seen tion of carry trades using the Czech against a backdrop of healthy invest- koruna as an investment currency. ment demand, but also partly as a Although stock markets in Poland, reflection of brisk residential con- the Czech Republic and Hungary fell struction activity. A positive point is sharply in value in August 2007, they that the net FDI inflows (including had staged a recovery by the end of intracompany loans) in both countries September. are significantly helping to narrow the financing gap, although the 4 Austria: The Economy export-import ratio fell in the first Continues to Expand for quarter of 2007 compared with pre- Another Year vious quarters. 4.1 OeNB Economic Indicator: The development of Croatia’s cur- Strong Economic Growth rent account has a strongly cyclical in 2007 nature, which is primarily attribut- The Austrian economy is currently able to the country’s services balance experiencing a period of expansion. and, in this context, to tourism. At +3.1% (seasonally and working- Croatia’s particularly high deficit in day adjusted), real GDP growth the first quarter of 2007 should be proved to be very vigorous in 2006. viewed in this light. In the first half of 2007, this trend Owing to the latest financial continued unchecked, with growth market turmoil in connection with amounting to 0.9% in both the first the U.S. mortgage crisis, the curren- and second quarters of the year (sea- cies of the new EU Member States sonally and working-day adjusted, temporarily depreciated somewhat quarterly).

Table 4 Results of the National Accounts (in real terms)

2005 2006 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Annual Quarterly change in %1 1 change in % GDP +2.3 +3.1 +0.7 +0.8 +0.8 +0.8 +0.9 +0.9 Private consumption +2.0 +2.0 +0.5 +0.4 +0.4 +0.4 +0.3 +0.4 Government consumption +1.8 +2.0 +0.6 +0.5 +0.4 +0.3 +0.1 +0.2 Gross fixed capital formation +1.3 +3.1 +0.4 +1.1 +1.5 +1.5 +1.4 +0.9 Exports +6.8 +7.3 +1.6 +1.7 +2.0 +2.1 +1.6 +1.3 of which: goods +7.2 +7.8 +2.7 +0.5 +2.0 +2.4 +1.5 +0.9 services +5.5 +6.4 +1.5 +1.6 +1.7 +1.6 +1.6 +1.6 Imports +6.1 +4.5 +0.9 +1.3 +1.6 +1.5 +0.9 +0.5 of which: goods +6.5 +5.6 +1.4 +1.4 +1.4 +1.6 +1.5 +0.6 services +2.3 +5.2 +1.3 +1.7 +1.6 +0.9 +0.2 +0.3 Source: WIFO. 1 Seasonally and working-day adjusted.

Monetary Policy & the Economy Q3/07 ◊ 23 Robust Economic Activity in the Euro Area

In the first six months of 2007, however, the European Commission’s growth was led by net exports, in consumer confidence indicator has particular. Although export growth settled at very high levels. In the first became sluggish, the simultaneous half of 2007, government consump- decline in the growth in imports tion developed very sluggishly, almost stabilized the contribution of net stagnating. exports to growth. Exports therefore Economic risks increased owing appear to have passed their cyclical to the international financial market peak. The same goes for investment, turmoil originating in the U.S. real which advanced appreciably more estate market. Indicators published slowly in the second half of 2007 recently still do not allow clear con- (+0.9%). clusions to be drawn about how large Consumption growth still lags be- an impact the turmoil has on the hind expectations. In recent months, Austrian economy. However, it is an

Box 1 OeNB Economic Indicator of September 2007 Signals Continued Robust Growth in the Second Half of 20071 According to the current OeNB economic indicator, Austrian real GDP will grow by 0.8% and 0.7% in the third and fourth quarters of 2007, respectively (seasonally and working- day adjusted, quarterly). For 2007 as a whole, this means growth of 3.4%. The growth forecast for the third quarter of 2007 remained unchanged from the OeNB economic indicator published in June 2007. Table 5 Short-Term Real GDP Forecast for Austria in the Third and Fourth Quarters of 2007 (seasonally and working-day adjusted) 2004 2005 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Quarterly year-on-year change in (%) 1.6 2.3 2.8 2.6 2.3 2.2 2.2 2.7 3.2 3.1 3.0 3.3 3.4 3.5 3.4 3.3 Quarterly change in (%) 0.6 1.0 0.8 0.1 0.3 0.9 0.9 0.6 0.7 0.8 0.8 0.8 0.9 0.9 0.8 0.7 Annual change in (%) 2.3 2.3 3.1 3.4 Source: Findings of the OeNB economic indicator of September 2007, Eurostat.

At +3.4%, annual growth in 2007 exceeds the OeNB’s forecast of June 2007 by 0.2 percentage points. This increase is primarily attributable to the revision of historical data. Growth in the fourth quarter of 2006 and the first quarter of 2007 was revised upward from 0.5% to 0.8% and from 0.8% to 0.9%, respectively. The values registered by the OeNB economic indicator for the third and fourth quarters of 2007 remained unchanged on the OeNB’s forecast of June 2007. To date, the international financial market turmoil originating in the U.S. real estate market has not been reflected in leading indicators and thus in the current values of the forecast. 1 The OeNB economic indicator has been published four times a year since the first quarter of 2003. It forecasts real GDP growth for the current quarter and the next (in each case, quarterly, using seasonally and working-day adjusted data). The forecast’s values are based on the results of two economic models, a stochastic decision space model and a factor model. Further details on the models used can be found at www.oenb.at under Monetary Policy and Economy/Forecasts. The next publication is due in January 2008.

24 ◊ Monetary Policy & the Economy Q3/07 Robust Economic Activity in the Euro Area

Chart 5 Labor Market Developments in Austria

Annual change in % Unemployment Employment 10 3.0

5 2.5 2.0 0 1.5 –5 1.0

–10 0.5

–15 0 Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July 05 06 06 06 06 07 07 07 05 06 06 06 06 07 07 07

Vacancies Persons in Training 50 30

20 25 10 0 0 –25 –10

–50 –20 Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July Oct. Jan. Apr. July 05 06 06 06 06 07 07 07 05 06 06 06 06 07 07 07

Vacancies reported Persons in training Job seekers per position Persons seeking apprenticeship positions

Source: Statistics Austria. indisputable fact that, in addition to USD 80 following a brief rally high oil prices and the strong euro, (USD 66.8 on August 22, 2007). The the U.S. real estate crisis represents dissipating base effect of prices of an additional risk factor for the econ- the core component energy and the omy. increase in petroleum tax as of July 2007 are continuing to reinforce the 4.2 Food and Energy Prices rise in the price of crude oil. Price Fuel Inflation increases of the core component food In the first half of 2007, Austrian in- are primarily attributable to higher flation (HICP) advanced from 1.7% bread and milk product prices. In in January to 2.0% in July. The rise in August 2007, inflation retreated to inflation in the first half of 2007 was 1.7%, i.e. to the euro area level. attributable to two factors: first, high crude oil prices and, second, strong 4.3 Recovery in the Labor Market inflationary pressures in the separate Slows Down category of food prices. The Austrian labor market is continu- The price of crude oil (Brent) ing to develop very favorably on the climbed from about USD 59 (Janu - back of economic expansion even ary 1, 2007) by some 35% to almost though trends are becoming sluggish USD 80 (July 20, 2007) and, since in some areas. Registered unemploy- early September, has been just under ment declined from 295,300 in Janu-

Monetary Policy & the Economy Q3/07 ◊ 25 Robust Economic Activity in the Euro Area

ary 2007 to 191,200 in August 2007. seekers per position, i.e. the ratio of This corresponds to a 4.8% drop year the number of those reported unem- on year in August 2007 and signifies ployed to the number of vacancies a slight slowdown in momentum on reported, is continuing to decline, July 2007 (–5.7%) (chart 5). The thereby also reflecting Austria’s number of the long-term unemployed currently favorable labor market has fallen particularly sharply on environment (August 2007: –16.5% account of the buoyant Austrian year on year). However, this figure, economy (–23.5%). In August 2007, too, peaked in December 2006. the problem groups of the young A trend reversal is evident from unemployed (–5.6%) and those aged the number of persons in training. 50+ (–2.4%) registered a slight fall Whereas this figure registered posi- in numbers. In March 2007, employ- tive double-digit growth in 2006, ment growth peaked and has since since March 2007 it has suffered neg- been slackening marginally. In August ative growth. In other words, fewer 2007, it stood at 1.4% (see chart 5). people are taking up training com- At 4.3%, the jobless rate (Eurostat) pared with a year ago. In August has remained consistently low from 2007, a mere 34,025 persons were May to August 2007. undergoing training. The same goes Although the number of vacancies for the number of young persons reported is continuing to rise steeply seeking apprenticeship positions, (August 2007: +14%), growth mo- which – as was largely the case in mentum has been slowing since De- 2006 – is characterized by declining cember 2006. The number of job growth (chart 5).

26 ◊ Monetary Policy & the Economy Q3/07 I n F o c u s : Economic and Financial E d u c a t i o n Economic and Financial Education: Concepts, Goals and Measurement

Ernest Gnan, A review of the literature and of specific education initiatives reveals a broad range of Maria Antoinette approaches to economic and financial education. What knowledge areas and skills are Silgoner, targeted and how content is presented very much depends on the motives and goals of the Beat Weber various education providers. Central banks, for instance, provide economic and financial education basically for five reasons: (1) to enhance the effectiveness of monetary policy, (2) to ensure the smooth functioning of financial markets, (3) to support sustainable economic policies, (4) to promote economic and financial literacy as a public good and, (5) by doing so, build their reputation and promote acceptance for their actions. Economic and financial literacy tests have generally uncovered substantial knowledge gaps among citizens. Yet given the methodological deficiencies of the existing analyses, test scores must be interpreted with caution. Improving methodology remains a challenge for future research.

JEL classification: A20, E58, I21 Keywords: economic and financial literacy, central banks, education.

1 Introduction other channels (such as the mass Efforts to teach economic and per- media, courses and information cam- sonal finance to consumers have been paigns) to reach target groups. Sec- stepped up across the world in recent ond, the rationale for these programs years. Government agencies, central is more comprehensive; they are banks, consumer advocate organiza- intended to support the achievement tions, employer and employee repre- of broad-based economic policy goals sentatives, nonprofit organizations as rather than being limited to the well as commercial financial service provision of basic literacy skills at the providers run numerous educational school level. Finally, economic policy- programs to raise public understand- motivated research will raise ques- ing of macroeconomic fundamentals tions different from those typically and to enhance people’s financial studied by the established strand of capability.1 economic education research. Economic education research (May, Against this backdrop, this con- 2003) tends to revolve around the tribution provides a structured over- case for integrating economic and view of definitions used for economic financial education into basic school and financial education, of underly- curricula. However, the education ing educational targets and of test initiatives referred to in this paper methods used to evaluate the effec- differ from school-focused educa- tiveness of such activities. Another tional programs in a number of purpose of the article is to juxtapose aspects. First, these programs are not the practical approaches to economic (or not exclusively) integrated into an and financial education with academic institutional framework like school research in the field. To this end, sec- curricula but rather use a variety of tion 2 provides an overview of the

Refereed by: 1 The term “economic education” encompasses programs geared toward business and management skills as well as Klaus Beck, economic and personal finance topics. In this contribution we concentrate on the provision of economic education Johannes Gutenberg and on its links and overlaps with financial education. Our principal focus on economic and financial education University, Mainz. notwithstanding, some of the educational programs discussed also cover aspects of business education.

28 ◊ Monetary Policy & the Economy Q3/07 Economic and Financial Education: Concepts, Goals and Measurement

broad spectrum of current economic economic issues. Neatly distinguish- and financial education initiatives and ing between the two sets of programs discusses the relevant academic liter- is not easy; education initiatives typi- ature. This review is expanded into cally lie on a continuum that ranges an investigation of the motives and from a special financial focus to a gen- goals of providers of economic and fi- eral economic orientation. Distinc- nancial education in section 3. Sec- tions easily blur also between the spe- tion 4 treats the special interest of cific knowledge areas and skills the central banks in economic and finan- various providers of education hope cial education. Section 5 reviews tests to target with their initiatives. To and test scores on consumers’ eco- identify the nuances and characteris- nomic and financial literacy, also dis- tics of this continuum and to better cussing the limitations of such tests in understand its content, we have com- the process. Section 6 concludes. pared the definitions of economic and financial education used across a vari- 2 Definitions ety of selected initiatives and papers. Programs to enhance the financial ca- What is meant by economic and pability of consumers have been financial education, and how do the launched in large numbers in recent many terms used in this context re- years. They supplement a variety of late to each other? The chart below programs introduced earlier to pro- shows the most important colloca- mote public understanding of basic tions used in the literature.

Collocations in the field of economic and financial education

economic education literacy financial capability } { awareness

Source: OeNB.

The first obvious difference is be- concept of economic and financial tween terms that relate to the teach- education, in no small part because ing activities of education providers past usage has apparently been rather (education) and terms that relate to inconsistent. the skills to be developed in target We expect to derive a more de- groups (literacy, capability, aware- tailed understanding of the terms ness). These terms give initial insights from the definitions used in the mis- into the underlying conceptions re- sion statements of education initia- garding the interaction between pro- tives or in academic papers. To this viders of education and the general or effect, we have analyzed around 50 specific audiences addressed. Yet the initiatives and papers, including key vague connotations these terms evoke initiatives of the public sector, semi- only provide limited insights into the nal research papers and some of the

Monetary Policy & the Economy Q3/07 ◊ 29 Economic and Financial Education: Concepts, Goals and Measurement

numerous private sector initiatives. These elements include: To provide a structured overview of – Confidence (CEA, 2007; CFEE, the heterogeneous connotations of the n.d.; FSA, 2004; OECD, 2005): various definitions, we have grouped This aspect refers to measures in- the definitions in three sections. stilling confidence into consumers that their transactions with fi- 2.1 Knowledge, Understanding, nancial service providers will be Awareness, Decision-Making conducted in a correct, transpar- Capability ent and fair manner, and that they More or less all definitions of finan- stand to benefit from seeking the cial education invoke the idea of services of finance professionals. enhancing literacy (i.e. knowledge), – Knowing where to look for guidance creating understanding and building de- and advice (NEFE, n.d.; OECD, cision-making capability in the area of 2005): Knowing whom to ap- personal finance. Knowledge and un- proach for information and assis- derstanding mostly relate to financial tance eases the decision-making service products and their character- burden placed on consumers. Mo- istics. Decision-making capability re- bilizing experts for support may, lates to the ability to put that knowl- to some extent, be an alternative edge to practical use in selecting a to acquiring knowledge oneself. product. These definitions revolve – Knowing one’s rights (BDA, 1998; around the consumer who has to Financial Literacy and Education choose among financial service prod- Commission, 2006; Wilmink, ucts. 2007): As protection against fraud Some definitions also include the and abuse, knowing one’s rights concept of awareness, either in the may also be a partial substitute for sense of recognizing the need to use knowing how to navigate the sea the services of financial service pro- of financial products. viders (Ford and Jones, 2006), or in – Communicating and articulating the sense of knowing about the range one’s needs (Codice, 2007; Com- of products available (Mason and merzbank, 2004; FSA, 2004; Wilson, 2000; OECD, 2005). FTE, 2005; NEFE, n.d.; Reifner, 2006; Vitt, 2000): This element 2.2 Interaction among Agents refers to the ability to articulate A second group of elements supple- knowledge gained to the best of ments the knowledge, awareness and one’s interest in communicating capability connotations reflected by with other agents. The respective most definitions and broadens the definitions typically relate to the definitions to include the dimension negotiations between financial that describes consumers’ interaction service providers and users; in ad- with other agents. Such definitions dition, this concept may refer to see the act of consuming financial the ability to form and articulate services as part of a process in which an informed opinion in discussing the interaction among the various basic economic and framework agents involved has a decisive influ- conditions. ence on how consumers act – even – Social consequences and responsibility though consumers remain the key (AdFLAG, 2000; Australian Min- target of the educational efforts. isterial Council, 2006; Gemein-

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same Initiative, 2000; EASP, 2005; nomic education programs see the Government of Canada Policy need to teach an economic way of Research Initiative, 2006; La fi- thinking along the lines of the nance pour tous, 2007; Reifner, economic model of rational deci- 2006; U.K. Department, 2000): sion-making. Economic and financial education – Judgment capacity in economic (pol- is also meant to raise awareness icy) matters (BDA, 1998): This ele- for the consequences and second- ment addresses consumers in their ary effects of one’s actions for capacity as political citizens, par- third parties. This concept relates ticipants and agents in democratic to roles and responsibilities in processes. society. – Raising awareness for relationships – Access to financial services (CSD, between the personal sphere and 2006; Ford and Jones, 2006): the economy as a whole (JASS, Gaining access to financial prod- n.d.; UFFE, n.d.; WIDE, n.d.). ucts and services may not be easy, – Skills and knowledge in matters un- and may in fact be impossible, es- related to navigating the financial pecially for the poor (“financial services market, such as the skills exclusion”). People who are effec- needed to run a business, or an tively excluded from financial ser- understanding of tax and budget vices will have little use for knowl- policies (pfeg, 2005). edge about finances. As we can see, the concept of economic and financial education is 2.3 Social Context highly heterogeneous. The various A third category of connotations con- providers of education naturally tar- veyed by some definitions of eco- get different goals and have different nomic and financial education relates interests, which shape the programs to the broader social context of which they run and which also affect how the financial services industry is they define their mission. part. – Values and attitudes (Australian 3 The Case for Providing Ministerial Council, 2006; EASP, Economic and Financial 2005; FTE, 2005; Gemeinsame Education – An Overview of Initiative, 2000; Park, 2006; Educational Targets Reifner, 2006; Walstad, 2006): Economic and financial education is Definitions containing this ele- offered by a wide range of institu- ment refer to the political conditions, including international organi- tions under which individuals take zations, government agencies, busi- decisions. Educating citizens and nesses and business associations, trade consumers to choose and act, unions, nongovernmental organiza- which is what financial education tions (NGOs), foundations, financial initiatives are typically aimed at, regulators and central banks. Be- only makes sense when frame- tween them, they offer or advocate a work conditions and citizens’ val- wide variety of programs, courses ues are in line with each other. and resources. Provided the individ- – Economic reasoning (FTE, 2005; ual institutions expressly state educa- NCEE, n.d.): Some general (not tional targets, their measures may be financial market-related) eco- considered to pursue one of three

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types of goals: While all programs 2006; Ilves, 2007; Park, 2006). A reach out to individual consumers, number of programs specifically men- they are designed to ultimately bene- tion the goal of increasing consumer fit either the individuals themselves, mobility in the sense of increasing or the functioning of the financial their propensity to change providers market, or the economy and society (Financial Literacy and Education as a whole. Commission, 2006; Ilves, 2007). Furthermore, as especially public and 3.1 Supporting Individuals in private financial sector agents often Reaching Personal Goals emphasize, who are consumers more A first group of targets avails itself of discriminating in their product choice measures that support individuals in encourage competition in the market reaching personal (finance) goals. The for financial services (Bernanke, case for raising literacy to this effect 2006; Commerzbank, 2004; Stark, is typically made by foundations, in- 2006). An aspect highlighted espe- ternational organizations or govern- cially by central banks is the improvement agencies (CSD, 2006; FTE, ment of the information processing 2005; Ilves, 2007; NCEE, n.d.; capacity of markets (Bernanke, 2006; NEFE, n.d.; OECD, 2005; U.K. De- Filar, 2006; Park, 2006; Stark, partment, 2000). 2006). After all, a rise in the market’s information processing capacity con- 3.2 Enhancing Market tributes to an effective transmission Performance of monetary policy measures. Con- A second group of educational targets sumer advocates and financial service relates to improving the way in which providers, finally, see financial educa- the market for financial services tion measures as having repercussions works. Here, economic and financial on the financial industry itself, as they education is seen as a structural pol- raise industry awareness for the need icy tool that contributes to remedy- to offer better quality (Korczak, ing financial sector problems by 2007; Reifner, 2006). prompting consumers to change their A number of companies and busi- behavior: Preventing consumers from ness associations hope to derive prac- accumulating excessive debt (OECD, tical benefits from consumers’ finan- 2005a) or educating consumers to cial literacy, namely to find financially change their saving and investment competent consumers more respon- behavior (CitiGroup Foundation, n.d.; sive to their product marketing mea- La finance pour tous, 2007; NEFE, sures (pfeg, 2005; Commerzbank, n.d.) are concerns that nonprofit 2004). Several initiatives see, above foundations and commercial busi- all, the promise of capital markets be- nesses alike advocate. coming more attractive for financially Strengthening the demand side literate investors (EASP, 2005; Gov- and advancing regulatory goals by ernment of Canada Policy Research empowering consumers to take in- Initiative, 2006). Last but not least, formed decisions is an aspiration some initiatives advocate financial shared above all by public institutions education as a way to tackle the pro- (Bernanke, 2006; FSA, 2004; La lems of financial exclusion (Gopinath, finance pour tous, 2007; Gopinath, 2006; NCRC, n.d.; Reifner, 2006).

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3.3 Contributing to Shaping fects the economy, thus building pub- Economic and Social Order lic support for monetary policy action A third group of educational goals is (Park, 2006; Stark, 2006; Walstad, very broadly based: The respective 2006) – see also section 4. A very providers, typically sponsors of gen- practical dimension of participation eral economic education initiatives, and literacy, finally, is enabling share the vision of contributing to the consumers to be more capable, com- economic and social order, and of petent and self-reliant in financial influencing the debate shaping the matters (Australian Ministerial Coun- latter. cil, 2006; EASP, 2005; FSA, 2004; As a case in point, the economic Gemeinsame Initiative, 2000). education programs of capacity-build- In a nutshell, designing economic ing NGOs advocating a participatory and financial education programs in- style of learning see the exchange of variably involves value judgments – information and experience among such programs are, to a large extent, participants as an important mile- about conveying those values. Both stone in the learning process (Debt aspects are closely related to the posi- and Development Coalition Ireland, tion the providers of education have n.d.; WIDE, n.d.). A number of in the economy and to their views of NGOs (Debt and Development Co- the economic system. At the same alition Ireland, n.d.; WIDE, n.d.) as time, national differences in the well as private and public initiatives structural and regulatory framework (Codice, 2007; FTE, 2005; Gemein- of economic systems shape the design same Initiative, 2000) hope to en- of educational programs and their hance political participation through priorities. economic education and informa- In other words, it would be wrong tion. to jump to the conclusion that eco- The understanding of the concept nomic and financial education is of participation very much depends merely about closing knowledge gaps on institutional interests: Initiatives identified in target groups. Doing launched by trade unions, NGOs and something about the lack of public consumer advocates, for instance, are understanding is only one of several often aimed at encouraging consum- possible motives for launching educa- ers to seek social change or are de- tion initiatives. Other starting points signed to build their critical ability are the fact that the general public (Debt and Development Coalition and economic experts apply different Ireland, n.d.; JASS, n.d.; Reifner, yardsticks, have different perceptions 2006; UFFE, n.d.). In contrast, insti- about economic fundamentals and tutions pursuing corporate or public different preferences, and see eco- interests will typically be concerned nomic and social roles differently. Fi- about public acceptance of market nally, there may be the goal of put- rules and change processes (reforms) ting judgments made by politicians or (Australian Ministerial Council, the mass media into the proper per- 2006; BDA, 1998; Filar, 2006; FTE, spective. 2005; Walstad, 2006). Especially Thus, the rationale for economic central banks see educational efforts and financial education is not re- as measures to foster a better under- stricted to correcting an “objective” standing of how monetary policy af- information deficit (see section 5) or

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to fulfilling an explicit wish for such 4.1 Enhancing the Effectiveness of education on the part of target groups Monetary Policy (as evidenced, for instance, by survey A first group of arguments for eco- results). Motives for building the economic and financial education relates nomic and financial capability of con- to monetary policy and how it works. sumers are to be found just as much Consumers who grasp economic fun- in the interests of the providers of ed- damentals will be more receptive to ucation. These motives are rather central bank communication on (1) heterogeneous, which helps explain monetary policy targets, (2) the un- the wide range of definitions of eco- derlying monetary strategy, and (3) nomic and financial education, and monetary policy action. the range of issues covered. (1) Mobilizing public support for 4 Why Central Banks Care monetary policy targets about Economic and Educating citizens about monetary Financial Education policy targets basically consists in ex- A rising number of central banks pro- plaining the primary goal of price sta- actively run educational programs, bility most central banks have come with an ever broader and deeper to pursue explicitly (or sometimes scope, to help citizens understand implicitly) and in ensuring broad and how the economy works and to offer sustained support for that goal among them guidance in personal finance the general public. Public support for matters (Fluch, 2007). A number of the primary goal of maintaining price authors have looked specifically into stability requires an understanding of the underlying motives of central banks the economic impact of monetary (Bernanke, 2006; Greenspan, 2003; policy and of the adverse effects of Hartmann et al., 2000; Hogarth, higher inflation on the economy. Un- 2007; Park, 2006; Stark, 2006; less people are aware of how complex Walstad, 1998, 1999, 2006; Watts, the nominal and real economic effects 1998). Their analyses show that cen- of monetary policy are (multiple tral banks provide economic and transmission channels, uncertainty financial education basically for five about the strength and lags of effects reasons: (1) to enhance the effective- from interest rate adjustments), they ness of monetary policy, (2) to ensure will not be able to comprehend the the smooth functioning of financial possibilities and limitations of mone- markets, (3) to support sustainable tary policymaking. economic policies, (4) to promote The statutory goal of a central economic and financial literacy as a bank to guarantee price stability may, public good and, by doing so, (5) to by extension, be understood to in- build their reputation and promote clude a mandate for a communication acceptance for their actions. In this strategy that will secure sustained respect, central banks’ motives for public support for this goal. Such pro- providing economic and financial active communication appears to be education basically match those warranted especially in times of low described in sections 2.1 and 2.3. inflation rates, in which the economic cost of inflation may fade into obliv- ion. Fluch et al. (2007) show e.g. for

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Austria that older people who have pectations, with the positive effects experienced periods of high inflation outlined above. feel more strongly about keeping in- For those two effects to material- flation rates as low as they are than ize, however, the people to whom young people who have no such mem- such information is addressed need to ories. be economically literate in the first In addition, central banks share place. This is where a third dimen- information on their price stability sion of the monetary policy strategy target also with a view to anchoring comes into play: Publishing a mone- inflation expectations by publishing a tary policy strategy is a stepping point concrete inflation target (Svensson, for proactively offering information 2007). Thus, publishing an inflation resources and educational programs, target – or, in the case of the Euro- and may thus be seen as an economic system, a quantitative definition of education measure in its own right. price stability – is not only intended After all, the elements of this strategy to “justify” the central bank’s policy are repeated consistently (which is in relation to the publicly announced very important in a federal central target measure and to hold the cen- banking system such as the Eurosys- tral bank accountable; this measure is tem) in many speeches and through also intended to give economic agents numerous media channels, thus pro- clear guidance as they plan ahead. viding an occasion for anchoring indi- The purpose of these measures is to cators that are relevant for monetary reduce uncertainty, lower inflation policy in citizens’ minds. risk premia and increase the potential for noninflationary growth. (3) Enhancing the transparency of, and effective communication (2) Fostering a better understanding of on, monetary policy action monetary policy strategy By providing information, including Central banks may explicitly formu- detailed explanations, on monetary late a monetary policy strategy for a policy decisions, central banks pro- number of reasons. First, an explicit vide economic agents with the signals strategy increases the transparency of they need to plan their economic ac- monetary policy decisions and thus tivities. Yet economic agents have to makes monetary policy more predict- have a basic understanding of eco- able: By avoiding surprises, the cen- nomics and monetary policy funda- tral bank thus helps reduce planning mentals to be able to meaningfully uncertainty for economic agents. decode such information and the way Second, systematically taking into it changes over time. Central banks’ consideration specific indicators or goal of communicating their mone- possible intermediate monetary pol- tary policy actions in an effective and icy targets projects competence, a transparent manner implies the need structured approach and the reliance for economically literate audiences. on scientific evidence in monetary This is why central banks care about policy decision-making. This is de- enhancing citizens’ economic liter- signed to enhance confidence in the acy. One way to build economic lit- central bank’s competence and in the eracy is to explain the fundamentals credibility of its stability policy, which of monetary policymaking and to should in turn anchor inflation ex- continue to offer explanations when

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the central bank takes action; another central banks and an explicit goal at key to communicating effectively will others. be to use clear and understandable language. 4.3 Supporting Sustainable Economic Policies 4.2 Contributing to a Smoother Central banks have an interest in Operation of Financial Markets keeping other areas of economic pol- Central banks launching personal fi- icy from undermining the goal of nance education initiatives often put maintaining price stability. They also forth two arguments for doing so. have an interest in measures that ease First, consumers who are aware of the absorption of economic shocks the range of financial products and and that strengthen potential growth. who understand the basic concepts of Even though central banks do not financing will be able to take better have any decision-making power in informed investment and financing the relevant areas – fiscal and struc- decisions. Customers who are able to tural policies – they can support the shop around promote competition. economic policy debate that precedes This creates incentives for the finan- and accompanies the policy decision- cial industry to come up with innova- making process with the arguments tions and makes the industry more they put forth. In the words of Watts efficient. As monetary policy is con- (1998): “… improving the economic tingent on the effective transmission literacy of those who vote can strengthen of key interest rate changes through the position of elected and appointed the financial system to the economy, officials who work for good economic central banks clearly see the merits of policies, and against bad ones.” raising financial market efficiency by In the area of fiscal policy, central building the financial capability of banks call for policies that leave consumers. sufficient room for maneuver to cush- A second aspect relates to the ion periods of weak economic activ- stability of the financial system or of ity, and to minimize fiscal policy- parts thereof. Empowering consum- induced inflation pressures (e.g. poli- ers to make informed judgments cymakers banking on the economy should make them more likely to outgrowing its debt burden). This is make sensible choices and better able why it is important, from a central to control their financial future. For bank perspective, for the electorate instance, the risk that households to be aware of the economic effects of become overindebted should sink, as a high budget deficit and debt burden. should the probability that crisis inci- With regard to structural policy, dents pose a threat to the stability of central banks have an interest in the financial system. product and labor markets being able Better educated and more respon- to absorb shocks smoothly, so as to sible consumers are less likely to take keep the need for offsetting business wrong financial decisions and more cycle policies low. At the same time, likely to recognize unfavorable deals. smoothly operating product and labor In this respect, the economic educa- markets enable higher potential growth tion efforts of central banks may also and lower structural noninflationary enhance consumer protection. This unemployment. Central banks can may be an indirect side effect at some support reforms in this area by effec-

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tively communicating arguments for yet. After all, baseline surveys to es- the positive long-term effects of re- tablish the initial state of economic form efforts. literacy and tests to measure knowledge gains ought to be an integral 4.4 Supporting the Public Good part of every economic education ini- “Economic and Financial tiative: Every education initiative Literacy” needs to start out by identifying ex- The case for central bank initiatives isting knowledge gaps among the gen- to build consumers’ economic and fi- eral public and flag target groups that nancial literacy outlined above results may be in need of special support. directly from the specific tasks and Once the programs are up and run- goals of a central bank. At the same ning, it is likewise important to eval- time, one may argue that central uate their success and effectiveness, banks, being public institutions with and to establish a system of quality substantial economics know-how, are assurance to ensure that decisions particularly well placed to promote about continuing the initiative are in- the public good of economic and fi- formed, to spot potential for improve- nancial literacy as an integral part of ment and to establish best practice basic education. catalogues. Programs need to be as- One advantage that central banks sessed not only against their costs but may have over other agents with com- also against potential alternative ap- mercial or political interests is that proaches to achieving the same goal. consumers expect central banks to provide neutral, nonpartisan infor- 5.1 Which Method is Adequate for mation. Evaluating Education Programs Depends on the 4.5 Building a Reputation and Underlying Target? Promoting Acceptance of As it is generally no easy task to mea- Central Banks’ Actions sure educational attainment and prog- For central banks, in turn, economic ress, it is even more important to and financial education initiatives are clearly define educational targets a chance to reinforce their position as already in the design phase. After all, recognized experts in the field of eco- the most adequate method of measur- nomics. By providing useful services ing and evaluating literacy depends and high-quality information and ed- on the target and the target group. ucation resources, central banks may Take the definitions of economic build confidence and credibility, and financial education outlined in which will in turn serve the fulfill- section 2: ment of their monetary policy tasks. – If the primary aim of an educational initiative is to enhance the 5 Possibilities and Limitations knowledge and understanding of eco- of Measuring Economic nomic and financial concepts, Literacy success can be measured with Given the broad range of economic knowledge reproduction and com- education initiatives launched in re- prehension questions, for instance cent years, it is surprising that the lit- with multiple choice tests. One erature on economic literacy mea- option is to use internationally surement is comparatively limited as recognized standardized tests

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such as the U.S. Test of Economic As a case in point for the impor- Literacy (TEL), which will be tance of clearly defining the target discussed in greater detail in sec- and the selection of adequate evaluation 5.2. Such tests have the ad- tion methods, take the following vantage of being tried-and-true example: Every other year, U.S. high solutions and internationally com- school students are multiple choice- parable. tested for their ability to make in- – Courses aimed at building con- formed financial choices under the sumers’ confidence in their deci- so-called Jump$tart Survey. Mandell sion-making capabilities can be (2006) finds that while financial evaluated on the basis of surveys literacy classes did not necessarily on subjective satisfaction and con- make a real difference in knowledge fidence before and after course relating to students’ financial deci- participation. The tools of choice sions, they did raise students’ propen- for this purpose may be standard- sity to save and thus triggered the ized tests or open-ended ques- desired behavioral change after all. In tions. Yet when respondents’ sub- other words, measuring the effective- jective assessment is not comple- ness of educational initiatives with mented with an analysis of actual tests alone would be misleading. changes in behavior, there is a risk Lyons and Scherpf (2004) give that the sustainable effects will another example of how an inade- be overrated immediately after quate measure for the success of an course completion. educational initiative may lead to – In case an educational initiative wrong conclusions. The goal of the is aimed at influencing values and U.S. Money Smart program is to attitudes, surveys will bring shifts encourage unbanked participants to in opinion to light. open a bank account. Yet the decision – Very often the overarching goal not to open an account may be the of enhancing knowledge, building result of rational reasoning, based for confidence and influencing atti- instance on a cost-benefit analysis. tudes is bringing about behavioral Thus it would be wrong to measure changes, such as an increase in the the success of the program on the saving ratio or in the number of basis of newly opened bank accounts; bank connections, an increase in much rather, it would be important private saving for retirement, or a to measure whether the program has decrease in the ratio of delinquent succeeded in building the necessary loans. Frequently, these changes skills for the underlying decision- can be used as indicators that may making process. be measured directly or with sur- Evaluations may be undertaken in veys. In the case of the above ex- the form of a before and after com- ample, it is important to check parison or with the help of a suitable whether there has indeed been an control group. This may be a compa- increase in net saving rather than rable group of persons who have not a shift in funds. Moreover, it is benefited from a given education anything but easy to establish a measure. The problem with such an direct causality between observed approach is that it may lead to a cau- behavioral changes and a given sality conflict: In case participation is educational initiative. voluntary or associated with consid-

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erable effort, participants are likely in the case of children whose parents to differ systematically from dropouts were not above-average savers. or people not interested in the course It may prove even more difficult in the first place, for instance with re- to subject a positive correlation be- gard to welfare level, income, house- tween literacy or course participation hold status, educational attainment, and money management skills to a age, motivation or initial knowledge causality test, because active financial (Lusardi and Mitchell, 2007). This market participation itself increases may trigger an upward bias of results, financial knowledge. Given such prior which might be unveiled through an exposure, a positive correlation be- analysis of course dropouts and non- tween education and financial market participants in comparison with suc- data may lead to biased conclusions cessful partic ipants. about causality. Kotlikoff and Bern- A different scenario would be that heim (2001) is one of the few studies a course specifically targets a group that find explicit evidence of a direct of persons who exhibit large knowl- link between an economics curricu- edge gaps or undesired behavioral lum and higher private saving for re- patterns. Such a scenario may skew tirement. the effects of the program downward. Despite all these recommenda- If the control group does not exhibit tions, the success of educational pro- reasonably similar characteristics, the grams is de facto measured most of- comparison may even show a negative ten on the basis of input data (number correlation between course participa- of participants and courses) rather tion and literacy or behavior, even if than output data. Thus, a survey the education measures proved to be among staff of U.S. financial educa- a success with the given target group tion providers (Lyons et al., 2005) (Bernheim and Garrett, 2003; Bayer finds that three-quarters of all evalua- et al., 1996). tions use the number of participants To properly evaluate a firmly es- as an indicator for success, but less tablished education program, finally, than half use actual changes in behav- it would make sense to confirm the ior. Often, the success of educational short-term effects with an analysis of measures is never evaluated compre- the long-term effects. In practice, it hensively because of a lack of expert is very difficult to get information knowledge, staff, resources and time. from course participants several years after participation. Bernheim et al. 5.2 Example: Test of Economic (2001) is one of the few surveys that Literacy has looked into the long-term benefit The Test of Economic Literacy (TEL) of economics courses at U.S. schools is a standardized and internationally in respect of students’ saving behav- recognized test that was designed to ior. This survey was made possible by measure high school students’ under- the fact that a number of states made standing of economics. The test, first economics a required course at dif- used in 1978, was developed by Soper ferent periods in time. The authors and Walstad (1987) in the U.S.A. conclude that exposure to an eco- Since the initial applications of the nomics curriculum does lead to TEL first evidenced large knowledge higher saving and wealth accumula- gaps, the test has been used on a reg- tion in students’ adult lives, especially ular basis, both to test students in

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exams and to evaluate the effective- ple comparisons of student answers ness of high school curricula. The test – even if the students are of the same consists of 46 multiple choice ques- age – need to take account of differ- tions and covers four content catego- ences in school systems and curricula. ries: fundamental economic concepts, Judging from faculty opinions and microeconomic concepts, macroeco- test scores, Beck and Krumm (1994) nomic concepts and international find the German version of the TEL economic concepts. Results are typi- to principally have a good indicator cally presented as the ratio of correct quality for both Austria and Ger- answers, but a number of papers (e.g. many. Lietz and Kotte, 2000) also employ The big advantage of the TEL is different weights, depending on the that it is a tried and tested approach, difficulty of the questions. In this and that its questions are standard- paper, we will use the TEL to illus- ized internationally. Moreover, the trate some problems typically inher- multiple choice procedure ensures a ent in knowledge tests. Box 1 shows substantial degree of objectivity in as- three of the TEL questions. sessment. At the same time, the TEL Since the TEL measures the un- has also been criticized for a number derstanding of basic economic con- of weaknesses, such as the ideological cepts, it is principally suited for inter- bias of some questions (Nelson and national comparisons. Thus, there Sheffrin, 1991). As a case in point, also exists a German version of the the second question in box 1 (what is TEL, the so-called Wirtschaftskundli- the main precondition for a smoothly cher Bildungs-Test (WBT), produced operating market economy) comes by Beck and Krumm (1990) to test with answer C (active competition in the literacy of German, Austrian and the marketplace) as the “right” an- Swiss high school students. Interna- swer, while the other answers (regu- tional comparisons need to take into latory framework conditions, or a consideration aspects of linguistic minimum degree of social responsi- equivalence (e.g. English speakers are bility) might be just as compelling a lot more familiar with the term “re- when argued properly. Or note the sources” than German speakers are distinct mindset that the wording of with “Ressourcen”). Moreover, sam- the third question reflects.

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Box 1 Examples of TEL Questions (Correct Answers Bolded) Unexpected inflation is most likely to benefit a. Persons living on fixed pensions. b. Life insurance policyholders. c. Savings bank depositors. d. People who owe money.

Which of the following is the most essential for a market economy? a. Effective labor unions. b. Good government regulation. c. Active competition in the marketplace. d. Responsible action by business leaders.

In a market economy, the public interest is likely to be served even when individuals pursue their own private economic goals because of a. The operation of competitive markets. b. The social responsibility of business leaders. c. Careful planning and coordination of market activity. d. Individuals who understand what is in the public interest. Source: Krumm (1992), Nelson and Sheffrin (1991).

Lüdecke-Plümer and Sczesny Beck and Krumm (1994) com- (1998) have compared TEL scores, pare the test scores for Austria, Ger- among others, for the U.S.A., the many and the U.S.A. In this analysis, U.K., Austria, Germany and Swit- Austria fares best, and the U.S.A. zerland as well as the Republic of fares worst. Yet the gap between the Korea. Their comparison shows that strongest and the weakest subgroup typically less than half of all questions (by school types) is more than twice drew correct answers (Austria 44%, as big in the two German-speaking Germany and Switzerland 45%, countries than in the U.S.A., so that U.S.A. 48%); in the Republic of the weakest U.S. students still have a Korea the correct score reached as better score than the weakest Aus- much as 52%. The U.K. leads the trian students. This pattern may re- ranking with a correct score of 64%, flect the different schooling systems, but this may be explained with a bias as the education system is a lot more in the sample toward schools of higher heterogeneous in German-speaking education. In the German-speaking than in English-speaking countries. countries, the tests unveiled signifi- Above all apprentices attending vo- cant knowledge gaps especially in the cational schools produce negative area of international economic rela- outliers. tions. Across all countries subject to Having undertaken additional the review, graduates of economics analyses on the basis of TEL tests courses had better scores than stu- in Germany, Lüdecke and Sczesny dents without prior exposure to eco- (1998) arrive at the following results, nomics issues. which roughly coincide with findings

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for the U.S.A. (e.g. Walstad and secondary schools ranking below Rebeck, 2001) and other interna- high schools (“Realschule”) and tional studies (e.g. for Australia by apprentices. Lietz and Kotte, 2000). – Lower test scores for female – Basic economic literacy improves students than for male students with age (test participants were have been attributed to social and typically between 16 and 18), ir- cultural factors, cognitive deter- respective of targeted exposure to minants and interest in economics economic education. This would issues, but also to the fact that imply that economic literacy is economic stereotypes tend to be largely fostered by active partici- male-dominated. What might also pation in the economy. Econom- play a role is that female students ics courses may accelerate this tend to do worse on multiple process, but the knowledge gain choice tests, so that this type of will hit a “saturation threshold” test overstates gender differences sooner or later. (Walstad and Robson, 1997).2 Yet – Students in high school-equivalent typically, gender differences tend schools (“Gymnasium”) and in to be smaller than differences commercial schools fare better within each gender group. than students in vocational schools,

Box 2 Knowledge Surveys and Knowledge Tests in Austria Apart from the standardized, widespread Test on Economic Literacy, similar tests have been used in Austria to measure the economic literacy of Austrian citizens. The following list provides an overview of the most recent studies on economic literacy in Austria. Readers interested in a comprehensive overview of earlier research into the economic literacy of Austrians are referred to Hartmann et al. (2000). – According to a survey by GfK Austria (2006) with a sample of 4,500 respondents, 53% rated their understanding of economic fundamentals in the range between “rather bad” and “very bad,” which is in fact a deterioration compared with a similar survey conducted in 2003. – According to a survey conducted by the Institut für Bildungsforschung der Wirtschaft (ibw, 2006) among 3,300 final year students, 63% of the respondents considered themselves very well or reasonably well informed about the international economy, with the most optimistic answers reported by students of commercial colleges or schools. 60% of the students report to follow economic topics with principal or high interest. What is interesting is that this self-evaluation often diverges substantially from the scores in a knowledge test based on 20 knowledge and comprehension questions. Commercial college students tended to do best at such tests, whereas commercial school students – contrary to their self-assessment – tended to do worst. However, an accurate interpretation needs to reflect that it takes five years to graduate from commercial colleges but only a minimum of three years to graduate from commercial schools. As has been indicated above, basic economic literacy rises with age and independently of schooling, through active participation in the economy. In the ibw survey, too, female students generally did worse than their male colleagues. At the same time, the scores of students with a migration background do not deviate signi-

2 As a case in point, female students tend to leave questions unanswered if they are unsure, so that their success ratio is even below the guessing probability in some instances (Katschnig and Hanisch, 2004).

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ficantly. This is in contrast to U.S. surveys (Soper and Walstad, 1987), according to which African-American or Latin-American immigrants tended to do worse than students without a migration background. – Katschnig and Hanisch (2004) compare the economic knowledge of 2,179 graduates in Austria, Germany, the Czech Republic and Hungary based on 12 (partly TEL) questions, paying particular attention to the good translatability of the questions. They find the graduates’ economic knowledge to be inadequate in general. The weak results in the Czech Republic and in Hungary are partly attributed to the insufficient technical skills of faculty, whose economic attitudes had been shaped in the times of the Iron Curtain. Female graduates do significantly worse than their male counterparts, especially in Austria. – In 2006, the Viennese Chamber of Labor commissioned depth interviews with 28 employees and 6 apprentices, with the aim of assessing their financial literacy (Prantner et al., 2006). While generally the respondents were pretty well informed about the particulars of taking out and overdrawing a loan, they were less knowledgeable about interest rate adjustment clauses or effective borrowing costs. Based on that survey, consumers’ knowledge of mutual funds is estimated to be inadequate for taking competent purchase decisions. – A study commissioned by the Kuratorium Wirtschaftskompetenz für Europa uses the European Business Competence* Licence (EBC*L) – based on 16 knowledge and 4 comprehension questions plus 1 case study question – to evaluate the level of business capability in Austria, Germany and Switzerland (Ortner et al., 2006). Without studying specifically for the test, as little as 15% of the 342 participants were able to come up with correct answers for more than half of all questions – a score that is rather striking, given that 95% of the sample respondents had graduated from secondary school, and that 70% were part-time students, mostly at technical/vocational colleges. At the same time, respondents rated economic literacy as a very important job skill.

6 Conclusions standing and building economic This paper shows that the concept of skills, given their role as economic economic and financial education may policymakers and public institutions. be defined in very different ways. The As central banks enjoy statutory inde- available educational programs are pendence, they have a vital interest in designed to influence either indi- communicating their monetary policy vidual decision-making, interaction goals and strategies and their mone- among economic agents, or individ- tary policy decisions in a clear manner uals’ attitude towards the socio-eco- to support sustained public accep- nomic environment. Institutions run- tance of stability-oriented monetary ning educational programs may do so policies and at the same time to for a broad range of reasons, which in anchor inflation expectations, both of turn determine what knowledge areas which are crucial for the successful or skills they hope to develop and the implementation of their goals. Effec- manner in which they do so. In addi- tive central bank communication is tion, the topics covered and the way moreover meant to reduce economic the message is put across will also agents’ uncertainty in decision-mak- depend on the target audiences ing. Last but not least, central banks selected. seek to promote the efficiency and Central banks take on a special stability of the financial system and role in fostering economic under- offer guidance in personal finance

Monetary Policy & the Economy Q3/07 ◊ 43 Economic and Financial Education: Concepts, Goals and Measurement

issues with their financial education cal categories as well as given facts initiatives. (Tobin, 1986). The economic education debate This understanding motivates the reflects a range of didactic approaches use of standardized multiple choice to building economic capability: tests to measure the economic knowl- situation- and problem-oriented ap- edge of participants. But measuring proaches, as a result of which the top- the economic literacy of consumers ics covered are tailored to partici- or the effectiveness of educational pants’ role in the economic process, efforts is difficult in practice. For one action-oriented approaches, as well as thing, the most adequate method of approaches which derive their choice measuring and evaluating literacy of educational content from economic depends on the educational target and theory (Weber, 2001). The economic the target group. For another thing, theory-oriented approach is compli- it is difficult to establish a direct link cated by the fact that economists’ between educational programs and opinions are divided on many theo- observed changes in behavior. Against retical and economic policy issues the backdrop of an intensifying pub- (Chase, 1977; Fuchs et al., 1997). lic debate on economic and finan- This notwithstanding, most econo- cial education and a host of surveys mists share the view that irrespective uncovering consumers’ knowledge of economic policy differences, all deficits, improving measurement schools of economic theory recognize methods would suggest itself as a fundamental conceptual and analyti- meaningful focus for future research.

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Monetary Policy & the Economy Q3/07 ◊ 49 Financial Capability of Austrian Households

Pirmin Fessler, Based on a survey by the Oesterreichische Nationalbank (OeNB) in 2004, this paper aims Martin Schürz, to assess Austrian households’ financial capability with respect to managing money, Karin Wagner, planning ahead financially, making financial choices and staying informed. Beat Weber People’s attitudes about money often depend on their education, income and age. A higher level of education, income and age tends to go hand in hand with a more positive financial attitude. The OeNB’s survey, however, revealed that, in the case of Austria, there is generally no relationship between a household’s financial behavior and the education level of its members. Moreover, half of the respondents seldom shop around for financial services and are thus not knowledgeable enough to make informed financial decisions.

JEL classification: D14, D18, D80, E21, G11, G14, G28 Keywords: financial education, financial capability, financial literacy, private households, surveys.

1 Introduction financial education discourse in sec- As financial provisions for old age are tion 2, while section 3 will present increasingly being turned into each the financial capability concept of the and everyone’s individual responsibil- British Financial Services Authority ity, consumers are faced with the (FSA). Section 4 contains an evalua- challenge of choosing suitable saving tion of the Austrian survey results instruments from an ever-growing based on the subcategories of finan- range of investment possibilities. cial capability identified by the FSA With the growing need for individu- (managing money, planning ahead, als to play a more active role in the making choices/choosing products market for financial services, finan- and getting help/staying informed). cial capability as a broad life skill is Section 5 provides the results of a increasingly considered important. In cluster analysis conducted to cross- this context, the following questions check the results and section 6 con- arise: Are Austrian households in the cludes. position to make adequate old-age provisions and to accumulate savings? 2 Financial Education Do Austrians have sufficient knowl- In the 1990s a number of private and edge about the risks involved in public organizations in the U.S.A investment? Do they adequately react launched initiatives to improve the to changing conditions? financial literacy of specific popula- This paper aims to provide an- tion groups (Vitt et al., 2005). swers to these questions by present- The U.K. has likewise been active ing empirical data on the Austrian in promoting financial education for population’s financial capability based some time now (England and Chat- on a 2004 survey by the Oester- terjee, 2005). On an international reichische Nationalbank.1 scale, the OECD embraced this topic Refereed by: First, we provide a brief overview and drew up related recommenda- Udo Reifner, of the terms used in international tions in 2004, which were endorsed Institut für Finanzdienstleistungen, Hamburg. 1 An analysis of the survey results on Austrian households’ financial wealth is presented in Beer et al. (2006).

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by the OECD Council in 2005 4 Explaining products: Familiarizing (OECD, 2005). The G8 nations ex- bank customers with the product pressed their support for the OECD’s range of financial service provid- financial education activities in 2006 ers. and organized conferences on related 5 Empowering consumers to use fi- topics (G8, 2006). In 2007, the Eu- nancial services productively. ropean Commission initiated a study The policy debate on national and in- on financial literacy schemes within ternational financial education initia- the EU (European Commission, tives (G8, 2006; OECD, 2005; U.S. 2007). National Strategy, 2006) primarily To date, financial education dis- focuses on the need to change con- course has lacked an appropriate the- sumer behavior to remedy problems oretical framework (for an overview such as overindebtedness, financial see Schürz and Weber, 2005). Differ- exclusion (i.e. no access to financial ent organizations have very different services) and insufficient old-age pro- ideas about the concept of financial visions. From this perspective, finan- education, as is reflected in the cial education is thus mainly under- terminological variety in related stood to include measures to promote discourse. The most common terms saving, discourage excessive borrow- used are financial awareness (Mason and ing and enhance product knowledge. Wilson, 2000), financial literacy (G8, The extent to which financial educa- 2006), financial education (OECD, tion can contribute to tackling the 2005), financial capability (Atkinson said problems is, however, subject to et al., 2006) and financial citizenship debate (Schürz and Weber, 2005). (Citizenship Foundation, 2002): By comparison, the debate among This conceptual and terminologi- education professionals and research- cal variety points to the fact that in- ers is characterized by a more strongly stitutions involved in financial educa- customer-oriented perspective, in tion have different objectives, as is re- particular in the German-speaking flected in their education programs. world. Financial educators’ vision is According to the Hamburg-based to raise individuals’ capability to Institute for Financial Services (iff), make productive use of financial ser- there are five basic approaches to- vices. According to this concept, fi- ward enhancing financial education nancial decisions are embedded in the (Institut für Finanzdienstleistungen, economy of everyday life. Therefore, 2007): they have to be seen and made in the 1 Providing professional training: context of individual situations and Teaching course participants to objectives (Piorkowsky, 2003; Reifner, think and act like financial service 2003; Schlegel-Matthies, 2002). providers. 2 Providing money saving and debt 3 The Concept behind prevention advice: Encouraging “Financial Capability” consumers to save and helping con- “Building Financial Capability in the sumers to avoid falling into debt. U.K,” the campaign led by the U.K.’s 3 Developing basic economic liter- Financial Services Authority (FSA) acy: Promoting a general under- aimed at improving the nation’s standing of fundamental economic knowledge and understanding of per- terms and processes. sonal finance, is the most compre-

Monetary Policy & the Economy Q3/07 ◊ 51 Financial Capability of Austrian Households

hensive financial education project 3.2 Planning Ahead launched in Europe so far. The aim Financially capable consumers will of the FSA, which developed the anticipate future needs and act ac- concept of “financial capability,” is to cordingly. To gain insights into this fundamentally change consumer be- component of financial capability, the havior. Financial capability is a broader FSA’s survey explored the frequency term than “financial literacy,” which and impact of unexpected financial dominates discourse in the U.S.A. setbacks or expenses people have While “financial literacy” emphasizes experienced and how well they knowledge, understanding and aware- prepare for anticipated major pur- ness, “financial capability” stresses chases. Moreover, the questionnaire the relevance of consumer behavior, was designed to reveal the degree of decision-making and practical abili- additional retirement provision and ties as well as the importance of out- people’s propensity to plan ahead in side help to achieve sustainable change general. in financial behavior. In its empirical evaluations of 3.3 Making Choices/Choosing financial capability, the FSA focuses Products on respondents’ attitudes (toward Taking adequate steps to choose fi- risks, the future, specific financial nancial products that meet one’s operations, etc.) and their behavior needs is another basic component of (financial habits) rather than on financial capability. This includes tak- knowledge (e.g. understanding eco- ing the initiative to shop around, an nomic relationships, knowing about understanding of risk and product de- the characteristics of financial prod- tail as well as the propensity to con- ucts, etc.). sider switching service providers. In a representative survey of the The section of the questionnaire de- British population based on elaborate voted to establishing the correspond- preliminary studies and discussions ing capability levels collected infor- in focus groups, the FSA, established mation on financial products cur- a baseline measure of financial capa- rently held by respondents, their bility – in terms of how well people experiences with mortgage payments manage money; plan ahead; choose as well as their ability to recall details financial products; and stay informed about their life insurance or other in- about financial matters (FSA, 2006): surance products, personal savings, credit cards and loans. 3.1 Managing Money The two basic components of manag- 3.4 Getting Help/Staying Informed ing money, as defined by the FSA, are Finally, financial capability is also making ends meet and keeping track about people’s knowledge of financial of one’s finances. In assessing these matters and their ability to keep abilities, the FSA examined e.g. in abreast of financial developments. how far respondents prepare for up- Questions asked in this context in coming expenditure and how actively the FSA’s baseline survey related to they are involved in financial house- respondents’ subjective assessment of hold decisions. Moreover, it analyzed how important it is to stay informed; respondents’ general attitudes about the number of sources they check and money (spending and saving). how often they do so; or what kind of

52 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

fraud incidents, problems and dis- et al., 2007). This survey also con- putes with financial service providers tained a series of questions on respon- they have experienced. Other ques- dents’ outlook on financial issues and tions were designed to document re- related behavior. The content of these spondents’ basic financial skills (abil- questions basically reflected the FSA’s ity to read bank statements and to un- financial capability concept. derstand percentage calculations; an The data derived from the OeNB’s understanding of the impact of infla- survey for the first time provided tion on savings; the ability to antici- detailed information on the Austrian pate future returns based on charts; population’s financial capability, with basic mathematical operations); the added benefit that these data are knowledge about specific financial fit for international comparison. products; respondents’ own assess- The descriptive presentation of ment of how informed they are. these results which follows analyzes The 2005 FSA survey, which in- links between certain behavioral pat- volved 5,328 respondents, showed fi- terns and socioeconomic characteris- nancial capability deficits in the fol- tics like age, education, income and lowing areas (Atkinson et al., 2006): professional background.2 This analy- – The extent to which respondents sis is designed to produce insights on make provisions for the future/ possible causes for problematic finan- plan ahead is generally limited. cial behavior, from which policy con- – For a small population group, clusions may be drawn. overindebtedness is a major problem. 4.1 Managing Money – Product choices are generally To test Austrians’ money manage- rather unreflected and risk aware- ment behavior, the OeNB’s survey as- ness is low. sessed respondents’ knowledge about – Respondents below the age of 40 their finances, their payment behav- generally have a lower level of ior and their account management financial capability than older and saving behavior. respondents. More than 90% of respondents stated that they were meticulously 4 OeNB Survey on Financial keeping track of their finances. As Capability in Austria can be seen from chart 1, the propen- In 2004, the OeNB commissioned a sity to keep track of one’s finances survey of Austrian households’ finan- slightly increases with age whereas cial wealth. (For a presentation and there is hardly any correlation with analysis of the survey results on income and education. households’ financial assets and asset 45% of households keep records structure see Beer et al., 2006; for an of their finances, a habit which is analysis of household debt in Austria more frequent in higher age classes. see Beer and Schürz, 2007; for infor- Also in this respect, income and edu- mation on the distribution of financial cation play only a subordinate role. wealth in Austria see Mooslechner More than 66% of the respondents

2 In our calculations we have aggregated the response categories which apply to most of the questions (“completely applicable,” “applicable,” “and not very applicable,” “completely inapplicable”). The analysis of income is based on net equivalent income. Details on the survey are presented in the annex.

Monetary Policy & the Economy Q3/07 ◊ 53 Financial Capability of Austrian Households

Chart 1 I have a good overview of my finances

Share of household heads that agree with this statement in % Age groups Education level 100 100

95 95

90 90

85 85

80 80

75 75

70 70 18 30 40 50 60 70 Over Compulsory Apprenticeship, Upper secondary Technical to 29 to 39 to 49 to 59 to 69 to 79 80 schooling vocational or tech- academic or college/university at most nical middle school vocational school Net equivalent income 100

70 Up to EUR 750 to EUR 1,350 to EUR 2,250 to EUR 3,000 EUR 749 EUR 1,349 EUR 2,249 EUR 2,999 or more

Source: OeNB 2004 survey on households’ financial wealth.

said that they always read all the in- About 80% of respondents claim formation materials sent to them by to usually pay bills immediately, their bank; the frequency of this be- which shows that Austrians’ payment havior increases steadily with age/ behavior in general is remarkable. It slightly with income (but only up to moreover improves with age and the medium income group; members slightly increases with income, but of the highest income group have less only to a certain degree: In the high- of a tendency to display this behav- est income class, payment behavior is ior). The reason why wealthier re- actually the poorest. The survey did spondents more often ignore such in- not establish any relationship between formation may be that they are able to payment behavior and education. resort to alternatives, like private fi- In terms of interest, overdrawing nancial consulting, or that the oppor- one’s account is a suboptimal form of tunity costs tied up with reading all credit (depending on the duration of information materials provided by the overdraft), which is why over- banks are simply too high. In other drafts can be interpreted as indicative words, one might say that higher in- of problematic financial behavior. come groups can “afford” to lack Chart 2 presents the related survey knowledge. results. Of all respondents, 15% tend

54 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

Chart 2 I tend to overdraw my account

Share of household heads that agree with this statement in % Age groups Education level 30 30

25 25

20 20

15 15

10 10

5 5

0 0 18 30 40 50 60 70 Over Compulsory Apprenticeship, Upper secondary Technical to 29 to 39 to 49 to 59 to 69 to 79 80 schooling vocational or tech- academic or college/university at most nical middle school vocational school Net equivalent income 30

0 Up to EUR 750 to EUR 1,350 to EUR 2,250 to EUR 3,000 EUR 749 EUR 1,349 EUR 2,249 EUR 2,999 or more

Source: OeNB 2004 survey on households’ financial wealth.

to overdraw their accounts. Members equivalent income under EUR 749) of higher income and age groups are and in the group of under 30-year- less likely to display this tendency. olds (12%). Also the group of respon- With respect to different levels of dents with the lowest level of educa- education, only small fluctuations are tion includes households unable to observable regarding overdrafts. save (10%). In all other groups, the Around 43% of Austrians put sav- share of these households ranges at ings aside on a regular basis, a share the one-digit level and almost invari- which increases with both income ably below 5%. and education. Older respondents 15% of the respondents stated save on a more regular basis than their that, if they wished to buy something, younger counterparts. 9% of the re- they preferred taking out a loan to spondents make deposits under a sav- saving up money over an extended ings plan, 19% put aside whatever in- period of time. This attitude is most come is left at the end of the month common in the age group of 50- to and 25% save at irregular intervals. 59-year-olds (22%) and among mem- Significant shares of households which bers of the two highest income groups. are unable to set aside funds are only Its frequency is broadly similar across found in the low income group (net the various education levels.

Monetary Policy & the Economy Q3/07 ◊ 55 Financial Capability of Austrian Households

Summary money aside “for a rainy day” turned By and large, respondents indicated out to be roughly 85%. The tendency that they handle their finances very to save is more frequent among mem- carefully, though this tendency de- bers of groups with higher age and increases in higher income classes. come, and again is found to be weakly How meticulously respondents correlated with education. The group keep track of their finances seems to with the highest income and that with primarily depend on age and hardly the lowest level of education, how- on education or income. ever, do not follow this pattern; in Whether respondents pay their these two groups the tendency to save bills on time or not, however, is not is low by comparison. only a question of age but also of af- Of all the households covered by fordability. The share of respondents the survey, 82% consider individual who take their time paying bills in- saving for retirement important. It creases in parallel with education comes as no great surprise that the level, maybe because better educated importance attributed to private pen- persons consider themselves to be in sion savings declines with increasing a strong negotiation position or ac- age. More striking is the empirical tively seek to optimize their fi- result that private retirement provi- nances. sion is considered more important Spending in excess of personal among respondents with higher in- budgets is more frequent among come and education level. members of groups with a lower level More than half of the respondents of income or education. This seems indicated that their financial portfo- to be attributable to these groups’ lios include a private pension product financial limitations rather than to either acquired by themselves or by irresponsible spending (for an analy- someone else for them. As can be sis of the situation in the U.S.A see seen from chart 3, about two-thirds Schürz, 2006). An attitude toward of the respondents aged 30 to 60 debt which might be described as stated that they had private pension careless is more likely to be found savings, while in other age groups this among older and wealthier respon- applies to less than half of the respondents; those respondents most in- dents. The tendency to make private clined to overdraw their accounts can retirement provisions is more com- be found in “middle-aged” households mon among higher income and higher of various income levels. This result education groups. might be explained through the life A breakdown by occupational cycle hypothesis: Households can background only shows a few signifi- smooth their consumption over time, cant differences in saving motivation. i.e. take out loans they plan to pay The share of old-age provision as back later on the assumption of rising a motivation for saving is more or incomes. less constant across all occupational groups. Especially employees and 4.2 Planning Ahead self-employed respondents consider it The OeNB’s survey was also designed important to save “for a rainy day” to reveal in how far Austrian house- and for the event of disease or unem- holds plan ahead. The share of house- ployment. holds stating that they were putting

56 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

Chart 3 I have made private provisions for old age (or someone else has made them for me) Share of household heads that agree with this statement in % Age groups Education level 90 90

80 80

70 70

60 60

50 50

40 40

30 30 18 30 40 50 60 70 Over Compulsory Apprenticeship, Upper secondary Technical to 29 to 39 to 49 to 59 to 69 to 79 80 schooling vocational or tech- academic or college/university at most nical middle school vocational school Net equivalent income 90

30 Up to EUR 750 to EUR 1,350 to EUR 2,250 to EUR 3,000 EUR 749 EUR 1,349 EUR 2,249 EUR 2,999 or more

Source: OeNB 2004 survey on households’ financial wealth.

Summary 4.3 Making Choices/Choosing Most households tend to save up Products money for emergencies. This tendency The OeNB’s survey collected infor- is correlated with income and age, mation on households’ decision-mak- but not with education. The majority ing behavior with respect to saving of Austrians is convinced that private instruments chosen, risk orientation, saving for retirement is a necessity. factors which influence investment This conviction increases with in- decisions and whether they shop come and education and, as can be around for financial products. expected, declines with growing age. Almost all households covered by Austrian households’ tendency to the survey save up money in one way plan ahead has only recently mani- or the other (97%). Of these, 85% fested itself in measures directed at have a passbook savings account, 71% individual old-age provision, whose a building loan contract, 27% a capi- necessity is embraced as a “fact of life” tal savings account, 16% a savings ac- only by the younger generations so count and another 16% a premium- far. aided savings account.

Monetary Policy & the Economy Q3/07 ◊ 57 Financial Capability of Austrian Households

About 54% of all households hold vestments, although still being the a life insurance policy, 11% bonds, most important savings instrument. 16% stocks, 11% mutual fund shares While low-income respondents name and 3% participating interests in en- non-affordability as the main reason terprises (for details see Beer et al., for deciding against stock market in- 2006). There is a strong preference vestment, high-income respondents for traditional passbook savings ac- are more likely to be put off by the counts. About 90% of respondents risk involved. However, also the lack prefer low-risk saving instruments, a of competent advice discourages preference which increases with age, members of the group with the high- is relatively constant across income est income. In spite of an extended groups and slightly declines in groups capital market media campaign in with a higher level of education. Peo- Austria, skepticism against stock mar- ple with a high risk approach toward ket investment is still rather strong. saving are a small minority and, in di- About one-third (31%) of respon- rect contradiction to theoretical lit- dents who do not hold stocks consider erature, are more likely to be found it possible to acquire stocks in the fu- in those groups with the lowest age, ture; for those aged below 50 this is income and education level. true for approximately 40%, even. As only a small number of respon- The likelihood of investing in stocks dents own stocks, we did not evaluate in the future rises with higher educa- this group’s reasons for purchasing tion and income, but remains below stocks. Respondents who do not own 50% in all income classes. stocks, on the other hand, stated that Chart 4 illustrates how actively they could not afford them (48%), Austrian households seek out finan- because they thought risk was too cial information. Overall, 48% of re- high (43%), because they did not have spondents generally check out various enough information (19%), because banks’ offers to find the best product. they considered related costs/fees too The tendency to shop around in- high (8%), because their bank or creases in parallel with education friends had advised them against buy- level, drops with increasing age and ing stocks (3%) or because they lacked grows with income up to a medium interest (3%). This seems to indicate level of income, then declines again that many Austrians still see stocks as in higher income groups. The corre- an investment instrument reserved to lation between the wish to keep track the wealthy. This perception is con- of one’s finances and the habit of com- sistent with the overall finding of the paring offers before deciding on a fi- survey that respondents are, as a rule, nancial product is very weak.3 more likely to diversify their investments the higher their income. At the Summary same time, low-risk saving instru- Almost all respondents put aside ments like passbook savings accounts money in one way or the other. The and building loan contracts decline in most widespread saving instruments importance vis-à-vis higher risk in- are passbook savings accounts, build-

3 Pearson correlation coefficient: 0.045; significance: 0.089. The weak correlation may be attributable to the fact that offers are only compared in the case of current financial decisions.

58 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

Chart 4 I always compare different banks’ offers to find the best product

Share of household heads that agree with this statement in % Age groups Education level 60 60

50 50

40 40

30 30

20 20

10 10

0 Up to EUR 750 to EUR 1,350 to EUR 2,250 to EUR 3,000 EUR 749 EUR 1,349 EUR 2,249 EUR 2,999 or more

Source: OeNB 2004 survey on households’ financial wealth.

ing loan contracts and life insurance high income respondents tend to be policies. Only a small minority holds more loyal vis-à-vis their banks than more risky assets. other respondents. Educated and me- Professional groups with stable dium income respondents are most incomes (civil servants) tend to have likely to look into various offers, more strongly diversified portfolios, maybe because wealthier respondents while respondents with more inse- are in a stronger negotiation position cure income prospects (workers) do vis-à-vis financial service providers. not invest in many different instru- Half of the respondents do not usu- ments. ally compare different providers of Respondents who do not own financial services. stocks name various reasons for not investing in the stock market, most 4.4 Getting Help/Staying Informed importantly non-affordability, high This competence area was assessed risk and lack of information. Gener- through questions on the sources ally, respondents rate the importance from which consumers seek informa- of financial advice through banks tion, on confidence issues and on high, in particular when it concerns respondents’ information wishes and risky investments. Older people and needs.

Monetary Policy & the Economy Q3/07 ◊ 59 Financial Capability of Austrian Households

Chart 5 Which sources do you use if are looking for information on financial issues (saving, investments, loans, etc.)?1 Share of household heads that agree with this statement in %

My bank’s advice 69

Family members 31

Different banks 24

Friends 23

Newspapers 20

Leaflets provided by my bank 20

Internet 19

Independent financial advisors 12

Colleagues at work 9

Staff council 3

0 10 20 30 40 50 60 70 80

Source: OeNB 2004 survey on households’ financial wealth. 1 Multiple responses were possible.

As can be seen from chart 5, the ance companies (40%), the Chamber by far most frequently used source of of Labor (33%), the OeNB (24%), financial information is individual ad- the Federal Economic Chamber (8%) vice provided by respondents’ “own” and the federal government, educa- banks (69%), followed by advice by tion providers and employers (each family members (31%), information below 5%). Confidence in financial provided by different banks (24%), service providers and the OeNB tends advice by friends (23%), leaflets pro- to rise with income. vided by banks (20%), information In finance matters, 56% would from newspapers (20%) and the In- rather rely on individual advice from ternet (19%). On average, households their bank than on their own judg- rely on 2.3 information sources. The ment. The older respondents are, the number of information sources used higher is their trust in individual declines with increasing age and rises advice from their bank, which is in parallel with income and education probably attributable to long-standing level. customer relationships. Respondents Chart 6 shows Austrian house- with a higher level of income and holds’ confidence in different sources education have greater confidence in of information. Based on multiple their own financial knowledge and choice questions (multiple answers skills. possible), the questionnaire revealed At the same time there is a gen- that respondents place most confi- eral skepticism toward banks. 63% of dence in the Austrian consumer af- respondents agreed with the state- fairs organization (Verein für Konsu- ment that “ordinary bank customers menteninformation, 47%), financial get ripped off.” Interestingly, this service providers like banks or insur- view is especially common among

60 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

Chart 6 Which sources of financial information do you trust the most?1

Share of household heads that agree with this statement in %

Austrian consumer affairs organization 47 Financial service providers 40 (banks, insurance companies, etc.) Chamber of Labor 33

OeNB 24

Austrian Federal Economic Chamber 8 Education providers 5 (schools, universities, etc.) Federal government/parliament 4

My employer 2

0 5 10 15 20 25 30 35 40 45 50

Source: OeNB 2004 survey on households’ financial wealth. 1 Multiple responses were possible.

respondents with very low or very about financial issues. Around 56% high incomes, and there seems to be stated that they wanted to keep no strong correlation with education abreast of new financing opportuni- or age. It is possible that this negative ties, a desire which is less widespread perception corresponds to the per- in higher age groups. While there is sonal experiences of low income re- no clear income-related trend, respondents. Respondents with the spondents who did not progress be- highest incomes, on the other hand, yond compulsory education, mem- may not have felt that “ordinary bank bers of the lowest income group and customers” included them. of the highest age groups (retirement 59% of respondents enjoy dealing age) are most strongly opposed to this with financial issues, while only 10% attitude. dislike dealing with them. Especially Around 90% of respondents very young and very old people tend thought that financial education in to have negative sentiments about Austria should be improved. This financial issues, a tendency which de- share is fairly constant across all age, clines with increasing income and education and income groups. This which is lowest among respondents broad consensus may be attributable who have graduated from upper sec- to the generally positive connotations ondary academic or vocational schools. of education in Austrian society. The 47% consider their knowledge fact that respondents generally agree about financial issues as mediocre. with a notion, however, is not neces- Self-assessment becomes more posi- sarily reflected in their own personal tive with higher income and slightly behavior. Respondents’ assessment more positive with a higher level of that they are not well-informed in fi- education. Of all respondents, 66% nancial matters, for instance, is not would like to have more information positively correlated with the desire

Monetary Policy & the Economy Q3/07 ◊ 61 Financial Capability of Austrian Households

for more information.4 This lack of 5 Cluster Analysis demand for financial education needs We conducted a cluster analysis of to be taken into account by economic the survey data in order to cross- policymakers interested in improving check our statistical results and the financial literacy (Schürz and Weber, derived relationships. 2005). Cluster analysis classifies house- 67% of respondents would wel- holds based on their responses to come government measures improv- questions. To analyze the four coming the comparability of financial ponents in terms of which we mea- products, a wish which is slightly less sure financial capability – managing frequent among members of groups money, planning ahead, making with a high level of education. This choices/choosing products and get- result points to the fact that respon- ting help/staying informed – we se- dents’ trust in market mechanisms is lected several relevant questions from relatively low. the questionnaire which we considered as characteristic of these four Summary topics (see annex). Based on their re- Confidence in one’s own financial ca- sponses, households were thus pability grows with education and grouped into four statistically most income. homogeneous groups, each contain- According to respondents’ state- ing respondents with similar attitudes ments, banks dominate financial con- or behavior patterns. sulting; however, respondents’ trust The advantage of cluster analysis in banks is limited, as both low and is that it groups households into clus- high income respondents seem to ters using a range of variables. This have had some bad experiences with approach is opposed to a purely de- banks or are prejudiced against finan- scriptive analysis, in which house- cial institutions. holds can be characterized by just one The share of respondents who use or two variables (e.g. how well people the Internet as an alternative source keep track of their finances in corre- of financial information is highest lation to their age or education level). among well-paid employees between Cluster analysis, by contrast, makes it the age of 30 and 49. However, the possible to analyze the groups (the invested assets of this group, on aver- clusters) based on their diverse socio- age, are not very substantial. demographic characteristics. To eval- The wish to be better informed uate people’s “planning ahead” capa- about financial issues is generally bility, we calculated a cluster which strong, and two-thirds of respondents encompasses all households which would welcome public sector mea- have made financial provisions for the sures designed to improve the struc- future and another cluster in which ture of the information offer in the the majority of households have not financial services sector. made provisions. Hence, cluster analysis allows for a more accurate char-

4 The correlation established is not only weak but also negative (Pearson correlation coefficient: –0.077; significance: 0.003).

62 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

acterization of private households’ 5.2 Planning Ahead behavior and financial capability. We also conducted a cluster analysis on households’ capability to plan 5.1 Managing Money ahead based on questions looking into The cluster analysis of people’s money their financial provisions for the fu- management capability relied on re- ture. The indicators on which this sponses to the question how well re- analysis was based were answers to spondents keep track of their fi- the questions whether respondents nances, whether they prefer low-risk put aside money for emergencies, saving instruments and whether they whether they have made individual tend to overdraw their checking ac- retirement provisions and whether counts. The related responses yielded they would like to be better informed four primary clusters: two groups of about financial issues. Prior to the respondents with generally positive analysis we removed data derived bank account balances, one cluster from the group of respondents aged with basically balanced accounts and over 60 from the dataset. Again, the a fourth cluster – containing 15% of analysis yielded four clusters. The all respondents – with those people first two clusters are characterized by whose accounts are usually over- the fact that about 93% of respon- drawn. The households in this last dents have made private old-age pro- cluster have the lowest financial visions, have a high income and wealth, the least diversified invest- strongly diversified portfolios, which ment portfolios (primarily passbook makes the detailed analysis of these savings accounts; 61% hold life insur- two portfolios particularly interest- ance policies) and the largest overall ing. Moreover, the respondents in volume of consumer loans. Though these two clusters on average have a this cluster includes the largest share relatively high level of education, of low-income recipients, it also which again confirms the observation shows a higher total share of high in- that private retirement provisions are come households than those clusters more common among respondents which group together respondents with higher income and education with balanced accounts or positive levels, as was pointed out in the cor- balances. This pattern shows that the responding descriptive analysis above. capability to keep track of one’s fi- The second cluster also includes re- nances is not dependent on income. spondents which have made consider- Moreover, the households grouped in able equity investments. The third this cluster do not differ broadly cluster, which encompasses house- across education levels. They do, holds without private pension schemes however, differ in terms of age – the (about one quarter of respondents), is older households get, the better they also very interesting. If one neglects keep track of their finances and the checking accounts, respondents in more scarcely they are hence repre- this cluster have invested lower sented in this cluster. Thus, cluster amounts in all investment categories analysis confirms that the capability than respondents in the first two clus- to make sure not to overdraw one’s ters. The third cluster has the highest accounts and to keep track of one’s fi- share of 50- to 59-year-olds and a nances is correlated with age and not share of 20- to 29-year-olds that is with education or income (chart 7). twice as high as in the first and sec-

Monetary Policy & the Economy Q3/07 ◊ 63 Financial Capability of Austrian Households

Chart 7 Cluster Analyses

% of interviewed household heads Capability to get help: I rely on advice from… Capability to plan ahead: private retirement provisions 60 40

35 50 30 40 25

30 20

15 20 10 10 5 Cluster 1 Cluster 2 Cluster 3 Cluster 4 Cluster 1 Cluster 2 Cluster 3 Cluster 4 0 0 Different information Mainly advice by High income; Internet, newspapers; High income; all High income; all Balanced ratio of No private pension sources; respondent’s bank respondents shop young people respondents respondents have households with and schemes young people around at banks or have made private made private without private consult independent retirement retirement retirement schemes; financial advisors provisions; provisions; diversified low incomes; diversified portfolios; portfolios young people equity investments Banks Independent advisors Family Net household income of up to EUR 749 Employer Internet Net household income of EUR 750 bis EUR 1,349 Net household income of EUR 1,350 bis EUR 2,249 Net household income of EUR 2,250 bis EUR2,999 Net household income of EUR 3,000 and more

Source: Authors’ calculations based on the OeNB 2004 survey on households’ financial wealth.

ond clusters. In line with chart 3 in portfolios. The fourth cluster includes the descriptive part of this study, (low income) households with a low these results underline that very level of investment activity (16% of young respondents do not yet see the respondents). rationale for making individual pension provisions whereas respondents 5.4 Getting Help/Staying Informed over 50 have already passed that An indicator for responsible financial point. behavior is whether respondents rely on more than one information source 5.3 Making Choices/Choosing in financial matters. The cluster anal- Products ysis of responses concerning access to In order to classify households based financial information produced four on how they make financial decisions, clusters. we used questions on the ownership In the second cluster, almost one- of different investment instruments third of respondents consider advice (passbook savings account, bonds, by their own bank reliable. Of all stocks, etc.) and the question whether clusters in this area, this cluster has respondents compare offers provided the lowest share of under-40-year- by different banks. Households in the olds and the highest share of over-70- high income cluster have clearly more year-olds. Cluster analysis thus con- diversified portfolios. Two clusters firms that loyalty vis-à-vis one’s bank encompass medium-income respon- is particularly strong among older dents with moderately diversified people. The third cluster (34.6%),

64 ◊ Monetary Policy & the Economy Q3/07 Financial Capability of Austrian Households

which contains households with high dence in financial matters) are often income and wealth, groups together linked with the level of education, respondents who preferably take ad- income or age. Respondents with a vice from their family and seek out higher level of income and education information provided by various advi- tend to have greater confidence sors. Hence, cluster analysis con- in their own financial knowledge and firmed once more that respondents skills. with a higher level of education and Interestingly enough, Austrian income tend to shop around, not least households’ payment and saving be- because wealthier respondents are in havior or how well they keep track of a stronger negotiation position. Those their finances generally is not linked households which primarily rely on with education. In contrast, differ- the Internet and their employer as an ences in income or age are often cor- information source are to be found in related with differences in behavior. cluster 4 (19.2%), which has the high- The correlation between age and be- est share of respondents aged between havior points to the relevance of ex- 30 and 49 and the lowest share of perience for financial behavior. over-50-year-olds. This cluster, which The results of the OeNB’s finan- is primarily made up of salaried em- cial wealth survey in Austria are ployees, contains more households broadly comparable to the findings of that have made private retirement the FSA’s financial capability survey provisions than the other clusters (Atkinson et al., 2006). For a small (chart 7). group, overindebtedness is a major problem (Beer and Schürz, 2007). 6 Summary Most respondents choose financial Based on a representative survey this products rather carelessly. According paper analyzed Austrian households’ to the OeNB’s survey, younger peo- financial capability in the following ple tend to have a lower financial ca- areas: managing money, planning pability than older people. Not many ahead financially, making financial households own risky financial prod- choices and staying informed. ucts, and even these households usu- One of the main findings of this ally rely on advice by their respective study is that future efforts directed banks. toward improving financial literacy One striking result of the survey should pay special attention to the is that half of the respondents seldom differences between financial atti- compare financial services offers. As tudes and actual financial behavior. shopping around allows consumers to Personal attitudes toward financial is- get better deals, encouraging con- sues (e.g. risk orientation, propensity sumers to do so would improve their to invest in complex financial prod- basis for sound financial decision- ucts and to shop around, self-confi- making.

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References Atkinson, A., S. McKay, E. Kempson and S. Collard. 2006. Levels of Financial Capability in the UK: Results of a Baseline Survey. Prepared for the Financial Services Authority by Personal Finance Research Centre University of Bristol. Financial Services Authority Consumer Research 47. March. Beer, C., P. Mooslechner, M. Schürz and K. Wagner. 2006. Austrian Households’ Financial Wealth: An Analysis Based on Microeconomic Data. In: Monetary Policy & the Economy Q2/06. OeNB. 94–110. Beer, C. and M. Schürz. 2007. Characteristics of Household Debt in Austria. Does Household Debt Pose a Threat to Financial Stability? In: Monetary Policy & the Economy Q2/07. OeNB. 58–79. Citizenship Foundation. 2002. Money, Money, Money: Citizenship Education and Finan- cial Literacy Organised by Citizenhsip Foundation. First Friday Seminar. December 6. www.citizenshipfoundation.org.uk/main/resource.php?s154 England, J. and P. Chatterjee. 2005. Financial Education: A Review of Existing Provision in the UK. Department for Work and Pensions Research Report 275. www.dwp.gov.uk/asd/asd5/rports2005-2006/rrep275.pdf European Commission. 2007. Green Paper on Retail Financial Services in the Single Market. COM(2007)226 final. Brussels. FSA. 2006. Financial Capability in the UK. www.fsa.gov.uk/pubs/other/fincap_baseline.pdf G8. 2006. Improving Financial Literacy. Chair’s Summary. November 29–30. Moscow. www.oecd.org/dataoecd/50/11/37785720.pdf Institut für Finanzdienstleistungen. 2007. Fünf Konzepte der Finanziellen Allgemeinbildung in der Schule. www.verantwortliche-kreditvergabe.net/media.php?t=media&f=file&id=2543 Mason, C. L. J. and R. M. S. Wilson. 2000. Conceptualising Financial Literacy. Loughborough University Business School. Research Series Paper 2000(7). Mooslechner, P., M. Schürz and K. Wagner 2007. The Distribution of Financial Wealth in Austria. Conference Paper. ECINEQ Conference at the DIW in Berlin. OECD. 2005. Recommendation on Principles and Good Practices for Financial Education and Awareness. Recommendation of the Council. www.oecd.org/dataoecd/7/17/35108560.pdf Piorkowsky, M.-B. 2003. Neue Hauswirtschaft für die postmoderne Gesellschaft. Zum Wandel der Ökonomie des Alltags. In: Aus Politik und Zeitgeschichte 9. 7–13. Reifner, U. 2003. Finanzielle Allgemeinbildung. Bildung als Mittel der Armutsprävention in der Kreditgesellschaft. Baden-Baden: NOMOS-Verlag. Schlegel-Matthies, K. 2002. Didaktische Orientierung und Hintergrund der Arbeitshilfe zur Schuldenprävention für den schulischen Unterricht. www.unterrichtshilfe-finanzkompetenz.de/lehrer/Schuldenpraevention-an-Schulen.pdf Schürz, M. and B. Weber. 2005. Finanzielle Allgemeinbildung – ein Lösungsansatz für Probleme im Finanzsektor? In: Kurswechsel 3. 55–69. Schürz, M. 2006. Financial Education for the Poor in the United States. In: Mooslechner, P., H. Schuberth and B. Weber (eds.). The Political Economy of Financial Market Regulation: The Dynamics of Inclusion and Exclusion. Edward Elgar. 140–168. U.S. National Strategy for Financial Literacy. 2006. Taking Ownership of the Future. www.mymoney.gov/pdfs/ownership.pdf Vitt, L. A., G. M. Reichbach, J. L. Kent and J. K. Siegenthaler. 2005. Goodbye to Com- placency. Financial Literacy Education in the U.S. 2000–2005. AARP Research Report. www.aarp.org/research/financial/investing/sep_05_financial_literacy_education.htm

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Annex hold who are older than 14 years and The OeNB’s 2004 Survey on a weight of 0.3 to all younger chil- Households’ Financial Wealth dren. For those households which in- The survey was conducted by FESSEL- dicated that they fell into the highest GfK (now GfK Austria) in summer net income class (which had no upper and fall 2004 based on face-to-face limit in the questionnaire) it is not and written interviews. FESSEL-GfK possible to assign any meaningful used multistage stratified clustered weights. This reduced the number of address random sampling to conduct usable data sets from 2,556 house- representative surveys. A total of holds to 2,403 households, i.e. by the 2,556 analyzable data sets were com- 153 households with the highest net piled. Within Austria, households incomes, for analyses concerning net were stratified at the province level, equivalent income. Moreover, as a re- and in Vienna, households were strat- sult of the weighting, many house- ified by the 23 political districts. holds are shifted into lower net equiv- Within the districts, the prospective alent income classes. The highest net respondents were selected at random. equivalent income class is conse- For further details see Beer et al. quently largely composed of singles (2006). with high incomes and of couples Equivalent Net Income without children. To measure a household’s income Cluster Analysis level, households’ income levels are To cross-check clustering results, we weighted based on an equivalent in- used Ward’s method to establish a come scale. Net equivalent income hierarchy among respondents and the allows us to compare the level of K-means procedure to partition re- wealth of households with different spondents. First, the number of clus- sizes and structures. The OECD scale ters was determined with Ward’s we used here assigns a weight of 1.0 hierarchical clustering method; then to the household head, a weight of this number was confirmed by apply- 0.5 to all other members of the house- ing the K-means algorithm.

List of Variables Used in the Cluster Analysis Issue in question Variables

Managing money * respondent pays bills immediately * respondent records income and expenditure * respondent reads all information materials sent to him/her by his/her bank * respondent keeps close track of his/her finances * respondent checks bank statements to make sure transfers have been effected * respondent prefers low-risk saving instruments * respondent has a checking account (overdrawn or not) * respondent prefers taking out a loan to saving up money for a long time

Planning ahead * respondent has put aside money for emergencies * respondent has made individual provisions for old age * respondent would like to be more informed about financial issues

Making choices/choosing * respondent holds an investment product (passbook savings account, products savings account, capital savings account, premium-aided savings, building loan contract, life insurance policy, bonds, stocks, mutual fund shares or equity investments) * respondent looks into and compares different banks’ offers

Getting help/staying * respondent relies on different sources of information on financial issues informed (banks, leaflets, friends, family, employer, Internet)

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Sabine Schlögl1 Austrian institutions and enterprises offer a broad range of economic and financial literacy products and services, including online products, brochures, folders, economic simulation games, TV and radio programs, presentations, seminars, company visits and guided tours. On closer inspection, however, it turns out that some areas and target groups remain largely neglected: Education products and services for students attending primary and compulsory school are still scarce, while comprehensive material is available for students and teachers of secondary academic or vocational schools. Moreover, the level of knowledge about certain basic economic and financial concepts was generally found to be low. The deficiencies might be addressed by making the existing products and services more easily accessible in a structured fashion and by broadening the range of products and services to cater to the needs of all target groups.

JEL classification: A20, I20 Keywords: financial and economic education products/services, austrian institutions/ enterprises.

1 Why Should the OeNB lieve that they learn enough about the Have an Interest in international economy in school Promoting Financial (Schmid, 2006). This self-assessment Literacy in Austria? is far from objective reality, however: Internationalization and the global- The results of currently available sur- ization of the economy have long been veys show that the level of economic buzzwords that we encounter every and financial literacy among young day in the media and that have be- Austrians is generally low (Schmid, come an integral part of the public 2006; Katschnig and Hanisch, 2006). debate. These phenomena have a pro- The results for Germany, Hungary, found impact on both our working and the Czech Republic are quite and private lives, for instance when similar (section 2.2). we have to make decisions about This contribution postulates that housing, taking out a loan or saving people have to be familiar with basic for retirement. Given the increasing economic concepts to understand complexity and speed of economic complex economic issues in general, processes, it has become increasingly and the function and role of a central crucial for every individual to have a bank in particular. Only people who basic understanding of how these pro- have a basic grasp of monetary trans- cesses work. This is why we should mission, cash supply or banking su- consider economic thinking and act- pervision mechanisms will under- ing key life skills that should ideally stand a central bank’s key role in the Refereed by: Josef Wallner, be taught already in school. More economy. A sound understanding of Institute for Research than one-half of Austrian students be- economic and financial principles is on Qualifications and Training of the Austrian 1 The author thanks Josef Wallner (Institute for Research on Qualifications and Training of the Austrian Economy) Economy. for valuable comments.

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also essential in everyday life – it helps exemplify commercial banks’ con- us make informed decisions on how tributions to promoting economic to handle pocket money or choose a and financial literacy. Last, but not suitable savings product, on which least, we present the economic and details to consider when we take out financial literacy activities of the a loan, or on what to make of eco- Oesterreichische Nationalbank (OeNB). nomic news. Measures to promote Moreover, this review includes a de- financial and economic literacy will tailed description of the contents, fo- benefit every individual; they are in cus and target groups of individual the interest of the general public and products and services, as well as data the central bank alike. Numerous on user acceptance and patterns of organizations offer economic and fi- use, wherever available. Section 4 nancial education programs, and they identifies those areas and target do so for a variety of reasons. For groups that are currently not (or not more details on the different sufficiently) covered. Section 5 sum- approaches and objectives, see Gnan marizes, provides suggestions on how et al. (2007). to improve existing products and This study is structured as fol- presents ideas for creating new ones. lows: Section 2 highlights the status quo of economic and financial liter- 2 Testing the Austrians’ acy among young people (notably stu- Knowledge of Economic dents at the post-compulsory level2) and Financial Basics from Austria and its neighboring The surveys described below aim at countries. Section 3 lists the financial capturing the level of economic and and economic education services of financial literacy among the Austrian selected Austrian institutions and population, especially school stu- organizations, including education dents and apprentices. The results of facilities such as the Austrian Museum (Austrian and international) surveys for Social and Economic Affairs, are consistent in that they identify the Volkswirtschaftliche Gesellschaft numerous knowledge gaps. Österreich, the Arbeitsgemeinschaft Wirtschaft und Schule, the adult 2.1 Room for Improvement in education centers Wiener Volks- Students’ Economic and hochschulen and the finance portal Financial Knowledge www.finanzportal.at, as well as the As part of their “go international” ini- Austrian Federal Economic Chamber, tiative (section 3.3), the Austrian the Vienna Chamber of Labour, Federal Ministry of Economics and the Austrian Trade Union Federation Labour and the Austrian Federal and Wiener Börse AG. The infor- Economic Chamber commissioned a mation products and services pro- study that was conducted by the vided by two banks – Bank Austria Institute for Research on Qualifica- Credit-anstalt (BA-CA) and Erste tions and Training of the Austrian Bank der oesterreichischen Sparkassen Economy (Institut für Bildungsfor- AG (Erste Bank) – were chosen to schung der Wirtschaft – ibw) in 2005

2 Students aged 15 and older.

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(Schmid, 2006). Around 3,300 final- is ample room for improvement: On a year students3 from 68 different scale from 1 (very good) to 5 (very Austrian schools were surveyed as to poor), the students scored an average their interest in, knowledge about, of 3 (satisfactory) for all answers com- and opinion of the international econ- bined. The test questions (20 multi- omy. Students’ reading and television ple-choice knowledge and compre- habits as well as the frequency with hension questions about the inter- which they talk about economic and national economy and about some financial topics served as indicators of basic economic terms) are outlined the level of interest in these issues. below, together with a summary of Only around 10% of the respon- the results. dents regularly read the business sec- In response to the question which tion of a daily newspaper or articles countries had joined the EU in 2004, on economic topics, with commercial only close to one-third of the respon- college students being a notable ex- dents (31%) were able to choose the ception at almost 20%. The majority correct answers. While almost all of students indicate that they some- students were able to pick the right times read an economic article, while definitions of “imports” and “ex- one-fourth of the respondents state ports,” merely 55% were able to cor- they never do. Similar results were rectly estimate Austria’s export ratio. obtained for patterns of TV watching. More than 60% of the students knew More than one-fifth of the respon- the abbreviation OPEC, and seven dents said that they regularly discuss out of ten respondents were informed economic issues such as inflation, un- about the WTO’s tasks. Many employment or economic growth students were not aware that no with family members, friends or ac- customs duties are levied within the quaintances. Around one-third indi- EU: Only six out of ten respondents cate that they never speak about the knew that an Austrian enterprise that Austrian economy, Austrian enter- imports goods from Portugal no prises, the international economy or longer has to pay customs duties. Just globalization. over one-half of the respondents iden- The survey results can be summa- tified the exact definition of direct rized as follows: More than 60% of investment, and only slightly more the students believe they are very well than 40% of the students were able to or reasonably well informed about select the term that does not fit into the international economy. It comes the following list: balance of pay- as no big surprise that this share is ments – corporate balance sheet – markedly higher among commercial balance of services – current account college students (above 80%). Yet the balance – balance of trade (Zahlungs- result of this financial and economic bilanz – Konzernbilanz – Dienstleis- literacy test completed by the very tungsbilanz – Leistungsbilanz – Han- same students clearly shows that there delsbilanz).

3 The students surveyed were aged 14+ and attended the following school types: (1) higher education: secondary academic schools (“Allgemeinbildende Höhere Schule”); secondary technical colleges (“Höhere Technische Lehranstalt”); commercial colleges (“Handelsakademie”); secondary vocational schools of business studies, tourism, fashion and design (various types of “Höhere Lehranstalt”); as well as (2) medium-level schools: technical/trade schools; commercial schools; vocational schools (tourism, fashion and design).

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2.2 Comparing the Economic market economy, the significance and Knowledge of Final-Year implications of a trade deficit and the Students in Secondary Schools consequences of increasing public across Europe spending. The Vienna Economic Chamber commissioned a survey testing the level of 2.3 Assessing Consumers’ Financial economic knowledge among final- Capability year students in secondary school. In 2006, the Vienna Chamber of The survey (Katschnig and Hanisch, Labour commissioned the market 2006) was conducted in 2003 and research institute marketmind to 2004 among more than 2,000 final- conduct in-depth interviews with year students from Austria, Germany, employees and apprentices from the Czech Republic and Hungary. Vienna to assess their knowledge The questionnaire consisted of 12 about consumer credits, life insur- multiple-choice questions about eco- ance policies and mutual funds nomic theories, about the impact of (Prantner et al., 2006). The ques- changes in general economic parame- tions on consumer credits related to ters, and about market economy ba- the contents of a loan contract, the sics. On average, less than one-half of components of loan repayments, and the respondents were able to cor- the difference between effective and rectly assign certain economic policy nominal interest rates, etc. Even measures to the underlying economic though many respondents had taken theories (neoliberal/monetarist vs. out a loan, only close to one-fourth of Keynesian),4 with only the German them knew that total loan cost is an results being slightly higher at 54%. essential factor in a loan contract.5 When tested for their understanding One-half of the respondents were not of economic parameters (e.g. budget aware of the fact that loan install- deficit, inflation rate, or the impact ments typically consist of principal of customs tariff reductions), almost and interest payments, and two-thirds three-quarters of the Austrian final- of the respondents did not know the year students gave the correct answer. difference between nominal and They scored higher than the Hungar- effective interest rates. Only one- ian and Czech students (65% and third of the surveyed employees were 62%, respectively) and were outper- able to outline the typical features of formed only by their German coun- a mutual fund, and one-third could terparts (82%). Between 59% and not explain this investment product 67% of the final-year students from at all (“don’t know”). Several respon- all four countries were able to answer dents associated the term solely with questions relating to the market stocks or thought it referred to spec- economy, e.g. the characteristics of a ulative transactions.

4 The question was: Please assign the following economic policy measures to one of the two main schools of economic thought (neoliberal/monetarist or Keynesian): A) active labor market policy, B) subsidies, C) reducing the public debt, D) cutting social welfare, E) family subsidies, F) abolishing minimum wages. 5 Question: What is a loan contract? What types of loans are you familiar with, and what are the essential factors of a loan contract?

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3 Economic and Financial objective is to provide the public with Education Products and clear, understandable information Services in Austria – An about social and economic devel- Overview of Providers opments with a focus on Austria. This section describes several Austrian Numerous products (presentations, institutions and enterprises that pro- modular lectures, traveling exhibi- vide economic and financial educa- tions, computer games) are used to tion material or programs because highlight the workings of the Austrian (1) this is their corporate purpose or economy in an international context. (2) it is in their business interest to These products were desig ned to raise financial and economic literacy familiarize young people – the main and they consider it part of their target group – with the interplay of social responsibility to do so. Folders, economic forces. The museum also presentations, Internet downloads covers several other knowledge areas and websites are the most commonly that are not considered here. used information channels. Several In cooperation with the OeNB, information providers offer target the museum organizes a traveling ex- group-specific material (e.g. for hibition that primarily visits second- teachers or students). ary academic schools to teach stu- The following overview mainly dents about economic and financial concentrates on education products basics. Using wall charts, an expert and programs for young people as informs the students about economic found on the Internet, and thus does policy and monetary policy issues, not claim to be exhaustive. Moreover, focusing on exchange rate develop- it does not cover initiatives and coop- ments, monetary policy decisions of erations by Austrian federal minis- the ESCB/Eurosystem and their tries, as they exceed the scope of this implications for everyday life, and study. First, we present organizations the OeNB’s and the ECB’s tasks. In that are exclusively concerned with cooperation with the Vienna stock raising economic and financial liter- exchange, Wiener Börse AG, the acy, and then we turn to those that muse um organizes another traveling provide such materials and programs exhibition that concentrates on the in addition to their core business. Austrian capital market. It is displayed at secondary academic schools 3.1 Austrian Museum for Social and as well as (medium-level and second- Economic Affairs ary) vocational schools and colleges. The Austrian Museum for Social and With these two products, the muse um Economic Affairs (Österreichisches reached out to more than 14,800 Gesellschafts- und Wirtschaftsmuse- students from all over Austria in um, www.wirtschaftsmuseum.at) was 2006 (Österreichisches Gesellschafts- founded in 1925 as a nonprofit, non- und Wirtschaftsmuseum, 2006). The partisan association for the promo- trav eling exhibition on economic tion of public education.6 Its primary and monetary policy was shown in

6 The members of the association’s Board of Trustees come from Austrian ministries (Federal Ministry of Economics and Labour, Federal Ministry for Education, the Arts and Culture), banks (BAWAG-P.S.K., BA-CA), interest groups, and the OeNB, among others.

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52 secondary academic schools, which Museum for Social and Economic corresponds to a mere 16%7 of Affairs is one of the most important all secondary academic schools in providers of economic and financial Austria. A comparison between dif- literacy programs in Austria. The ferent Austrian provinces shows that number of students who make use of only 4 out of 87 secondary academic these comprehensive products and schools in Vienna made use of this services is still quite low, however: offer, while it was 28 out of 48 schools The 6,900 students who visited the in Upper Austria. museum’s modular exhibition and Visitors to the museum are invited media room in 2006 compare with a to learn more about economic basics total of more than 57,000 students by viewing wall charts, models, short attending secondary academic schools videos, publications and a modular in Vienna alone. exhibition staged on the premises of the museum. This modular exhibi- 3.2 Volkswirtschaftliche tion conveys topical information on Gesellschaft Österreich social and economic developments Conveying information about busi- and is often used by schoolteachers as ness administration and economics in a complement to what they teach in a clear and understandable manner class. The range of issues covered using numerous approaches (presen- is extensive: labor, the budget, the tations, economic simulation games, European Union, money and cur- workshops, projects, company visits, rency, innovation, the capital market, etc.) is one of the main purposes agriculture and the social security of Volkswirtschaftliche Gesellschaft system. The modular exhibition at- Österreich (VWG, www.vwg.at). The tracted more than 7,300 visitors in VWG’s material is targeted at school- 2006. A permanent workshop famil- children, apprentices and teachers. iarizes children aged 6 to 10 with Branch offices in all nine Austrian economic processes by showing them provinces8 offer different education how potato chips are produced. Teen- products and services. agers are invited to use interactive One of VWG’s most important learning and teaching software to test initiatives is the “Open Your Eyes” se- their knowledge about labor and em- ries of presentations and workshops, ployment, the federal budget, the which focuses on current economic euro, European Union, and the econ- policy issues and on improving job omy. All the information required to skills. This series is designed for stu- answer the questions is provided in dents aged 16 to 18 of secondary aca- the modular exhibition and the work- demic schools and students aged 17 to shop. 19 of secondary vocational schools. With 138,660 visitors in 2006 The topics covered in classroom pre- and more than 6,000 guided tours sentations include “Enterprises and and presentations, the Austrian the Economy” (ecological and eco-

7 Source: Grunddaten des österreichischen Schulwesens 2005/2006. Retrieved from www.bmukk.gv.at/schulen/ bw/uebersicht/Ueberblick_Zahlen_und_Fa1533.xml 8 The corporate associates of VWG Vienna are, among others, Casinos Austria International, Bank Austria Creditanstalt, Brau Union Österreich AG, Hewlett Packard GmbH and Siemens Transportation Systems GmbH & CoKG.

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nomic aspects, Austria as a business instance, is a game for students aged location), “Finances and the Stock 15 to 19 from all types of schools. Market” (the international financial Players also participate in a nation- industry, euro – U.S. dollar – Japa- wide and Europe-wide competition. nese yen) or “European and Interna- In JUNIOR, every team (consisting tional Issues.” Several presentations of a maximum of 15 students) starts a and workshops are also available in virtual company that offers a product English or French. or service. Each player has a specified Playing economic simulation role within the company. Just like in games (e.g. Ökoweb, Ökotopia, Öko- the real business world, the team has nomia) allows students – even those to perform certain tasks (e. g. choose with little prior knowledge – to gain a corporate name, do the bookkeep- insights into economic processes. In ing, pay taxes). In 2006, more than Ökonomia, for instance, the players 350 students from Vienna and Lower are divided into four groups that rep- Austria participated in this game, resent the government, employees, thus gaining insights into the chal- consumers and companies, respec- lenges involved in managing a com- tively. First, the gamemaster outlines pany. the scenario and specifies certain pre- In 2005, VWG and its coopera- defined fundamentals such as wages, tion partners launched the “Dual Lan- production volumes or consumption guage Education (DLE) and Blended rates. Then the four teams assemble Learning” initiative, in which English for a mock meeting, at which each is adopted as a working language in team has to fight for its group’s inter- selected subjects. The program is pri- ests on the basis of its own calcula- marily designed for secondary aca- tions, while at the same time aiming demic and vocational schools. In ac- to reach agreement with the other cordance with the curricula, English- teams. In the next step, the players language digital learning material is and the gamemaster analyze the im- provided for the following subjects: plications of the decisions taken at the geography, economics, and business meeting (e.g. tax increases, wage in- administration. More than 10,200 creases or higher investment expen- students from Vienna and Lower diture), using computer-based calcu- Austria participated in this program lations. This helps the students to in 2006, just one year after its imple- better understand economic struc- mentation. tures and processes. The target group In cooperation with the OeNB, of Ökonomia is made up of students VWG offers training sessions for aged 15 to 19. In 2006, more than teachers of all school types, in which 300 students from Vienna and Lower experts give hands-on presentations Austria played this game. on economic and monetary policy is- VWG also offers business simu- sues followed by discussions. Through lation games (e.g. ‡-Cost, ‡-Trade, these seminars, VWG and the OeNB JUNIOR) to cultivate entrepreneur- reach out to some 300 teachers per ial thinking and acting, while at the year. Company visits and workshops same time conveying an understand- on business and economic basics as ing of complex business processes. well as financial capability are also The one-year project JUNIOR, for available.

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3.3 Arbeitsgemeinschaft dustry, on trade in Austria and on EU Wirtschaft und Schule enlargement. In 1966, economic studies was intro- AWS keeps teachers informed duced as a school subject in Austria. about current economic issues, pub- At the same time, an association was lishing information booklets about founded for the purpose of providing selected topics at regular intervals. teachers with teaching materials Worksheets are included in the ap- about economic issues: Arbeits- pendix to these booklets. Several is- gemeinschaft Wirtschaft und Schule sues are available only in English and (AWS, wko.at/aws). The Austrian French. In addition, the AWS pre- Federal Economic Chamber, the um- pares economics teaching materials at brella organization of Austrian sav- two-week intervals, selecting current ings banks (Sparkassenverband), the economic articles from print and on- Federation of Austrian Industry and line media and complementing them VWG Österreich are the founding with comprehension questions and members of AWS. To date, most other test tasks as well as links and teachers have already downloaded resources for further reading. information material from the AWS’s AWS has also developed an eco- website. nomics information kit for elemen- In the context of the “go interna- tary schoolchildren. It consists of four tional” initiative (a cooperation be- modules and deals with money (from tween the Austrian Federal Economic barter transactions to debit cards) and Chamber and the Federal Ministry of saving. Questions about pocket money Economics and Labour to promote aim at making children aware of what Austrian exports), AWS developed a they do with their money (spending two-part information kit for schools patterns) and familiarize them with that focuses on Austria’s opportuni- the notion of saving, e.g. by means of ties in the world markets. This kit short stories. Economic processes and deals with external trade from a busi- economic sectors are outlined briefly, ness and economics perspective and as is the significance of imports and presents a case study. It also contains exports. Worksheets and slides com- a glossary and teaching material. plement this kit, which was produced Moreover, in cooperation with in close cooperation with teachers. the Austrian Federal Economic Cham- Last, but not least, AWS provides ber and the Sparkassenverband, AWS a German dictionary that defines and prepared an information kit for teach- explains the most important financial ers of students aged 15 to 19. This kit terms and concepts. aims at enabling students to handle day-to-day business transactions. It 3.4 Wiener Volkshochschulen addresses questions the students are Courses in economic subjects account likely to encounter in their profes- for a rather small share of the exten- sional and private lives (sales con- sive range of courses offered by the tracts, employment contracts, etc.) adult education centers Wiener Volks- and is suited for both self-study and hochschulen (www.vhs.at). The ba- classroom presentations. AWS has sics of business administration can be also produced information kits with acquired in several general courses or educational material on Austrian in- in preparatory courses for the Berufs-

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reifeprüfung exam, which is a neces- currency financing, however, is men- sary entrance qualification e.g. for ap- tioned only briefly, which is remark- prentices to study at university. One able considering the significance of course focuses on money manage- this instrument for the Austrian ment, teaching participants how to market. The education portal was become informed customers who can developed in cooperation with the avoid being manipulated by financial Austrian Federal Ministry for Educa- advisors. Another course teaches the tion, the Arts and Culture. It focuses basics of financial literacy. The adult on conveying economic and financial education centers also offer training information to teachers and students. courses for the European Business The portal provides interactive and Competence* License (EBC*L), which multimedia material and gives con- covers corporate goals, cost account- crete, realistic examples. The knowl- ing, financial planning, etc. EBC*L edge acquired can be tested with holders have core business manage- multiple-choice questions. With the ment knowledge of an internationally help of calculation tools, the students recognized standard. can complete given tasks and make their own calculations so as to famil- 3.5 Finance Portal – iarize themselves with the issues cov- www.finanzportal.at ered. The solutions to the given tasks Since its creation in 2005, this online are available for teachers, who are portal has provided information on also provided with suggestions of investing, financing and taking out how, when, and where to introduce a insurance policies for the following subject to the curriculum in each three target groups: teachers and stu- school type and for which age group. dents, consumers, and companies and From 2008, the portal will offer a financial service providers. Accord- hands-on financial literacy program ingly, it consists of an education por- (a “financial driver’s license”) that tal, an information portal and a con- focuses on conveying basic knowledge sultants portal. It has been steadily about the most common financial extended through cooperations with services. Graduates of the program the Austrian Federal Economic receive a certificate. Chamber, the online portal of the Austrian Broadcasting Corporation 3.6 Austrian Federal Economic ORF (www.orf.at), the Austrian Chamber and Its Cooperations Federal Ministry for Education, the Together with several cooperation Arts and Culture, and several banks partners, the Austrian Federal Eco- and insurance companies. The infor- nomic Chamber (Wirtschaftskammer mation portal provides consumers Österreich – WKÖ, portal.wko.at) with clear and understandable infor- offers a broad range of economic and mation on various types of investment financial education services for differ- (fixed-income funds, mutual funds or ent target groups, e.g. an online eco- real estate) and common financing nomics quiz9 that contains not only products (consumer loans, housing specific questions (about starting a loans or leasing contracts). Foreign business, Basel II, etc.), but also tests

9 This quiz was on WKÖ’s website until August 15, 2007.

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participants’ knowledge of basic eco- 3.7 Vienna Chamber of Labour nomic concepts (inflation rate, busi- and Its Cooperations ness cycles, etc.). WKÖ’s business In cooperation with the Austrian promotion center (Wirtschaftsförde- Trade Union Federation (Österrei- rungsinstitut – WIFI) offers numer- chischer Gewerkschaftsbund – ÖGB, ous programs and courses, most of www.oegb.at), the Vienna Chamber which address business issues but also of Labour (Arbeiterkammer Wien – convey economic basics. An initiative AK Wien, wien.arbeiterkammer.at) to familiarize consumers with finan- launched a project in 1980 to support cial issues (e.g. life insurance) was schoolteachers in their task of prepar- launched by the Austrian consumer ing students aged 14 and over for affairs organization (Verein für Kon- work. The project familiarizes stu- sumenteninformation) and WKÖ’s dents with life on the job and pro- Viennese organization of financial ser- motes their social and communicative vice providers (Fachverband Finanz- skills, using teaching material, semi- dienstleister). nars, job application trainings and Students should learn about the economic simulation games. facts of business life and gain an un- AK Wien cofinances more than derstanding of business and economic 2,000 education and training courses basics at an early age. This is why offered by various institutions (the WKÖ offers a four-module program vocational training institute bfi, for students aged 10 to 19 to obtain WIFI, Wiener Volkshochschulen, etc.). the Entrepreneur’s Skills Certificate It provides training vouchers that per- in school as an additional qualifica- mit all employees to attend courses at tion. This program aims at improving a reduced fee. A few of these courses students’ economic knowledge and focus on economic topics, especially honing their business skills. on the basics of business administra- In addition, WKÖ developed a tion. media kit to promote entrepreneur- Information on financial issues ship among apprentices in coopera- (loans, guarantees, debt restructur- tion with the Austrian Federal Minis- ing, etc.) can be retrieved from the try of Economics and Labour and the consumer portal of the Chamber of Institute for Research on Qualifica- Labour’s website. The Chamber of tions and Training of the Austrian Labour also produces a wide range of Economy. The kit offers trainers prac- print publications. tical suggestions and examples of how In cooperation with the Austrian to integrate the relevant key skills in Trade Union Federation, AK Wien the apprentices’ workplace training. has launched an institute that aims at WKÖ also provides a brochure that supporting employee representatives encourages apprentices to consider in the fulfillment of their tasks and starting a business as an option for responsibilities as supervisory board their professional future, and an on- members (Institut für Aufsichtsrat- line game in which apprentices can Mitbestimmung). This institute of- demonstrate entrepreneurship. fers seminars on the basics of economics and business administration as well as specific seminars (e.g. “Under standing Balance Sheets”).

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The Austrian Trade Union Feder- designed for students aged 16 to 19 ation’s adult education association of secondary academic or vocational (Verband Österreichischer Gewerk- schools – which consists of a text- schaftlicher Bildung, www.voegb.at) book, a folder, slides and other teach- also offers numerous courses for ing material. The textbook focuses on employee representatives. One course the tasks and functions of the stock addresses monetary policy, interest exchange, on the various types of se- rates and inflation, while another curities and on investment decisions. focuses on stock exchange crises, and The slides present the key features of a third deals with the early detection the capital market, above all the secu- of corporate crises. rities market and the commodity In cooperation with the Austrian market, the cash market and the fu- Trade Union Federation, AK Wien tures market. In addition, the mate- offers a four-module program for rial highlights stock market develop- (future) works council members that ments, contains information on secu- covers economics and business topics, rities, derivatives and hybrids, and among other things. outlines the key organization principles of a stock corporation. The fac- 3.8 Wiener Börse AG tors influencing stock market devel- The Vienna stock exchange (Wiener opments are sketched, the items Börse AG) provides beginners and pro- in a typical newspaper quotations fessionals as well as specific tar get list are presented, and mutual funds, groups (e.g. students and teachers) with bonds and investment decisions capital market-related information on are explained. The teaching materi- its website (www.wienerborse.at). als include e.g. worksheets with vari- The newcomer portal (German ver- ous puzzles and games (Trimino, sion only) offers a concise overview of Domino, or the popular word guess- the stock market and introduces some ing game Taboo for stock exchange basic concepts. Downloadable bro- keywords). Playing these games helps chures, a stock market glossary and students reinforce the capital market video clips are also available free of knowledge they have acquired in charge. In cooperation with the WIFI school. Wiener Börse AG offers one- Management Forum, Wiener Börse and two-day seminars on capital mar- Academy offers seminars and courses ket issues, which are especially de- on stock market and capital market signed for teachers at secondary aca- issues (mostly for a fee). The target demic and vocational schools; they group includes private investors and are conducted in cooperation with professional market participants. the teachers’ association ARGE Geo- More than 70 seminars attracting grafie und Wirtschaftskunde and the some 900 participants were held in national teacher training institute 2006. Website users can choose from Pädagogisches Institut des Bundes. among three online tests with varying degrees of difficulty to test their 3.9 Commercial Banks – knowledge of the stock market and Bank Austria Creditanstalt the capital market. and Erste Bank For several years, Wiener Börse AG What commercial banks do to pro- has offered a school kit on the mote economic and financial literacy Austrian capital market – especially is exemplified by the information

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products provided by Bank Austria for Training Firms ACT10 in which Creditanstalt (BA-CA) and Erste students attending vocational school Bank. In line with their business in- can gain insights into the banking terests, the two commercial banks business. The practice firms’ banking offer numerous information bro- transactions are carried out by the chures and folders on their financing ACT bank. In addition, payment and investment products. Various cal- transactions and bookkeeping forms culation tools are available on Erste (featuring BA-CA’s logo) can be Bank’s website – for pension benefits, downloaded from BA-CA’s website (foreign currency) loans, housing and used in economics classes. A bro- loans, etc. In addition to providing chure on treasury instruments is also product-linked advertising, the banks available from BA-CA, and guided also produce objective information bank tours round off BA-CA’s services materials on financing and investing. in this field. For instance, a glossary explaining On its website (www.sparkasse. frequently used financial terms is at/sgruppe), Erste Bank offers advice available from BA-CA, and Erste on how to handle money, addressing Bank publishes a brochure on securi- young people aged 14 to 19. This ties that gives an overview of invest- website section covers various topics ment options and includes a small (recreation, school, jobs, etc.), but glossary. also includes some economic educa- BA-CA has created an Internet plat- tion material. Its main focus, how- form (www.lehrerweb.at/schulinfoheft) ever, is on conveying information on which it presents information about bank card use and account – combined with advertising – to management, which is in line with students, teachers and heads of Erste Bank’s corporate purpose as a schools (all school types). The bank commercial bank. also provides an online simulation Erste Bank also offers students the game for students that focuses on possibility to gain insight into the how to start and manage a business, banking business through either pre- namely a virtual surf shop, which the sentations in class or guided bank students have to run for three years tours. Since 2003, Erste Bank has using the predefined startup capital. organized presentations in which Playing this game (which takes about students learn some basic facts about one or two hours) helps the students banking: What are the legal require- learn more about the facts and ments for opening an account (mini- demands of business life, as they are mum age, etc.)? How do you compare responsible for all tasks involved in bank services (service fees and over- running such a business (e.g. book- draft charges on bank accounts, lend- keeping, mar keting and budgeting). ing and deposit rates, etc.)? What are The game is designed as a teaching the most common types of saving and resource for economics teachers. investment vehicles? Which types of BA-CA also supports a practice payment are available? In addition, firm project by the Austrian Center some keywords (e.g. interest margin)

10 ACT was launched by the General Directorate for Vocational Education and Training of the Austrian Federal Ministry for Education, the Arts and Culture.

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are explained, the spending habits of nomic fundamentals. The “money and young people are discussed and the currency” school information kit, for students learn how to avoid debt. An instance, is one of the OeNB’s key information leaflet lists 12 tips for education products. It was designed creating a simple personal budget for students aged 10 to 14, but can plan, thus helping students manage also be used in secondary academic their own finances. Another presen- and vocational schools. This free in- tation focuses on retirement provi- formation package for teachers – also sions, highlighting private pension available on CD-ROM since 2005 – products, but also covering public contains brochures on the Austrian and occupational pension systems. financial system, on money and on The umbrella organization of the OeNB’s role in the European Austrian savings banks (Sparkassen- System of Central Banks, as well as verband), to which Erste Bank be- worksheets and slides. The teaching longs, and Arbeitsgemeinschaft Wirt- materials cover the history of money, schaft und Schule have been working highlight the origins and develop- together for decades (section 3.3). ment of the European Union, and The output of this cooperation deal with monetary policymaking includes numerous brochures on fi- institutions and their key tasks. The nancial and economic issues as well as material was created and compiled in a booklet containing tips for students close cooperation with teachers. Hard aged 14 to 19 on money management, copies or CD-ROM versions of the which was published in September school information kit, which is also 2006. available on the OeNB’s website (www.oenb.at), have been sent to more 3.10 Oesterreichische than 3,000 Austrian schools. The Nationalbank interactive online quiz T‡MPO (with Promoting economic and financial prize draw) is yet another element of literacy has long been a key element the OeNB’s educational services. of the OeNB’s information activities, The OeNB’s Money Museum of- which address both the general public fers guided tours on the history of (e.g. through TV or radio campaigns) money for various target groups. Af- and specific audiences, such as stu- ter the tour, a free one-hour lecture dents and teachers. The OeNB offers mostly on monetary and economic a broad range of financial literacy policy is available for school groups. products and services: It organizes These presentations, which are held presentations and guided tours to the in cooperation with the Austrian Money Museum in Vienna, as well as Museum for Social and Economic it produces teaching materials for Affairs, generally serve to deepen the schools. knowledge the students have already The OeNB has a particularly great acquired in class; the lecture can be interest in providing students with adapted so as to meet specific curric- economic literacy products. At the ulum demands, if required. In 2006, presentation of the OeNB’s school more than 3,000 students from information kit in 2005, the OeNB’s 115 school classes attended lectures governor Klaus Liebscher emphasized at the Money Museum. the importance the OeNB attaches to In summer 2005, the Money familiarizing young people with eco- Museum for the first time partici-

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pated in the children’s university while others are (sometimes com- offered by the University of Vienna, pletely) neglected. familiarizing children aged 7 to 12 For instance, retirement saving is with the origins and development of an issue about which one would money. The Museum’s involvement expect to find more information. in the summer activity program the Neutral and understandable guides City of Vienna organizes for children on retirement benefits are hard to and its participation in the annual come by – it comes as no surprise that Museum Night have proved to be a the information material produced by big success, too. financial service providers is guided The OeNB actively promotes the by their own business interests. advancement and dissemination of Finding neutral in-depth information economic knowledge at university about f inancing is not easy, either. level, granting scholarships and While some information covers the awards (e.g. Olga Radzyner Award, most common types of financing, Franz Weninger Award) to young many important basic issues (e.g. the economists working in various difference between effective and specialized fields. Through its Anni- nominal interest rates) are largely versary Fund for the Promotion of neglected. This observation is consis- Scientific Research and Teaching, the tent with the survey results reported OeNB also cofinances selected re- above, which reveal critical knowl- search projects in the social sciences, edge gaps in this area. Education humanities, medicine or economics. products that focus on basic economic In addition, the OeNB has e.g. concepts (such as inflation, gross launched numerous campaigns to in- domestic product, competitiveness) form the public about economic ba- in a clear, understandable manner are sics (such as purchasing power, gross also sorely lacking. The fact that many domestic product or price stability), people still compare the current level relying on various channels: coopera- of (euro) prices with the 2001 (schil- tions with radio and TV stations ling) price level suggests that they as well as print media, trade fair are not sufficiently familiar with events, folders and brochures. Of the concept of inflation. Additional course, the OeNB also addresses ex- targeted information campaigns could perts, organizing training sessions, help remedy this situation. Further- congresses, workshops, conferences more, the education products exam- and seminars. ined hardly ever highlight the difference between real and nominal wages, 4 Which Areas and Target which is, however, essential to under- Groups Are Not Sufficiently standing collective bargaining nego- Covered? tiations that directly affect every To date, a large number of institu- Austrian employee. tions and enterprises provide eco- Regarding the availability of suit- nomic and financial literacy products able educational products for differ- and programs in Austria. The different target groups, much is available ent products and services are not well for 15- to 19-year-olds, whereas es- coordinated, however: Many areas pecially primary schoolchildren seem are covered by several providers, to have been largely neglected so far.

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Teaching younger children how to an essential life skill today. This is manage money responsibly makes why acquiring this skill should begin sense, though: After all, the amounts early. The OeNB has already taken of pocket money they receive have in- important steps to promote economic creased steadily in recent years. In and financial literacy, as is evidenced addition, not enough educational by the broad range of educational products are appropriate for 11- to products it offers. It will continue and 15-year-olds. Promoting economic expand its activities in the future. and financial literacy among this Even though a number of other group is crucial – young people may enterprises and nonprofit institutions leave school at 15. The last year of also provide economic and financial compulsory school education is the literacy products, they do not cover last chance to reach out to students all areas and target groups. Consider- who leave the school system at the ing the discrepancy between the large end of the year and teach them the number of products available for stu- most important basics (e.g. how to dents and adults on the one hand, and manage a household budget or what the low level of financial and eco- the implications of excessive indebt- nomic literacy on the other, we may edness are). assume that the implementation of education measures must be method- 5 Conclusions and ologically improved. It seems that Recommendations people are either not interested in In the area of economic and financial these issues or find it hard to locate literacy, knowledge gaps are evident the information they actually need. across all age groups in Austria. Moreover, too few education Several studies conclude that many measures are targeted at specific Austrians have absolutely no or very groups, notably students attending few basic business skills and no or lit- compulsory school. Educational tle economics knowledge. Country computer games or comics might be a comparisons show, however, that suitable means to reach out to primary these knowledge gaps also exist in schoolchildren. Creating new prod- other industrialized European coun- ucts and services for students aged tries. The OeNB attaches great impor- 11 to 15 is also of high priority, as tance to promoting economic and compulsory schooling stops at age 15. financial literacy, as is reflected in a The lack of coordination between statement by the Governor of the the different information providers is OeNB, Klaus Liebscher, at the open- another major obstacle. Consumers ing of the 35th Economics Conference can find it exceedingly difficult to of the OeNB (entitled “Human Capital locate specific information products, and Economic Growth”), who labeled while teachers tend to find it easier to education as a bridge to participation procure information, as they have in economic and social life. There- access to the school’s resources and fore, the OeNB has defined the promo- educational support material. To rem- tion of financial and economic literacy edy the situation, Austria could create as a key strategic goal. The increasing a common platform covering the complexity and pace of economic products of different service provid- processes have made understanding ers, thus following the examples set the basics of business and economics by Germany (www.kursraumgeld.de

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or www.geldundhaushalt.de) or the project. In a nutshell, our findings U.S.A. (www.federalreserve.gov) suggest that making the available (Fluch, 2007). Ideally, such an initia- products and services more easily tive should be launched by an inde- accessible in a structured fashion is pendent institution to ensure that key to the success of financial literacy people accept and appreciate this campaigns.

References Arbeitsgemeinschaft Wirtschaft und Schule. 2001. Europäische Wirtschafts- und Währungsunion – Der Euro vor der Bargeldeinführung. Vienna. Arbeitsgemeinschaft Wirtschaft und Schule. 2005. Willkommen in der Wirtschafts- welt. Vienna. Arbeitsgemeinschaft Wirtschaft und Schule. 2005. Wirtschaft im Alltag. Vienna. Arbeitsgemeinschaft Wirtschaft und Schule. 2006. Die österreichische Industrie Vienna. Arbeitsgemeinschaft Wirtschaft und Schule. 2006. Handel in Österreich. Vienna. Bank Austria Creditanstalt. www.ba-ca.com. Retrieved on May 29, 2007. Erste Bank der oesterreichischen Sparkassen AG. www.sparkasse.at. Retrieved on May 29, 2007. Fluch, M. 2007. Selected Central Banks’ Economic and Financial Literacy Programs. Monetary Policy & the Economy Q3/2007. OeNB. Gnan, E., M. A. Silgoner and B. Weber. 2007. Economic and Financial Education: Concepts, Goals and Measurement. Monetary Policy & the Economy Q3/2007. OeNB. Hartmann, C. 2000. Ökonomische Bildung in Österreich. Sonderausgabe der Finanznach- richten. Vienna. Katschnig, T. and G. Hanisch. 2006. Wirtschaftswissen von Maturant/inn/en im internationalen Vergleich. Eine empirische Studie in den Ländern Österreich, Deutschland, Tschechien und Ungarn, 2003/2004. In: Erich Kirchler. 2006. Ökonomische Bildung von Schüler/innen Allgemeinbildender Höherer Schulen. Leitinger, R. 2005. Go International – Österreichs Chancen auf den Weltmärkten. (Commissioned by the Austrian Federal Economic Chamber). Vienna. Liebscher, K. 2007. Opening of the 35th Economics Conference of the OeNB by Governor Klaus Liebscher: Education Promotes Growth and Employment. Press release of May 21, 2007, on the occasion of the 35th Economics Conference of the OeNB in Vienna. Lüdecke, S. and C. Sczesny. 1998. Ökonomische Bildung Jugendlicher auf dem Prüfstand: Diagnose und Defizite. In: Zeitschrift für Berufs- und Wirtschaftspädagogik. Vol. 94. Österreichisches Gesellschafts- und Wirtschaftsmuseum. 2005. Der österreichische Kapitalmarkt. Information im Auftrag des Kuratoriums für den österreichischen Kapital- markt. Österreichisches Gesellschafts- und Wirtschaftsmuseum. 2006. Annual Report 2006. Vienna. Prantner, C., K. Kollmann and M. Kollmann. 2006. Verbraucherkompetenz in Finanz- fragen. Commissioned by the Vienna Chamber of Labour.

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Schmid, K. 2006. Der Internationalisierungsgrad des österreichischen Bildungssystems – Halten Österreichs Schulen und Hochschulen mit der Internationalisierung der öster- reichischen Wirtschaft Schritt? In: ibw-Schriftenreihe 132. Institute for Research on Qualifications and Training of the Austrian Economy. 2006. Vienna. Servicestelle österreichischer Übungsfirmen. www.act.at. Retrieved on May 29, 2007. Wiener Börse AG. 2005. Der österreichische Kapitalmarkt. Vienna. Wirtschaftskammer Österreich. 2007. FINANCIAL EDUCATION: Fortsetzung der gemeinsamen Bildungsinitiative von Wiener Fachgruppe Finanzdienstleister und Verein für Konsumenteninformation (VKI). April 16, 2007. www.diefinanzdienstleister.at/ quicklinks/presse/pressemeldung/article/38/financial-ed/?cHash=59a6297832 Retrieved on June 25, 2007. www.lehrerweb.at/schulinfoheft. Retrieved on May 14, 2007.

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This study examines the type and extent of information central banks provide to advance Manfred Fluch1 economic literacy in general and financial literacy in particular. – Some 30 central banks across the world provide financial education products of varying complexity for different target groups, some in close cooperation with other institutions. – Some central banks consider their financial education activities a core competence and give them a prominent role, whereas the “educational visibility” of others is limited. Several central banks have recently launched financial literacy campaigns. – Products designed to make people financially knowledgeable are aimed at key target groups, basically children, adolescents, students and teachers. – Print products – once the product of choice – have been losing importance. Conversely, central banks use more and more modern knowledge transfer methods, in particular (multilingual) multimedia and e-education packages ranging from online games to multiyear educational programs. Moreover, some central banks have invested heavily in establishing special visitors or training centers, or have pooled knowledge e.g. at money museums. – Central banks’ educational Internet resources differ extensively in scope and presentation; only few central banks’ websites provide truly comprehensive and easily accessible information. – Financial knowledge transfer appears to work best from simple media and for products that are very strongly focused on individual benefit.

JEL classification: A20, I20 Keywords: economic education activities, central banks.

1 Mobilizing Financial objectives as cooperation partners in Education to Create promoting financial literacy whereas Awareness for the some have taken the initiative to cre- Economic Benefits of ate new platforms. Overall, central Central Banking banks’ financial education activities Central banks’ contribution to are typically designed to complement strengthening citizens’ financial ca- the programs offered by the educa- pability and economic literacy is an tion system in general (Stark, 2006). excellent investment, simply because Among central banks worldwide, the it is investment in knowledge, which Federal Reserve System (Fed) in the according to Benjamin Franklin, “al- United States has assumed a leading ways pays the best interest.” A num- role on financial education. Its activi- ber of central banks have thus lately ties already have a long history, and expanded or updated their economic they are informed by the Fed’s funda- and financial information products mental commitment to providing fi- and more or less institutionalized nancial knowledge, as evidenced by educational activities as part of their the following quote: “The Federal functions. To this end, many central Reserve will be a national leader and banks have sought out national or in- trusted partner in the provision of ternational institutions with similar economic and personal finance edu- Refereed by: Michael Manz, 1 The author thanks Ernest Gnan, Sabine Schlögl and Aurel Schubert (OeNB) and both referees, Michael Manz Manuel Wälti, and Manuel Wälti (both Swiss National Bank), for valuable comments. Swiss National Bank.

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cation in order to offer the public the – What role does financial educa- opportunity to understand and par- tion play among central banks’ re- ticipate fully in the U.S. economy.” sponsibilities? (section 4) (Malin, 2006). In Europe, the educa- – Which strategies underlie central tional activities of the Deutsche Bun- banks’ financial education activi- desbank or of the Bank of England ties and what are essential ingredi- can look back on a long tradition. ents for their success? (section 5) The Oesterreichische National- – What media do the central banks bank (OeNB) has also offered a wide target, and what programs and in- range of financial education products struments do they use? What are for many years (Schlögl, 2007). The the target groups for the financial OeNB has been been intent on steadily education activities? What topics expanding this range, and made sure are covered? Who do the central to thoroughly revise its education banks cooperate with on financial products following Eurosystem entry. education? (section 6) Nevertheless, polls such as the quar- – What does the profile of strengths terly OeNB Barometer survey signal and weaknesses look like? What that Austrians still have a sketchy un- conclusions may be drawn? (sec- derstanding of monetary policy and tion 7) of central banks’ general and economic policy role and tasks. Part of 2 Financially Literate the reason may be that communica- Citizens Are Good for tions media have not been targeted Society – And explicitly enough at particular audi- for Central Banks ences, which may in turn have re- Why do central banks across the sponded with insufficient interest. world undertake financial education Schools evidently need to make more activities? Cathy E. Minehan, presi- room for financial and economic edu- dent and chief executive officer of cation, too: even after graduating the Federal Reserve Bank of Boston from a secondary school after eight or (Minehan, 2006) put the answer sim- nine years, adolescents display knowl- ply at a conference in Warsaw in edge gaps (Schlögl, 2007; Schmid, 2006: “… central bank support for 2006). For this reason, the OeNB de- economic and financial education is a cided to step up its financial educa- form of enlightened self interest.” tion activities and initiated a cam- And why is this so? Gnan et al. (2007) paign to strengthen Austrians’ finan- cite five main reasons for central cial competence and economic liter- banks’ interest in financial education: acy. This campaign will run up to (1) to enhance the effectiveness of 2010. monetary policy, (2) to ensure the This contribution takes stock of smooth functioning of financial mar- the activities of central banks besides kets, (3) to support sustainable eco- the OeNB. The main questions we nomic policies, (4) to promote eco- try to answer are: nomic and financial literacy as a pub- – Why do central banks undertake lic good and, by doing so, (5) build economic and financial education their reputation and promote accep- activities? (section 2) tance for their actions. In other – How do central banks transfer words, consumers who understand economic knowledge? (section 3) the workings of an economy and who

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are financially competent reinforce price developments, whereas 16% market efficiency, in turn providing were able to provide no more than good conditions for sustainable eco- one correct response. The respon- nomic growth and financial stability. dents’ assessments of the rate of eco- Along these lines, one of Minehan’s nomic growth and of inflation were (2006) key messages is: “Economies just as disappointing. One result of are made up of individuals, and the this lack of knowledge is that people better informed and educated their are careless in handling their financial economic decisions, the more likely affairs. This creates problems of an the economy’s prosperity.” alarming proportion in many coun- All of these dictums – “Knowl- tries, even in highly developed econ- edge is power” (Santomero, 2007), omies (OECD, 2006; Smith, 2006): “Knowledge is your greatest asset” Financial mismanagement includes (Duguay, 2007), and “Informed con- hopelessly overdrawn credit card and sumers are more capable, competent checking account balances, to which and self-reliant” (paraphrasing We- banks may even respond by cancel- ber, 2007) – also apply to financial ing accounts; inadequate knowledge and economic knowledge. Therefore, about stocks and investment prod- economic literacy and financial com- ucts; insufficient retirement savings; petence play a strong role in society or the inclination, especially of young and the economy, because greater adults, to procrastinate when making knowledge helps people make wiser financial decisions.2 At the same time, financial decisions and protects them an overwhelming proportion of the from making borrowing, savings or population wants more information investment blunders. A number of about financial topics, as a German studies (Hogarth, 2007) have shown study (Leinert, 2004) shows, calling that greater financial literacy among for financial education to be part of households correlates with a more fa- school curricula or demanding that vorable financial situation. However, employers offer information about financial illiteracy is widespread. A how to provide for retirement.3 study drawn up for the Netherlands (de Nederlandsche Bank, 2006) re- 3 Central Banks Transfer veals that only 40% of the respon- Economic Knowledge at dents answered five fairly simple Several Levels questions on interest rates and infla- Central banks require knowledge to tion fully correctly. Only 6% were fulfill their responsibilities and are able to answer all eight additional thus important knowledge centers questions on the potential risks and of economies. Central banks range returns of investing in stocks, bonds among the most prolific producers of or passbook savings, and on house knowledge.4 Moreover, central banks’

2 In Austria, some 300,000 people – or one in 25 persons – do not have a bank account (Eisenmenger, 2007). In 2006, around 7,500 people declared personal bankruptcy, up by nearly 12% from 2005 (ASB-Schuldner- beratungen, 2007). Almost 50,000 people consulted a debt management center in 2006; their average debt totaled roughly EUR 38,000 per person. 3 95% of German respondents called for financial education at schools. 85% want employers to be obligated to organize presentations of information about company and individual retirement provision (Leinert, 2004). 4 The OeNB’s knowledge activities, e.g., have been recorded and presented annually in an Intellectual Capital Report since 2003.

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knowledge pool is expanded steadily group. Many central banks have pre- through their contacts with the gen- pared advanced level packages con- eral public, policymakers, and eco- taining a mix of academic literature, nomic and (economic) science insti- presentations, roundtable discussions tutions. These contacts enable cen- and special seminars or courses. Ev- tral banks to identify new devel- ery year, the OeNB, for example, opments and academic findings gives about 40 students from techni- without delay and to benefit from cal colleges the opportunity to com- them in fulfilling central banking plete their mandatory half-year in- functions. As central banks must be ternship at the central bank. accountable and transparent vis-à-vis The fourth target group is made the general public5 (ECB, 2002; Stark up of mainly secondary school teach- 2006), they have also introduced a ers. A number of central banks have broad range of instruments to enable prepared special packages for this tar- knowledge transfer. get group, given that it has a strong Economic education activities re- multiplier effect. Economics seminar present an important and yet specific series (partly held together with other cornerstone of central banks’ com- teacher training institutions, such as munications strategies. The type of Volkswirtschaftliche Gesellschaft in knowledge transferred depends on Austria) are one such focus. Another the target group: focus is targeted teacher training Among the important audience of material (handbooks, slides, quizzes, schoolchildren, primary schoolchil- questionnaires) on money, monetary dren (aged up to 11) are the first tar- policy and economics. get group. The aim is to familiarize Additionally, some central banks these children with basic, easy to un- periodically run information cam- derstand money concepts in an enter- paigns, availing themselves of the mass taining fashion. Second, education media – TV, radio, high-circulation initiatives for secondary schoolchil- newspapers and news magazines – as dren (aged 12 to 19) are based on spe- multipliers to inform the general pub- cial education packages intended to lic about monetary policy and other complement the school curriculum activities and areas with the intention and focusing on money management of enhancing financial literacy.7 and economic fundamentals.6 Many In addition to producing knowl- central banks distinguish between a edge themselves, central banks also greater number of age groups (see benefit from external expertise in below, e.g. the Bank of England). their fields. Therefore, central banks (Prospective) college or univer- promote a wide variety of academic sity students are the third target activity and facilities, ranging from

5 See also www.oenb.at/en/geldp_volksw/geldpolitik/merkmale/institutional_features.jsp 6 Or, as Manfred Weber puts it more succinctly in the newspaper Börsen-Zeitung of June 16, 2007: “Wirtschaft in der Schule: Bildung, die Früchte trägt” (“Economics at School: An Educational Investment that Yields Returns”) (Weber, 2007). 7 In the fall of 2004, for instance, the OeNB conducted a comprehensive information campaign with the slogan “I work hard for my money. Good that every euro is worth it.” Using ads, TV spots, advertorials and media cooperations, this campaign maximized impact and media reach by combining marketing and public relations activities.

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special research institutions, which 4 Finance Education they finance in part or completely, to Activities Have endowments and funds that provide Low Visibility research funding, to grants, awards among Central Banks’ for academic work, subsidies, spon- Responsibilities sorships and donations. This study Central banks still differ substantially will only refer to financial literacy-re- from each other with regard to the lated educational facilities and activi- visibility of their financial literacy ini- ties (seminars for central bank em- tiatives. Because providing financial ployees or the public, special awards education is neither among the statu- in tertiary education). tory duties of central banks (with the

Table 1 Overview of the Educational Mission of Selected Central Banks

Central bank Educational Mission Source

Oesterreichische Nationalbank Educational activities represent an important cornerstone of the OeNB’s Liebscher, K., OeNB press republic relations mission. lease of December 14, 2005 The OeNB is dedicated to improving economic and financial literacy, Liebscher, K. (2007) because knowledge allows consumers to make informed financial decisions about investments and retirement savings. Deutsche Bundesbank The Deutsche Bundesbank promotes economic education Extract from a press release issu- The Deutsche Bundesbank has been actively committed to providing basic ed by the Deutsche Bundesbank knowledge about economics and monetary issues for more than 30 years. on January 15, 2007 (translation) A good understanding of how the economy and money work is especially important for young people, who have to deal more intensely with economic and financial issues once they start to make a living. Every year, the Deutsche Bundesbank provides schools with updated teaching materials about money and monetary issues free of charge.

National Bank of Belgium The National Bank is an active partner in education and for the academic website of the Nationale Bank world. van België/the Banque Nationale de Belgique (www.nbb.be)

Bank of England The Bank offers a range of resources and services to build awareness and website of the Bank of England understanding of its role and functions, and of central banking more gene- (www.bankofengland.co.uk) rally.

Magyar Nemzeti Bank The most important mission of the MNB’s Visitor Centre is to provide in- website of Magyar Nemzeti Bank formation concerning the basic functions of the economy, the role of money (Visitors’ Centre) and its history in Hungary. (english.mnb.hu)

Narodowy Bank Polski …… However, it is especially desirable to give the young people a grasp of website of Narodowy Bank the basic principles of the economic system we live in. One of the Bank’s Polski (www.nbp.pl) goals is to ensure that economic literacy becomes a priority on the national education agenda. To function successfully for the young people in the workforce is to close the gap between what they ought to know and what they are being taught at school.

Federal Reserve System The Federal Reserve has been involved in economic education initiatives Santomero, A. M. (2003) for some time. We consider them integral to our mission. As you know, the Fed serves a three-fold function in our economy: it conducts monetary policy, supervises and regulates banks and financial institutions, and maintains an effective payments system. Our economic education efforts are important to, and intertwined with, all three functions.

Recognizing the importance of educated and informed Consumers to the Braunstein, S. and operation of efﬁ cient markets, the FED has been an active provider of econo- C. Welch (2003) mic literacy materials to help the students and the public better understand the U.S. economy and the role of the FED. Each of the 12 FED-banks supports ………

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exception of the Fed) nor among their 2 Improving access to informa- core competences, mission statements tion about economics and fi- or descriptions of main central bank- nance, and spreading informa- ing tasks do not specifically reflect tion for consumer protection educational commitments. Such com- purposes; mitments can be discovered only 3 Developing and improving citi- when taking a broader and deeper zens’ understanding of basic look at central banks’ activities (see economic concepts. summary table 1 for a selective over- While the strategies and methods view). However, the content of this used to support the attainment of commitment is quite disparate from these goals have common denomina- one central bank to the other. The tors, they differ in practice and may range spans narrowly defined activi- cover a broad range, depending on ties for a very small target group (e.g. the scope of activities undertaken by schools and adolescents) to a very each individual central bank. These broad definition (education or eco- activities comprise numerous educa- nomic education). Some central banks tional materials and various courses subsume the entirety of their educa- and seminars, partly in dedicated tion initiatives in special “money educational facilities, e.g. money mu- museums.” Central banks generally seums at many central banks. More- organize their educational activities over, central banks also seek bilateral as part of their public relations activi- or multilateral cooperation with edu- ties. The communications media of cational facilities, consumer protec- choice for central banks’ educational tion organizations, financial market mission are press releases, references authorities or institutions, municipal in speeches (Stark, 2006) or special facilities, trade associations and even newspaper articles (Kotz, 2007), and financial industry partners. National of course the Internet. and international networks as well as common online platforms represent 5 Strategies and Success an additional avenue through which Criteria Underlying Central to reach target groups. Banks’ Financial Education Representatives of central banks Initiatives with a strong educational commit- Gnan et al. (2007) examine the moment point out that specific criteria tives and goals that central banks have must be observed to reach the respec- for their financial education activi- tive audiences and to actually enhance ties. How can these goals be achieved? economic and financial literacy. A key There are three different strategies to factor is (1) the support and active reaching those goals: participation of the central bank’s 1 Creating awareness of the need management itself (Hogarth, 2007; to enhance citizens’ basic eco- Minehan, 2006). The former Chair- nomic and financial literacy at man of the Federal Reserve Board, various levels: among policy- Alan Greenspan, and Ben Bernanke,8 makers, education system stake- its current Chairman, have repeat- holders, the mass media com- edly cited raising economic literacy munity and the general public; as a priority among central banking

8 See Bernanke (2006).

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tasks in their speeches. This also has a of individual countries’ systems in a positive impact on the resources made conference volume of Narodowy available. A second factor with a posi- Bank Polski (2006), (2) OECD stud- tive impact (2) is the advantage cen- ies and reports, (3) research on the tral banks have as independent and central banks’ websites, and (4) bilat- objective institutions with a reputa- eral contacts to some central banks. tion for integrity, credibility and im- In some respects, this analysis of cen- partiality. People trust their central tral banks’ information products may banks and expect them to provide fair no longer be fully accurate at the time and truthful information. A third of reading, as some central banks are success factor is (3) readability and currently working on a relaunch of user friendliness. Educational materi- their education concepts for 2007 or als must be easy to use e.g. at schools, later.10 Another drawback of the re- not time-consuming or cumbersome. search on central bank websites is Another success factor is (4) clarity that the specific and comprehensive and attractive design (Ganley, 2006; products are frequently available only Minehan, 2006). Central banks are in the national language version; the well advised to seek the support of analogous English-language websites experts in the fields of education, often provide only synoptic informa- teaching, teaching methods and de- tion, if any. This makes it quite diffi- sign. In this vein, some central banks cult to take stock of the various finan- even use comics and cartoons to get cial literacy initiatives and compare their message across or cooperate in- them across central banks. Finally, tensely with marketing, education central banks post the relevant infor- and public relations experts to design mation on very different parts of their their educational products.9 Finally, respective websites, and the informa- (5) research promotion with the aim tion is frequently difficult to find. of identifying best practice, and (6) central bank staff training are crucial 6.2 Many European Central Banks to the success of a central bank’s edu- Offer Innovative Financial cation activities. Education and Plan to Extend It We included some 30 central banks 6 Financial Education from all over the world in the stock- Programs: Comprehensive taking exercise. As tables 2.1 and 2.2 at Some Central Banks show, these central banks offer audi- 6.1 Taking Stock of Selected ence-specific financial and economic Central Banks’ Financial education packages and programs Literacy Initiatives aimed at children in primary and sec- The review of individual central ondary school and at students of tech- banks’ education activities presented nical colleges and universities. In ad- below is based on (1) presentations dition, many central banks support

9 Such cooperation has also proved very valuable for the OeNB, which cooperated intensely with experts from the areas cited in developing its educational products. The Swiss National Bank also paid special attention to these aspects in its 2007 relaunch of educational products (see also section 6.2). 10 Currently, e.g., the Swiss National Bank is working on a relaunch (the main features of which can be found in the comparison in this study); moreover, the Central Bank and Financial Services Authority of Ireland and the Banco de España are preparing for a relaunch of their education products. The current status of the education work at these central banks is reflected in the presentation in this study.

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Table 2.1 Central Banks’ Economic and Financial Education Products: Target Groups and Educational Facilities and Services – Part 1

AT AN AU BE CA CH CZ DE DK EE ES ECB FI FR HU Target groups Children x x x x School children/adolescents x x x x x x x x x Students/universities x x x x x x x Teachers/seminar participants x x x x x x x x x Campaigns/mass media x x x x Research institutions/research funding/foundations x x x x x x x x x x x Educational facilities and services Money museum (knowledge pool, exhibitions) x x x x x x x x x x Open house x x Visitors centers x x x Guided tours Training facilities x x x x x Training programs/lectures x x x x x x x Special seminars x x x x x x x x E-education (website, online) x x x x x x x x x x E-education portal x EcFin promotion group x Competitions/prizes/awards x x x Fundraisers (for educational purposes) Euroservice x Source: Websites of the respective central banks, Narodowy Bank Polski, bilateral contacts with some central banks. . Note: AT = Oesterreichische Nationalbank, AN = Eastern Caribbean Central Bank (monetary authority for Anguilla (AN), Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia and St. Vincent, the Grenadines), AU = Reserve Bank of Australia, BE = Nationale Bank van België/the Banque Nationale de Belgique, CA = Bank of Canada, CH = Swiss National Bank, CZ = Cˇeská Národní Banka, DE = Deutsche Bundesbank, DK = Danmarks Nationalbank, EE = Eesti Pank, ES = Banco de España, ECB = European Central Bank, FI = Suomen Pankki – Finlands Bank, FR = Banque de France, HU = Magyar Nemzeti Bank.

research and science institutions and why is it important for you?” This kit, award various prizes for achievements which was developed in cooperation in the field of economics. To round with the Eurosystem central banks in out the picture, tables 2.1 and 2.2 2005 and is now available in 22 lan- also provide an overview of education guages, launched the ECB’s financial facilities established by individual education program, which is to be central banks. The OeNB was in- expanded substantially in the next cluded in the comparisons in tables few years. In mid-2007, the ECB 2.1 and 2.2, but for more detailed in- added a set of powerpoint slides formation about financial education (“Facts”) for presentations about the initiatives of the OeNB and other EU, the Eurosystem and Eurosystem Austrian providers, see Schlögl (2007) monetary policy to its educational in this issue. products and services. The ECB moreover invites students and gradu- ECB Information Material in over ates of economics to join dedicated 20 Languages programs (Wim Duisenberg Research The ECB’s flagship educational prod- Fellowship Programme, Lamfalussy uct is an information kit for pupils Fellowship Programme, Student Re- and teachers entitled “Price stability: search Assistantship Programme).

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Table 2.2 Central Banks’ Economic and Financial Education Products: Target Groups and Educational Facilities and Services – Part 2

IE JP KR LT MX NL NZ PL SE SG SK TR UK US ZA Target groups Children x x x x x x School children/adolescents x x x x x x x x x x Students/universities x x x x x x x x x x x Teachers/seminar participants x x x x x x x Campaigns/mass media x x x x Research institutions/research funding/foundations x x x x x Educational facilities and services Money museum (knowledge pool, exhibitions) x x x x x x x Open house x Visitors centers x x x x Guided tours x x Training facilities x x x x x x Training programs/lectures x x x x x Special seminars x x x x x E-education (website, online) x x x x x x x x x x E-education portal x x EcFin promotion group x x x Competitions/prizes/awards x x x x x Fundraisers (for educational purposes) x Euroservice Source: Websites of the respective central banks, Narodowy Bank Polski, bilateral contacts with some central banks. Note: IE = Central Bank and Financial Services Authority of Ireland, JP = Bank of Japan, KR = Bank of Korea, LT = Latvijas Banka, MX = Banca de México, NL = De Nederlandsche Bank, NZ = Reserve Bank of New Zealand, PL = Narodowy Bank Polski, SE = Sveriges Riksbank, SG = Monetary Authority of Singapore, SK = Národná Banka Slovenska, TR = Central Bank of the Republic of Turkey, UK = Bank of England, US = Federal Reserve System, ZA = South African Reserve Bank.

Deutsche Bundesbank Pursues Innovative ments,” “investment,” “financing and Strategy by Participating in lending,” “monetary policy” and “old- Larger Platforms on Money Topics age provision”; users may access order The Deutsche Bundesbank pursues forms on the providers’ websites educational activities e.g. by con- through these links. Another finan- tributing to the Internet portal cial education platform that the www.kursraumgeld.de. This infor- Deutsche Bundesbank runs in coop- mation portal bundles all educational eration with Deutsche Sparkassen- und materials that the Bundesbank, pri- Giroverband (www.geldundhaushalt.de) vate banks, savings banks, Volksbank covers the four service pillars advice, and Raiffeisen credit cooperatives, presentations, Internet platform and insurance companies and the respec- cooperation (Wirz, 2007). By partic- tive associations provide for school ipating intensely in both platforms, curricula on the issues of money man- the Deutsche Bundesbank has come agement. Up-to-date information is to play a leading role in financial edu- well presented and easily accessible. cation in Germany. Moreover, the The menu provides links to material Deutsche Bundesbank has a 30-year- on “the role of banks and insurance plus track record of providing special- companies in the economy,” “pay- ized education material (Deutsche

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Bundesbank, 2007). The bank’s Money The Bank of England’s Key Role among Museum, which has a separate web- Economic Education Providers in the site,11 serves as an interactive edu- United Kingdom cation center that attracts some The provision of financial and eco- 30,000 visitors a year. Special Ger- nomic education is split among sev- man-language products for secondary eral institutions in the United King- school-age children, such as “Unser dom (Ganley, 2006). The Bank of Geld” (600,000 print copies) and England provides a broad range of “Geld & Geldpolitik” (200,000 print educational products and services to copies) are updated annually. The on- raise awareness and promote underline game “Mission Bundesbank” is standing of its role and functions and another education tool. The Deutsche central banking more generally Bundesbank holds yearly summer among various target groups ranging workshops for students and awards from schoolchildren to the general up to EUR 30,000 of scholarships. A public. Personal finance aspects are foundation established in 2002, Stif- specifically covered by the Financial tung Geld und Währung, provides Services Authority in cooperation about EUR 50 million for the promo- with the financial industry. Business- tion of scientific activities. Moreover, related information falls within the the Deutsche Bundesbank organizes a ambit of the finance ministry and broad range of seminars: The Bundes- financial industry associations. The bank recruits some of its employees overview given below basically relates from a Bundesbank-operated techni- to products and services provided by cal college with a six-semester course the Bank of England. The money of banking studies for secondary museum (seven employees), the Bank school graduates; moreover, univer- of England’s main education center, sity graduates are offered a 21-month provides a broad range of information internship (Kotz, 2007). The Bundes- about monetary topics and regularly bank operates a training center at organizes exhibitions. Some 60,000 Eltville, not far from Frankfurt am visitors annually have the opportunity Main, where numerous courses are to take a guided tour of the Bank of held mainly for central bank em- England. Special learning resources ployees. Together with the OeNB, have been put together for schoolchil- the Deutsche Bundesbank has trained dren – the Pounds & Pence package over 600 banking supervisors from (for 9 to 11 year olds) and Made of more than 30 financial supervisory Money (for 14 to 16 year olds). In authorities in 25 countries since 2004 cooperation with the newspaper The within the framework of a special Times, the Bank of England also runs supervisory training program. Target Two Point Zero, the Bank of

11 The visitor to this website is greeted very invitingly: “Money plays an important role in every area of our lives. But only stable money is good money. The Money Museum of the Deutsche Bundesbank shows the fascinating world of monetary and foreign exchange policy and offers an introduction to the history of money.” For more information, go to www.geldmuseum.de/index.en.php

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England/Times Interest Rate Chal- At the visitors center, students can lenge – a special competition that play an interactive game, How to score gives students aged 16 to 18 a chance with policy, to find out about mone- to take on the role of the Bank of tary policy. As an additional educa- England’s Monetary Policy Commit- tional resource, the bank has compiled tee. Yet another learning resource a school information kit (The Money is available for college and univer- Box), which has been distributed to sity students. Seminars and hand- about 1,800 schools. On a scientific books on central banking topics pro- level, the bank offers seminar series vided by the Centre for Central Bank- accessible to the general public and ing Studies and research funding special courses for students and post- round out the Bank of England’s edu- graduate students. The bank opened a cational contributions at the scientific money museum in May 2007 (see level. The Bank of England’s website www.geldmuseum.nl/web/show). (www.bankofengland.co.uk) is exem- The Nationale Bank van België/ plary in that it prominently displays the Banque Nationale de Belgique its financial literacy activities by list- considers itself an active partner in ing education as a main menu item. education and for the academic world. The members of the Bank of Eng- The bank runs a money museum with land’s Monetary Policy Committee 15 rooms (the museum is also respon- hold up to 60 lectures a year at loca- sible for developing educational mate- tions throughout the country. rials for schools), provides a set of indicators online (under the website’s Other European Central Banks: Selected main menu item education) and is ac- Financial Education Activities tively engaged in promoting economic Some of the most outstanding activi- research. ties among the range of financial lit- Danmarks Nationalbank’s money eracy activities of individual central museum was opened to the public in banks are presented below. The ap- 2002. The Danish central bank fo- proach that Suomen Pankki – Fin- cuses its economic education efforts lands Bank has chosen is especially primarily on lecturers drawn from remarkable: the Bank of Finland Mu- the pool of young central bank em- seum provides e-education services ployees, who organized well over independently of the central bank’s 100 events attended by a total of some website. The central bank, moreover, 4,000 participants in 2006. established a separate institution in After having operated an online 1998 to perform in-depth economic role-playing monetary policy game research, BOFIT (Bank of Finlands called Stargold as an outlet for its ex- Institute of Economics in Transition), ternal education activities with the which holds seminars regularly and central bank president as a player runs a library. character, Sveriges Riksbank is cur- De Nederlandsche Bank has estab- rently working on a similar new lished a visitors center that attracts game. In 1968, Sweden’s central bank some 10,000 information seekers an- established the Prize in Economic nually. The bank seeks to draw in dou- Sciences in Memory of Alfred Nobel; ble the number of visitors from 2007, the annual prize amount is currently among other things with a newly set about EUR 1 million. up program for 10- to 14-year-olds.

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Banco de España provides educa- On the occasion of the 100th an- tional resources, mainly about finan- niversary of its foundation, the Swiss cial topics, on a separate (Spanish National Bank materially expanded only) website (http://aulavirtual.bde.es). its economic education activities in The bank is working on a similar por- 2007. It is going to present a package tal focused on basic economic literacy it calls “iconomix” for the general especially for children and adoles- public on a dedicated website (www. cents. iconomix.ch). The education prod- The Banque de France has focused ucts are developed in cooperation its economic education initiatives with external experts to meet educa- primarily on monetary policy and tional, didactical, methodical and de- macroeconomics and provides about sign standards and are limited not EUR 2 million a year for research via simply to descriptions of monetary a foundation. The bank partners with policymaking, but convey broader the national education system to offer economic knowledge, principles and targeted training kits, e.g. seminar approaches. Higher secondary (post- series for teachers. compulsory, predegree) school teach- Ireland’s Financial Regulator, a ers and students are the primary tar- distinct component of the Central get group, and the resources are in- Bank and Financial Services Author- tended to complement teaching. The ity of Ireland, provides secondary education products are offered in a school and third-level student kits modular fashion and provide flexible- such as Get Smart with Your Money use material over the Internet rang- and Money Tips for Students. More- ing from downloadable worksheets to over, the National Steering Group for complete learning units with a num- Financial Education established by ber of variable lessons. Some learning the Financial Regulator is an initiative units draw on innovative learning on which several partners have joined software such as simulations or on- efforts to support financial education. line strategy games. Students also The Irish financial authorities intend have the opportunity to submit eco- to expand their financial literacy pro- nomics papers to participate in com- gram further. petitions. The teaching material is complemented by teacher training “iconomix” – The Swiss National Bank’s activities. The basic iconomix pack- New Economic Education Package age is scheduled to go online end- The Swiss National Bank provides bro- October 2007. The full program will chures and films on money and cen- be available by 2009, after which it tral bank policymaking some of which will be updated and refined. A com- are targeted especially at schools. prehensive evaluation of the iconomix Moreover, the central bank regularly program is scheduled for within the receives groups of schoolchildren and first two years. other interested visitors for a lecture plus banknote exhibition viewing. Narodowy Bank Polski’s Proactive The Study Center Gerzensee is a Education Initiatives foundation of the Swiss National Bank Narodowy Bank Polski stands out for the training of central bankers as among the central banks of the new well as doctoral students and faculty EU Member States with its economic members at Swiss universities. education and financial literacy initia-

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tives. The central bank is highly com- opens its doors to the public once a mitted to promoting economic edu- year and hosts a research open day cation as a high priority of Polish edu- every year. A publicly accessible on- cation policy and has set itself an line library rounds off the financial ambitious goal: The bank will con- education products of the central sider its efforts a success if it manages bank. to close young working people’s eco- Magyar Nemzeti Bank has a very nomic knowledge gap between what similar set of financial education in- they are taught at school and what struments. The visitors center is at they need for everyday life. In addi- the heart of the Hungarian central tion to providing comprehensive edu- bank’s efforts; it is complemented by cational kits encompassing a broad an online program and a library com- range of diverse products for every prising some 80,000 publications. perceivable target group (including Latvijas Banka also focuses its TV broadcasts about economics top- economic knowledge transfer efforts ics), Narodowy Bank Polski stages na- on its visitors center. The perma- tional competitions, and it is working nent exhibition Money World was hard on implementing a proactive prepared by seven staff members economic education policy. and a number of experts at a cost of Furthermore, the central bank EUR 1 million. This exhibition pres- fosters the discussion of financial ents material on 15 themes and boasts literacy issues and the exchange of in- 30 interactive presentations aimed formation on dedicated activities primarily at secondary school stu- among central banks. A noteworthy dents under the umbrella “Come, recent contribution was the confer- See, Touch, Find Out and Under- ence The Role of Central Banks stand.” All material is presented in in Economic and Personal Finance Latvian, Russian and English. Education, which the central bank Estonia’s central bank, Eesti Pank, organized in September 2006 also has a money museum and offers (Narodowy Bank Polski, 2006). An- what is entitled “Euroservice” infor- other innovative tool designed to pro- mation. mote the exchange of information about central banking economic lit- 6.3 Non-European Central Banks – eracy initiatives is a new online por- The Federal Reserve System tal: Economic Education Resource Provides Exemplary Financial Bank (www.eerb.nbportal.pl). How- Literacy Products ever, at the time of writing only a few The non-European central banks that central banks were presenting their provide the most comprehensive fi- initiatives via this forum. nancial education products and ser- At its “People & Money Centre vices are those of Australia, Canada, for Education,” Cˇeská Národní Banka, Japan, New Zealand, Mexico, Singa- provides some 80 target-group spe- pore and South Korea. Moreover, cific panels on economic topics offer- some African central banks – those ing information in films, lectures and of South Africa, Kenia, Belize and exhibitions. Roughly 75,000 visitors Botswana – provide material on a year seek out information from this financial education (Narodowy Bank service point of Cˇeská Národní Banka. Polski, 2006). Finally, central banks Moreover, the Czech central bank in the Caribbean area – those of Costa

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Rica, Bahamas, Trinidad and Tobago ployees (Minehan, 2006) from all as well as the Eastern Caribbean Cen- regional Reserve Banks. Consumer tral Bank – provide financial educa- Information and Publications as well tion information. as Education Resources are separate items at the top menu level of the The Comprehensive and Very Diverse Set Federal Reserve Board’s website at of Financial Education Instruments of the www.federalreserve.gov, impressive Federal Reserve System evidence of just how important the The central bank of the United States, Federal Reserve System considers the Federal Reserve System, is one of financial education. the top providers of economic educa- The Federal Reserve System pro- tion and, above all, financial literacy vides basic educational kits for pri- products. The set of financial educa- mary and secondary schools and com- tion instruments is expanded almost prehensive information material on daily. Hogarth (2007) points out that dealing with practical money matters 675 different financial education ini- for postsecondary education target tiatives and programs were being groups. The latter material includes operated in the United States in information about medium- and long- early 2007, providing a ten-page list term economic trends, e.g. about fis- of the programs and activities of the cal developments. The Federal Re- individual Federal Reserve Banks serve System also provides consumer (Bernanke, 2006). By dint of the Fair protection information, in line with and Accurate Credit Transaction Act its statutory obligation and motivated (FACT Act), the U.S. government es- by its understanding that a financially tablished a central coordinator, the capable, well-informed consumer is a U.S. Financial Literacy and Educa- well-protected consumer. Moreover, tion Commission, which numbers the the central bank is intent on making Board of Governors of the Federal people aware of developments like Reserve System among a total of demographic ageing and its implica- 20 U.S. institutions represented in tions for (individual) retirement pro- the Commission. The central contact vision. The Federal Reserve System point is the MyMoney.gov website, has made a point of providing objec- which displays an impressive array of tive financial access information to topics, a multitude of instruments immigrants seeking advice to cope and nearly 220 publications by federal with the challenges of housing and agencies or partner organizations. Fi- markets in the United States. nally, the Commission developed a The Federal Reserve System’s national strategy for financial educa- educational material is very strongly tion in 2006 (Taking Ownership of geared toward target groups, as is the the Future; Financial Literacy and material provided by individual re- Education Commission, 2006). gional Reserve Banks. The website The Federal Reserve System’s www.federalreserveeducation.org financial education information is provides an overview of the heteroge- clearly structured and very compre- neous array of educational products hensive: The websites of the Federal and services of the Federal Reserve Reserve Board and of the 12 regional System. Internet users may click on Reserve Banks cover a broad range of menu items to access very detailed topics prepared by a total of 75 em- additional educational information

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for practically every medium (e.g. and for society as a whole. The extent print, multimedia, e-learning) and of the benefit is nearly impossible may access cooperation partners’ to determine or put into numbers, websites at the many additional links however. provided. In 2003, the Federal Reserve Sys- Other Central Banks: Comprehensive tem launched a campaign entitled Seminar Series of the Central Banks of “There’s a Lot to Learn about Money.” South Korea and Singapore Stand Out Since then, it has enhanced its finan- The Reserve Bank of Australia fo- cial literacy campaign with a multi- cuses its financial education efforts tude of special programs and materi- on teachers, students and researchers, als. Teaching and visitors centers at offering educational products and ser- regional Reserve Banks, special prod- vices much like those of European ucts, programs and seminars for central banks. The Bank of Canada (school)children, students, teachers and the Reserve Bank of New Zealand and the general public, and the com- work along quite similar lines. On its prehensive e-education portal form part, the Bank of Japan is a very ac- the core of the instructional tools and tive member of the Central Council facilities. To get its financial literacy for Financial Services Information, messages across, the Federal Reserve which has stepped up its financial ed- System avails itself of a large gamut of ucation campaign considerably since instruments: targeted forums, school 2005. The Bank of Japan’s efforts weeks, newspaper cooperations, mul- concentrate on the target groups timedia packages, contests (such as schoolchildren, teachers and students. the Fed challenge, an academic com- Since 2004, the Bank of Korea petition in which school teams of has refocused its efforts especially on students make a monetary policy rec- seminars, in addition to textbooks ommendation for the Federal Open and education programs (Park, 2006). Market Committee on the basis of As part of the Bank of Korea’s educa- an analysis of the current state of tion center, it runs a three-stage eco- the economy), roundtable discussions nomic education program for partici- and newsletters (Hogarth, 2007; pants with a low level, an average Narodowy Bank Polski, 2006). level and an advanced level of eco- Moreover, the benefit of U.S. nomic knowledge. The Currency economic education and especially fi- Finance Museum, which attracts a nancial literacy programs has been large number of visitors, and the Eco- widely evaluated (Braunstein and nomic Camp for Youths program are Welch, 2003; Hogarth, 2007). The also part of the Bank of Korea’s edu- Federal Reserve System itself has also cational tool set.12 analyzed financial education activi- A similar economic and financial ties, but no clear conclusion can be literacy program is provided in Singa- drawn from the research. What is pore. The so called MoneySENSE clear is that knowing more about the program is spearheaded by the Finan- economy – being financially literate – cial Education Steering Committee, has benefits for people’s daily lives – comprising the Ministry of Commu-

12 See also The Korea Times of August 7, 2007: “Summer Camp for Financial Literacy Gaining Popularity.”

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nity Development, Youth and Sports, 7 Summary: Despite Many Ministry of Education, Ministry of Promising Initiatives, Manpower, Central Provident Fund There Is Still Room for Board, People’s Association and the Improvement Monetary Authority of Singapore. It After taking stock of some 30 central is a three-tier program. Tier I is dedi- banks’ financial education programs, cated to basic money management only some of which are described in and financial skills, Tier II equips par- more detail for a lack of access to re- ticipants with long-term financial lated information, the following as- planning skills, and Tier III imparts sessment of central banks’ economic investment know-how and skills. Un- education and financial literacy initia- der the national financial education tives can be made: program MoneySENSE, the Mone- Consumers with a better under- tary Authority of Singapore has de- standing of economics and better fi- veloped a TV education show entitled nancial skills can grasp economic is- Talking Dollar and Sense. sues more easily and will therefore be more understanding of monetary pol- The Public Education and Awareness icymaking. Many central banks un- Programmes of the Eastern Caribbean dertake economic and financial edu- Central Bank cation activities for precisely this rea- The Eastern Caribbean Central Bank’s son. Knowledge transfer happens at website (www.eccb-centralbank.org) many levels – the related knowledge lists a menu item entitled Public products are available for various skill Education and Awareness Pro- levels, are broadly targeted and diver- grammes that opens to present a tru- sified, innovative and interesting. ly impressive array of educational Central banks take a particular inter- materials and tools. Under heading est in preparing materials for teachers “Manage Your Money – Enhance and schoolchildren. Little is available Your Life,” the central bank clearly for primary school-age children, with states what it intends to achieve with the notable exception of material pre- its numerous education initiatives for pared by the Bank of England and the specific target groups. The range of Federal Reserve System, but some topics covered and products pre- central banks (e.g. de Nederlandsche sented is very broad and includes Bank) have begun to provide special competitions, videos, audio programs materials and tools for this target (e.g. Financial Tips), a number of ra- group. Large financial education cam- dio programs (e.g. The Economy and paigns are the exception and are run You, Financial Stability Issues) and rarely, if at all. Some central banks newspaper series (e.g. The EC Cur- have earmarked substantial resources rency and the Eastern Caribbean to develop the currently available fi- Currency Union or Investment In- nancial education tools and instru- sights) as well as a special Financial ments. Many central banks appear set Literacy Month campaign (every to expand their financial education October). Education and exhibition programs further, as their efforts and centers offering courses and seminars plans to enhance related products and for various levels support the central services indicate. bank’s broad and diversified financial Only few central banks visibly education activities. display their commitment to financial

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education as belonging among their tine. Currently, some central banks’ responsibilities. Only the websites of material is not quite up to this big the Bank of England, Narodowy Bank challenge – the wording and content Polski and the Federal Reserve Sys- still come across as too technical, tem clearly reflect the high priority meaning abstract and theoretical. As attached to the educational mission. the experience some central banks Most central banks fail to show their have gained shows, intense coopera- financial education activities as a sep- tion with external experts for prod- arate task, subsuming them under an- uct design and product communica- other responsibility instead. Accord- tion has proved very useful. Jürgen ingly, it is difficult to identify the ob- Stark, member of the Executive jectives of central banks’ educational Board of the ECB, summarizes this activities and their strategic corner- insight as follows: “The basis for our stones. success in the field of economic and Central banks’ educational mate- financial education is cooperation rial focuses largely on enhancing eco- with various professional educators, nomic literacy in general and finan- teachers and public groups which have cial literacy (money management) in a significant impact on the general particular. public’s opinions and level of knowl- A trend reversal of product design edge.” (Stark, 2006). Some central is clearly underway. Brochures, fold- banks have already implemented the ers, pamphlets and the like are in- new communication principles very creasingly being replaced by multi- successfully, whereas others have yet media packages and online material. to do so. The latest technology has made it pos- Broadly speaking, central banks sible to present useful messages in a can choose from among three differ- lively and appealing way. Moreover, ent media in their public relations an unmistakable trend to formulate work: they can opt for traditional content more clearly and to use more print products, visitors or education down-to-earth and less abstract lan- centers (frequently money museums), guage in drawing up education pro- and e-education modules. E-educa- grams, seminars and lectures has es- tion is provided either on the central tablished itself. Education, teaching, bank’s own website, via separate teaching methods and design are cru- websites (as in the case of money mu- cial to succeeding in communicating seums), or via separate online plat- economic issues. They are even more forms. As attendance figures con- important for material targeted at firm, education or knowledge cen- younger audiences and in view of ters, which concentrate central banks’ the brief time slot for instruction at educational material (and exhibitions schools compared to other subjects. as well as lectures), have become es- Consequently, economic education pecially popular. A few central banks material for schools should be practi- put education products and services cal, drawn from life, appropriate in online nearly as soon as these are terms of content and of the target completed and present every product audience, helpful and in tune with and service within a well-structured users’ interests. This should increase framework. The Federal Reserve Sys- teachers’ willingness to integrate tem and the Eastern Caribbean Cen- such products into their teaching rou- tral Bank stand out as exemplary.

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However, at most central banks, on- banks is to be intensified. This cre- line information about educational ates synergies, saves costs and could activities is split up among various help optimize education products. lower-level menu items, making it Virtually no analyses about how quite difficult to find. Therefore, effective financial education measures many central banks would be well ad- are – apart from those for the United vised to improve the structure of States – have become available, at their educational material and tools least not publicly. With investment in and to present the material more central banks’ education programs al- coherently online. ready high and set to rise further, Theme-related Internet portals such analyses should definitely be appear to be an especially promising made part of the overall education approach to presentation. Here, cen- concept. Some central banks have al- tral banks can establish a common web ready done so – the Swiss National presence with their cooperation part- Bank, for instance, has scheduled an ners. Central banks can set up such evaluation of the program introduced networks among themselves, too – in 2007 for within the first two years the Federal Reserve System’s network of its operation. The Oesterreichische may serve as a shining example. Nationalbank has also made regular Narodowy Bank Polski’s initiative monitoring an integral part of its – a worldwide Internet portal for cen- campaign to strengthen financial tral banks – is trendsetting as well. competence and economic literacy in The cooperation between central Austria.

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References ASB Schuldnerberatungen GmbH. 2007. Schuldenreport 2007. Bernanke, B. S. 2006. Testimony Financial Literacy Before the Committee on Banking, Housing, and Urban Affairs of the United States Senate. May 23. Braunstein, S. and C. Welch. 2002. Financial Literacy: An Overview of Practice, Research, and Policy. Federal Reserve Bulletin. November. De Nederlandsche Bank. 2006. Limited Financial Literacy Among Dutch Households. Quarterly Bulletin. June. Deutsche Bundesbank. 2007. Deutsche Bundesbank präsentiert ihr Schulprogramm bei der didacta 2007. Press release of January 15. Duguay, D. 2007. Citi Financial Education Strategy. Conference Increasing Financial Capability. March 28. European Commission, Brussels, and http://ec.europa.eu/internal_market/finservices-retail/docs/capability/conference/ dara-duguay_en.pdf Eisenmenger, T. 2007. The Right to Have a Bank Account. Conference on Financial Educa- tion & Better Access to Adequate Financial Services. April 12–13. Vienna. European Central Bank. 2002. The Accountability of the ECB. In: November Monthly Bulletin. 45–58. European Central Bank. 2002. Transparency in the Monetary Policy of the ECB. In: November Monthly Bulletin. 59–66. Financial Literacy and Education Commission. 2006. Taking Ownership of the Future – The National Strategy for Financial Literacy 2006. Ganley, J. 2006. Economic Education at the National Level – Role of Bank of England. Presen- tation at the Central Bankers and Economic Educators Conference of Narodowy Bank Polski. September 28–29. Gnan, E., M. A. Silgoner and B. Weber. 2007. Economic and Financial Education: Concepts, Goals and Measurement. In: Monetary Policy & the Economy Q3/07. OeNB. Vienna. Hogarth, J. M. 2007. The Federal Reserve System’s Role in Economic and Financial Literacy – Rationale, Activities, and Impact. 35th Economics Conference of the Oesterreichische Nationalbank. May. Vienna. Kotz, H. H. 2007. Notenbanken stellen besondere Wissensanforderungen. In: Börsen- Zeitung of June 16. Leinert, J. 2004. Finanzieller Analphabetismus in Deutschland: Schlechte Voraussetzungen für eigenverantwortliche Vorsorge. Bertelsmann Stiftung. Vorsorgestudien 25. Liebscher, K. 2007. Education Promotes Employment and Economic Growth. Opening Speech. 35th Economics Conference of the Oesterreichische Nationalbank. May. Vienna. Malin, S. R. 2006. Implementing Economic and Financial Literacy Programs at the National or Local Level. Federal Reserve Bank of New York. Presentation at the Central Bankers and Economic Educators Conference of Narodowy Bank Polski. September 28–29. Minehan, C. E. 2006. The Role of Central Banks in Economic and Personal Finance Educa- tion. Presentation at the Conference of Narodowy Bank Polski. September 28–29. Narodowy Bank Polski. 2006. The Role of Central Banks in Economic and Personal Finance Education. September 28–29. Warsaw. Parts I and II. OECD. 2006. The Importance of Financial Education. Policy Brief. Paris: OECD. July. Oesterreichische Nationalbank. 2007. Intellectual Capital Report 2006. Vienna.

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Park, J.-J. 2006. Strategy and Provision of BOK’s Economic Education. Presentation at the Central Bankers and Economic Educators Conference of Narodowy Bank Polski. Septem- ber 28–29. Santomero, A. M. 2003. Knowledge Is Power: The Importance of Economic Education. Business Review Q4 2003. Schlögl, S. 2007. Financial and Economic Education Products and Services of Austrian Institu- tions and Enterprises. In: Monetary Policy & the Economy Q3/07. OeNB. Vienna. Schmid, K. 2006. Bildung für eine globalisierte Welt – Halten Österreichs Schulen mit der Internationalisierung der österreichischen Wirtschaft Schritt? Institut für Bildungsforschung der Wirtschaft. ibw-Schriftenreihe 132. October. Smith, B. 2006. The Need for Financial Education. Presentation at the Central Bankers and Economic Educators Conference of Narodowy Bank Polski. September 28–29. Stark, J. 2006. The Role of Central Banks in Economic and Personal Finance Education. Pre- sentation at the Central Bankers and Economic Educators Conference of Narodowy Bank Polski. September 29. Weber, M. 2007. Bildung, die Früchte trägt. Finanz- und Wirtschaftskompetenz der Bürger sind wichtige Standortfaktoren – Brückenschlag zwischen Schule und Wirtschaft weiter ausbauen. In: Börsen-Zeitung of June 16 and www.bankenverband.de/channel/133810/art/2107/index.html Wirz, K. 2007. Germany – Financial Education. Conference on Financial Education & Better Access to Adequate Financial Services. April 12–13. Vienna.

104 ◊ Monetary Policy & the Economy Q3/07 H i g h l i g h t s Human Capital and Economic Growth – Summary of the 35th Economics Conference of the Oesterreichische Nationalbank

Jürgen Janger, The 35th Economics Conference of the Oesterreichische Nationalbank, which took place Burkhard Raunig on May 21 and 22, 2007, focused on the relationship between human capital and economic development as well as on the question of whether education policy can have a positive impact on this relationship. Good education systems can help step up slow productivity growth in Europe and help countries adjust to structural changes caused by globalization. The 35th Economics Conference followed up on the previous year’s conference, which had explored globalization and the opportunities of economic policy in providing answers to future challenges. At the European level, the biggest need for adjustment was identified in the tertiary education sector, whereas Austria was judged to need reforms of its secondary education system as well. The speakers and panelists of the event included high-level experts of central banks and international organizations, as well as scientists, entrepreneurs, and politicians.

JEL classification: J240, O100, O150 Keywords: human capital, economic growth, educational policy, financial literacy.

Education Policy – A Panacea expected to have positive effects for Economic Problems? in the long run. In this context, In his opening speech, Klaus Liebscher, Liebscher stressed that these adjust- Governor of the Oesterreichische ments called for a commitment to Nationalbank (OeNB), underlined lifelong learning rather than for a that education policy could play a protection of actually threatened crucial role in overcoming two cur- jobs, since such an approach would rent economic challenges: First, since enable people to bridge the gap 1995, productivity growth in most between periods of unemployment EU economies – with a few excep- and employment. Education increases tions – has not kept pace with that in the mobility of the workforce within the U.S. economy, which still oper- a labor market and is therefore essen- ates at a higher productivity level. Ac- tial for the functioning of a monetary cording to recent empirical studies, union in which asymmetric economic Europe’s inability to close this gap, to shocks can no longer be absorbed by secure economic prosperity and to adapting the exchange rate relations deal with population aging can partly but have to be offset by flexible be attributed to the different educa- factors of production. For these rea- tion systems in Europe and in the sons education policy played a crucial U.S.A. and particularly to the fact role, although it could not be seen as a that Europeans participate less in ter- panacea for all economic problems, tiary education. said Liebscher. The EU still needs Second, in the short- and medi- competitive product markets, flexible um-term, Europe will have to make labor markets and sound public structural adjustments of its economy finances in order to meet the chal- to cope with increasing competition lenges ahead. Liebscher concluded from the rapidly growing developing that a stronger focus on the economic countries – even if globalization is aspects of education policy should not

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lead to a neglect of other educational education. As an example, Almunia aspects, such as social integration and cited Austria, Finland, and Portugal: personal and immaterial benefits. Although the three countries spend In his address, Austrian Federal roughly the same amount on educa- Chancellor Alfred Gusenbauer under- tion (around 5.6% of their GDP), the lined that European countries includ- results they achieve in the OECD’s ing Austria had to embrace an inno- Programme for International Student vative approach rather than a simple Assessment (PISA) diverge widely. catching-up strategy if they were to A better use of human resources remain among the wealthiest coun- not only facilitates structural adjust- tries of the world. Therefore, educa- ment, it also increases employment tion – particularly tertiary education – rates. In 2005, for example, only is a vital element of the Austrian 46% of the low-skilled workforce, government’s economic strategy, along but 69% of the medium-skilled and with increased investment in research 83% of the high-skilled workforce and infrastructure. Yet, expanding had a job. The EU Commissioner top-level research and education stressed that reforms of the education opportunities in the tertiary sector system needed to be embedded in a should not be done at the expense of a comprehensive reform strategy built sound education and training system on the renewed Lisbon Strategy on available for everybody – because top Growth and Jobs. Simultaneous ad- results require a firm base and vice justments of product, labor and capi- versa. Moreover, it is important to tal markets as well as of national in- increase the number of women in novation systems would maximize research and science. According to the effectiveness of education re- the chancellor, Austria was failing to forms, concluded Almunia. fully tap the potential of its talents. What current education policy lacked A Better Education Means was the balance between equality and Better Incomes and efficiency. In his conclusion, Gusen- Innovation bauer stressed that investment in Lucas D. Papademos, Vice-President of education showed a positive impact the ECB, explored the connection on growth only in the long run and between schooling and economic that its success had to be measured by growth and between education and looking at both the economic param- the development of financial markets. eters and the degree of participation He pointed out that private returns in the knowledge-based society. on investment in education ranged Joaquín Almunia, EU Commis- between roughly 6.5% and 9% and sioner for Economic and Monetary that social returns were possibly even Affairs, encouraged EU Member higher due to positive externalities. States to use their human resources An additional year of formal school- more efficiently and effectively to ing is associated with an increase in speed up the structural changes of wages of 7.5% on average over the their economies toward more high- entire working life. Innovative meth- value added activities. This change odological approaches (such as studies should not be achieved by merely of twins who followed different increasing funds but also by raising education and life paths) provide the efficiency of public spending on ample evidence of this causality. Yet,

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cross-country variation in growth asymmetric shocks. Thus, educa- rates can be attributed not just to the tion is indispensible for the function- length of formal education but also to ing of a monetary union, concluded its quality. In fact, differences in the Papademos. quality of education explain a signifi- Emmanuel Jimenez from the World cantly larger proportion of the cross- Bank presented the World Develop- country variation in growth rates ment Report 2007, according to than the length of schooling. which favorable demographic condi- Education influences growth not tions will accelerate growth in many only directly but also indirectly, as developing countries in the coming education and innovation interact. years. With the number of young Higher education levels foster innova- people peaking in these countries, tion and the adoption of technologi- their working age population has cal advances. Particularly the most never been bigger than at present; technologically advanced countries, fertility rates, however, have already like the euro area countries, ben- begun to decline. Moreover, this huge efit from better education, which labor force has relatively few children fuels growth in new sectors such as and elderly to support. The window pharmaceuticals and electronics. of falling dependency rates can re- By and large, the impact of techno- main open up to 40 years; it is essen- logical progress on job opportunities tial to invest in young people’s educa- varies according to the education tion and training during this period. level: While progress benefits educat- Jimenez then discussed several mea- ed and high-skilled labor, low-skilled sures aimed at promoting effective labor increasingly comes under pres- education policies in developing coun- sure. Investment in information and tries. It is particularly important to communication technologies (ICT), improve the quality of primary edu- for example, leads to an increase in cation and to increase participation in the number of high-skilled jobs while secondary education while at the reducing low-skilled work. Due to same time promoting labor-market this complementarity, it is crucial to oriented education and training. invest in both human and physical Relevant information together capital. with positive and negative incentives Papademos then discussed the (e.g. in the form of higher taxes on special aspects of economic and finan- tobacco or alcohol) can help young cial education. Although indispensible people to take the right decisions in when to fully utilize the innovations their lives, including completing their of developed financial markets, eco- formal schooling. Providing young nomic and financial literacy are fre- people with information is particu- quently rudimentary even in the most larly important, as it makes them advanced countries. Well-function- aware of the economic value of edu- ing and liquid financial markets foster cation and of the fact that better edu- growth; consequently, financial lit- cation translates into higher income. eracy also plays a vital role in promot- Surveys show that young people reg- ing growth. Moreover, such markets ularly underestimate the income dif- support the transmission of monetary ferential caused by better qualifica- policy throughout a monetary union tion. Second-chance programs should and improve the capacity to absorb be implemented to help dropouts

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return to formal schooling as soon as der Ploeg, Professor at the European possible; because the older the drop- University Institute in Florence, and outs, the more difficult it is to reinte- Georg Winckler, President of the Euro- grate them into the education sys- pean University Association, dis- tem. cussed whether European education, skills and know-how were heading in Underestimated Impact of the right direction. Human Capital on Growth Cervantes drew attention to the The first session, chaired by Wolfgang heterogeneous situation in Europe, Duchatczek, Vice Governor of the where, by and large, smaller coun- OeNB, focused on the connection tries did better on average than big- between human capital and economic ger ones. In order to close the cur- growth. Older empirical cross-sec- rently existing gap between the Euro- tional studies underpin the hypothe- pean and the U.S. education systems, sis that the formation of human capi- Europe will have to step up its invest- tal benefits economic growth. How- ments in human capital. ever, more recent research papers, Lipschitz stressed how important it combining time series with cross-sec- was to make economic knowledge tional analyses, suggest at best just a available to people from developing weak link between human capital and countries. In this context, he appreci- economic growth. ated the significance of the Joint Against this background, Angel de Vienna Institute in providing eco- la Fuente, Vice Director of the Insti- nomic education and training for par- tuto de Análisis Económico, CSIC, ticipants from Central, Eastern and Barcelona, argued that the disap- Southeastern Europe (CESEE). pointing empirical results could In her statement, Lohmann empha- mainly be attributed to the poor qual- sized the role of the universities in ity of the underlying data, as even the providing not only economic and best data sets contain implausible technological know-how but also hu- jumps as well as unrealistic time se- manistic knowledge. ries and cross-sectional observations. Van der Ploeg was rather critical of Consequently, measurement errors the current European tertiary educa- in the data result in a systematic tion system. Despite the relatively underestimation of the positive cor- good quality of European universities relation between human capital and on average, they do not hold top posi- growth. After adjusting for this bias, tions in international rankings be- the empirical evidence again shows a cause they lack competition and suf- more distinct correlation between fer from intransparency, excessive human capital and economic growth. red tape and a lack of funding, particularly compared to the U.S.A. The European Tertiary Progress in this area hinges on a more Education System – Much important role for private funding Reform Needed with flexible and incentive-driven In the panel discussion Mario Cervantes, financial contributions. Senior Economist at the OECD, Leslie In this context, Winckler pointed Lipschitz, Director of the IMF Insti- out that compared to the U.S.A. the tute, Susanne Lohmann, Professor at returns on higher education were the University of California, Rick van lower in Europe, which in turn

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limited the scope for private funding. Austrian Education System As an alternative, he proposed to Needs to Adjust to New further develop funding schemes for Challenges university education and research at a The last session of the 35th Economics European level. Conference was a panel discussion on Austria’s economic policy with Financial Education Protects particular focus on education policy Consumers and Supports the challenges. Efficiency of Financial Markets Claudia Schmied, Austrian Fed- “Human Capital and Economic Devel- eral Minister for Education, Arts opment” was the focus of the second and Culture, stressed that education session chaired by Josef Christl, OeNB was a key concern of the Austrian Executive Director. In his introduc- government in the current legisla- tory remarks, he emphasized that tive session. The government’s plans economic and financial education include both higher investments and contributed to a more efficient more qualitative measures. As re- allocation of resources and a better forms of the education system require understanding of monetary policy concerted national efforts, Schmied decisions. Christl drew attention to a envisaged initiating a broad public new OeNB project on financial liter- discussion. In this context, she wel- acy that seeks to complement the comed the social partners’ educational OeNB’s current information material policy papers, such as the “School on economic and financial issues. 2020” concept of the Federation of Jeanne M. Hogarth, Manager of the Austrian Industry. She underlined Consumer Education and Research that it was important to use an inno- Section of the Federal Reserve Board, vative and creative approach to educa- talked about the Federal Reserve Sys- tion, to encourage good performance tem’s role in providing basic eco- while at the same time showing soli- nomic and financial education. The darity with the disadvantaged. Federal Reserve System engages in As one of the concrete measures financial education for the following currently being implemented in reasons: market efficiency, consumer Austria, Schmied mentioned the protection, increased complexity of reduction of student numbers per financial products and services, fast class as of September 2007. Given the technological changes and demo- large number (more than 5,500) of graphic trends toward an aging society. school locations in Austria, this con- Its activities include the provision of stitutes quite a big logistical problem. information on financial products and Other government measures include services, cooperation with other edu- improving day care arrangements and cational institutions and the support teacher training programs as well as of relevant research projects and defining three or four test regions conferences. Hogarth stressed that to implement a new comprehensive educational programs for students school model starting with the year and adults are very successful. In 2008–2009. Finally, the organiza- addition, she also underlined how tional structure of the school system important it was to take a neutral would need to be revised, with the position on economic and financial distribution of competences among education to prevent bias. federal, regional and local authorities

110 ◊ Monetary Policy & the Economy Q3/07 Human Capital and Economic Growth – Summary of the 35th Economics Conference of the Oesterreichische Nationalbank

reflecting their respective revenue First, national education stan- and expenditure responsibilities. dards have to be introduced to make According to Günter Haider, Head possible an objective assessment of of the Project Center for Comparative the knowledge and skills acquired by Education Research Salzburg and students. Currently, standards are Austrian Project Manager of the Pro- not harmonized, so teachers set their gramme for International Student own standards and adjust them if the Assessment (PISA), the main chal- pressure increases. At the moment, lenge for educational reform in different standards are an issue for Austria was what he referred to as Viennese children who are about to the “long-overdue paradigm shift” in finish primary school: The grades in education governance. The Austrian their school reports have a serious education system – which is currently impact on their further educational still hierarchical, centralized and careers, as they determine whether bureaucratic, relies heavily on input or not these pupils are admitted to factors and concentrates on preserv- secondary academic school or whether ing the existing structures – should they have to attend lower secondary be transformed into a more decen- school. To provide objective informa- tralized, autonomous and accountable tion at all levels, a national education system. Haider explained that the report is to be drafted and a federal current governance structures of the institute for education to be set up by Austrian education system dated back 2008. Moreover, local and regional to the 19th century. As a consequence schools should be enabled to take of Austria’s severe defeat against their own staffing and budgeting de- Prussia at the Battle of Königgrätz cisions, and the quality of their inter- (1866), which was to some degree nal processes should be made more attributable to the large number of transparent. As an example, Haider illiterate Austrian soldiers, schools referred to the current handling of were made part of the Austrian school inspections in Austria, which Empire’s rigid bureaucratic system, was not really ideal, as it was com- guaranteeing the quick establishment mon practice that school inspectors of a school infrastructure. At the – often former staff representatives – time, this system was a role model for announced their visits months in ad- the whole of Europe. Problems did vance. not become apparent until later: Ad- Christoph Badelt, Rector of the ministrative actions mainly based on Vienna University of Economics and rules and regulations prevented flex- Business Administration and Presi- ible adjustment to new conditions. As dent of the Austrian Rectors’ Confer- quality control was the duty of the ence, underlined the positive effects legal experts at the ministry for edu- of the Austrian university reform in cation, the main concern was to 2002. The broad range of institutions ensure compliance with all rules and in the tertiary education sector has, regulations and to manage the system however, also created new problems: by focusing on input rather than on For example, the legal framework for output. As these shortcomings of the technical colleges, public and private Austrian education system have now universities, etc. is not uniform. been identified, the following actions Thus, a comprehensive concept for are necessary: the entire sector is needed. Accord-

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ing to Badelt, the main challenges as well as for the introduction of for Austrian universities included individually adapted selection schemes the definition of service level agree- for certain courses, but most impor- ments, which constitute the basis for tantly for master and doctoral stud- developing true competition among ies. As a result of the Bologna Pro- universities, and the access to tertiary cess, which aims at harmonizing and education. Problematic issues within restructuring the European higher Europe are doctoral studies, the education sector, anyone holding a access of bachelor’s degree holders to European bachelor’s degree could the labor market and the unclear choose to attend a master’s course signals with regard to top research anywhere in the EU. Given that most at public universities. Then Badelt European universities already have discussed the question of university selection systems in place, Austria access in Austria in greater detail (the might end up with just the second- Austrian Rectors’ Conference has rate students. Badelt concluded his published a comprehensive study on presentation by calling for an active the issue). He criticized that unlim- education strategy aimed at fully ex- ited access to the universities was ploiting the pool of high potential in incompatible with their limited Austria – such a strategy would have resources. Currently, 50% of the to comprise primary and secondary Austrian students are enrolled on schools. courses with unfavorable student- Veit Sorger, President of the Fed- teacher ratios, 30% with extremely eration of Austrian Industry, favored unfavorable ratios. Badelt also attrib- big and radical reforms rather than a uted the relatively low number of piecemeal approach. Although the Austrians participating in tertiary Austrian education system ranks in education to the shortcomings of the the middle range of most interna- country’s secondary education system, tional comparative studies, it does not and in particular to its inherent social stand out in any particular area. Yet, barriers. this is exactly what Austria should as- Currently, only 37% of the pire to. Therefore, the Federation of Austrians leaving school in any one Austrian Industry drafted the strat- year continue with tertiary education egy paper “School 2020” in which and just 20% of them graduate – this it calls for a compulsory and state- is far below the OECD average of funded preschool year from the age of 53% beginners and 35% graduates. 5, and for one standardized second- In the Global Higher Education Rank- ary school type for all children aged ing, in which the accessibility to 10 to 14 that at the same time allows tertiary education of 13 countries1 for performance-linked differentia- was studied, Austria ranks last. tion. According to this paper, schools Badelt called for a regulation of should be granted real autonomy and university access similarly to that school managers should be responsi- already in place for technical colleges ble for their own staff and resources.

1 Austria, Australia, Belgium, Canada, Finland, France, Germany, Ireland, Italy, the Netherlands, Sweden, U.K, U.S.A.

112 ◊ Monetary Policy & the Economy Q3/07 Human Capital and Economic Growth – Summary of the 35th Economics Conference of the Oesterreichische Nationalbank

Prospective teachers should have to ment program aimed at guaranteeing pass obligatory selection and ability education and training opportunities tests; certified teachers should have for everybody up to the age of 18. to attend continuing professional Third, Austrian university courses development programs, they should are characterized by their long dura- get performance-linked salaries and a tion and their high dropout rates. The new employment law. In addition, latter can partly be attributed to dif- the administration should be reduced ficulty of studying and working at the to only three decision-making levels same time. Austria has fallen farther (federal, regional and local). Finally, behind in tertiary education partici- education standards have to be har- pation in recent years: While the av- monized and independent quality as- erage percentage of university gradu- surance mechanisms introduced. ates per year rose from 27% to 35% Herbert Tumpel, President of the in OECD countries, it increased only Austrian Chamber of Labor, focused from 16% to 20% in Austria. This is on four problem areas of the Austrian why the Austrian Chamber of Labor education system. First, around 17% calls for reforms to give students a of the young people aged between 20 better work-study balance. and 24 years have not progressed Fourth, in terms of continuing beyond compulsory schooling. At the professional development, Austria same time, the number of primary lies far behind the leading European and secondary students with above- countries. While Austrian employees average performance is below the receive only about 422 hours of train- European average. For this reason, ing, Danish employees can expect the Chamber of Labor calls for the some 934 hours in their working life. introducing of a compulsory pre- In most cases, continuing professional school year. development is funded privately or Second, the vocational or techni- by the company, with only 2.3% of cal schools select too strictly and have Austria’s total public spending on high drop-out rates. Moreover, young education going into this sector. It people often get the wrong vocational should also become possible for training. Currently, vocational train- Austrians to complete their formal ing programs do not really meet the education free of charge at some later requirements of the labor market, as stage – in other countries this has rigid structures preserve agricultural, been common practice for decades. textile and manufacturing schools, Tumpel concluded his presentation by while at the same time making it dif- calling for the implementation of a ficult to switch between education uniform education strategy with con- programs for health care and social crete targets, such as halving the services and initial training within number of young people without pos- the formal school system. According itively completed compulsory school- to the PISA study, Austrians find ing to 2% of the students of any one mathematics and natural sciences year, increasing the share of second- classes demotivating, and the study ary school graduates to 50% and the cites them as the least satisfied stu- share of university graduates to the dents in these fields. Tumpel called OECD average, raising the number for the implementation of a govern- of women science and technology

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graduates, and doubling the number but also on the smooth functioning of of people participating in continuing the monetary union. A better edu- professional development. cated labor force tends to be more mobile and can thus contribute more Summary: to alleviating the effects of asymmet- Europe and Austria Have ric shocks. At the same time, higher to Exploit Their Human potential growth allows for faster Resources Better economic growth without inducing In summing up the 35th Economics inflationary pressure. At the Euro- Conference, Josef Christl, OeNB pean level, the tertiary education Executive Director, underlined that sector seems to be most in need of enhanced human capital and im- reform, whereas Austria might addi- proved education systems would yield tionally have to adjust its secondary two benefits – individual job oppor- education system. tunities, and overall economic and As a specific aspect of education, productivity growth. Given the still financial literacy plays a vital role for rather moderate European produc- the efficiency of financial markets and tivity growth and the euro area labor consumer protection that cannot be pool, both job opportunities and underestimated. growth remain the prime economic However, by and large, education policy goals. But in demographically policy is not a panacea. Therefore, re- favorable periods, human capital also forms of the education system have to constitutes a key variable for develop- be embedded in a more comprehen- ing countries. sive strategy. Such a strategy would Currently, neither Europe nor have to include the following ele- Austria are fully exploiting their ments: better public budgeting (e.g. human resources, which has an im- more efficient education investment), pact not only on employment, pro- flexible labor and product markets as ductivity, growth, wages and salaries, well as liquid capital markets.

114 ◊ Monetary Policy & the Economy Q3/07 N o t e s Abbreviations

ARTIS Austrian Real Time Interbank Settlement IHS Institut für Höhere Studien und Wissenschaftliche (the Austrian RTGS system) Forschung – Institute for Advanced Studies, Vienna A-SIT Secure Information Technology Center – Austria IIF Institute of International Finance ASVG Allgemeines Sozialversicherungsgesetz – IIP international investment position General Social Security Act IMF International Monetary Fund A-Trust A-Trust Gesellschaft für Sicherheitssysteme im ISO International Organization for Standardization elektronischen Datenverkehr GmbH IWI Industriewissenschaftliches Institut – Austrian ATX Austrian Traded Index Institute for Industrial Research BCBS Basel Committee on Banking Supervision (BIS) JVI Joint Vienna Institute BIC Bank Identifier Code LIBOR London Interbank Offered Rate BIS Bank for International Settlements M3 broad monetary aggregate M3 BOP balance of payments MFI monetary financial institution BSC Banking Supervision Committee (ESCB) MRO main refinancing operation CACs collective action clauses MoU memorandum of understanding CEBS Committee of European Banking Supervisors (EU) NACE Statistical Classification of Economic Activities CEE Central and Eastern Europe in the European Community CEECs Central and Eastern European countries NCB national central bank CESEE Central, Eastern and Southeastern Europe OeBS Oesterreichische Banknoten- und Sicherheitsdruck CESR Committee of European Securities Regulators GmbH – Austrian Banknote and CIS Commonwealth of Independent States Security Printing Works CPI consumer price index OECD Organisation for Economic Co-operation and EBA Euro Banking Association Development EBRD European Bank for Reconstruction and Development OeKB Oesterreichische Kontrollbank (Austria’s main EC European Community financial and information service provider for the ECB European Central Bank export industry and the capital market) Ecofin Council of Economic and Finance Ministers (EU) OeNB Oesterreichische Nationalbank EEA European Economic Area (Austria’s central bank) EFC Economic and Financial Committee (EU) OPEC Organization of the Petroleum Exporting Countries EIB European Investment Bank ÖBFA Austrian Federal Financing Agency EMS European Monetary System ÖNACE Austrian Statistical Classification of EMU Economic and Monetary Union Economic Activities EONIA Euro OverNight Index Average POS point of sale ERM II Exchange Rate Mechanism II (EU) PRGF Poverty Reduction and Growth Facility (IMF) ERP European Recovery Program RTGS Real-Time Gross Settlement ESA European System of Accounts SDR Special Drawing Right (IMF) ESAF Enhanced Structural Adjustment Facility (IMF) SDRM Sovereign Debt Restructuring Mechanism (IMF) ESCB European System of Central Banks SEPA Single Euro Payments Area ESRI Economic and Social Research Institute SPF Survey of Professional Forecasters EU European Union STEP2 Straight-Through Euro Processing system offered EURIBOR Euro Interbank Offered Rate by the Euro Banking Association Eurostat Statistical Office of the European Communities STUZZA Studiengesellschaft für Zusammenarbeit im FATF Financial Action Task Force on Money Laundering Zahlungsverkehr G.m.b.H. – Austrian Research Fed Federal Reserve System Association for Payment Cooperation FMA Financial Market Authority (for Austria) S.W.I.F.T. Society for Worldwide Interbank Financial FOMC Federal Open Market Committee (U.S.A.) Telecommunication FSAP Financial Sector Assessment Program (IMF) TARGET Trans-European Automated Real-time Gross FWF Fonds zur Förderung der wirtschaftlichen settlement Express Transfer Forschung – Austrian Science Fund Treaty refers to the Treaty establishing the European GAB General Arrangements to Borrow Community GATS General Agreement on Trade in Services UN United Nations Organization GDP gross domestic product UNCTAD United Nations Conference on Trade and GNP gross national product Development GSA GELDSERVICE AUSTRIA Logistik für VaR Value at Risk Wertgestionierung und Transportkoordination WBI Wiener Börse Index GmbH (Austrian cash services company) WEF World Economic Forum HICP Harmonized Index of Consumer Prices WIFO Österreichisches Institut für Wirtschaftsforschung – HIPC Heavily Indebted Poor Countries Austrian Institute of Economic Research IBAN International Bank Account Number wiiw Wiener Institut für internationale IBRD International Bank for Reconstruction and Wirtschaftsvergleiche – The Vienna Institute for Development International Economic Studies ICT information and communication technology WKÖ Wirtschaftskammer Österreich – Austrian IDB Inter-American Development Bank Federal Economic Chamber IFES Institut für empirische Sozialforschung GesmbH WTO World Trade Organization (Institute for Empirical Social Research, Vienna) ifo ifo Institute for Economic Research, Munich

116 ◊ Monetary Policy & the Economy Q3/07 Legend x = No data can be indicated for technical reasons .. = Data not available at the reporting date 0 = The numerical value is zero or smaller than half of the unit indicated

Discrepancies may arise from rounding.

Monetary Policy & the Economy Q3/07 ◊ 117 List of Studies Published in Monetary Policy & the Economy

For further details on the following publications see www.oenb.at

Issue Q3/06 Euro Area Economy Gains Strength Inflation Remains High Owing to Energy Component Wolfgang Pointner, Martin Schneider, Josef Schreiner Globalization, Import Prices and Producer Prices in Austria Ernst Glatzer, Ernest Gnan, Maria Teresa Valderrama Employment Protection Regulations and Their Impact on Employment Wolfgang Pointner The (New) OECD Jobs Study: Introduction and Assessment Alfred Stiglbauer How Do Austrians Pay for Online Purchases? Helmut Stix, Karin Wagner

Issue Q4/06 Austria’s Economy Will Continue to Grow Dynamically in 2007 Economic Outlook for Austria from 2006 to 2008 (December 2006) Gerhard Fenz, Martin Schneider Limited Pass-Through from Policy to Retail Interest Rates: Empirical Evidence and Macroeconomic Implications Claudia Kwapil, Johann Scharler Globalization, Inflation and Monetary Policy Ernest Gnan, Maria Teresa Valderrama The New Keynesian Philipps Curve for Austria – An Extension for the Open Economy Fabio Rumler Revised and New Competitiveness Indicators for Austria Reflect Improvement Trend since EMU Accession Walpurga Köhler-Töglhofer, Christa Magerl, Peter Mooslechner Reforming the International Monetary Fund – Some Reflections Herbert Gratz, Harald Grech

Issue Q1/07 Euro Area Growth Broad-Based in Early 2006 Lower Rate of Inflation Gerhard Fenz, Josef Schreiner, Maria Antoinette Silgoner Euro Cash in Austria Five Years after Its Introduction – What the Public Thinks Manfred Fluch, Ernest Gnan, Sabine Schlögl

118 ◊ Monetary Policy & the Economy Q3/07 List of Studies Published in Monetary Policy & the Economy

The Development of Euro Prices – Subjective Perception and Empirical Facts Manfred Fluch, Helmut Stix Price Setting in Austria before and after the Euro Cash Changeover: Has Anything Changed in the Last Five Years? Ernst Glatzer, Fabio Rumler Price Level Convergence in Europe: Did the Introduction of the Euro Matter? Jesús Crespo Cuaresma, Balázs Égert, Maria Antoinette Silgoner The Euro on the Road East: Cash, Savings and Loans Peter Backé, Doris Ritzberger-Grünwald, Helmut Stix Austria’s Experience with Euro Migration since the Cash Changeover Doris Schneeberger, Gabriele Süß Cash Logistics in Austria and the Euro Area Anton Schautzer Euro Banknotes in Circulation and the Allocation of Monetary Income within the Eurosystem Martin Handig, Robert Holzfeind

Issue Q2/07 1 Economic Growth in Austria at 3 /4% in 2007 Economic Outlook for Austria from 2007 to 2009 (June 2007) Gerhard Fenz, Christian Ragacs, Martin Schneider Output Growth in Austria and Germany: What Explains the Growth Differentials since the Early 1990s? Christian Ragacs, Martin Schneider Characteristics of Household Debt in Austria Does Household Debt Pose a Threat to Financial Stability? Christian Beer, Martin Schürz Credit Claims as Eligible Collateral for Eurosystem Credit Operations Birgit Sauerzopf Capturing the Link between M3 Growth and Inflation in the Euro Area – An Econometric Model to Produce Inflation Forecasts Sylvia Kaufmann Bidding Behavior in Austrian Treasury Bond Auctions Helmut Elsinger, Christine Zulehner 60 Years of Marshall Plan Aid – A Critical Appraisal from an Austrian Perspective Josef Haas Europe – Quo Vadis? 50 Years Treaty of Rome Ingrid Ettl, Franz Nauschnigg, Alexandra Schober-Rhomberg

Monetary Policy & the Economy Q3/07 ◊ 119 List of Studies Published in Monetary Policy & the Economy

Issue Q3/07 Robust Economic Activity in the Euro Area Inflation Remains Moderate Andreas Breitenfellner, Johann Elsinger, Klaus Vondra

Economic and Financial Education: Concepts, Goals and Measurement Ernest Gnan, Maria Antoinette Silgoner, Beat Weber

Financial Capability of Austrian Households Pirmin Fessler, Martin Schürz, Karin Wagner, Beat Weber

Financial and Economic Education Products and Services of Austrian Institutions and Enterprises Sabine Schlögl

Selected Central Banks’ Economic and Financial Literacy Programs Manfred Fluch

Human Capital and Economic Growth – Summary of the 35th Economics Conference of the Oesterreichische Nationalbank Jürgen Janger, Burkhard Raunig

120 ◊ Monetary Policy & the Economy Q3/07 Periodical Publications of the Oesterreichische Nationalbank

For further details see www.oenb.at

Monetary Policy & the Economy quarterly This quarterly publication, issued both in German and English, offers analyses of current cyclical developments, medium-term macroeconomic forecasts and studies on central banking and economic policy topics. It also summarizes the findings of macroeconomic workshops and conferences organized by the OeNB.

Statistiken – Daten & Analysen quarterly This publication contains brief reports and analyses focusing on Austrian financial institutions, cross-border transactions and positions as well as financial flows. The contributions are in German, with executive summaries of the analyses in English. The statistical part covers tables and explanatory notes on a wide range of macroeconomic and financial indicators. The tables and additional information and data are also available on the OeNB’s website in both German and English. This series also includes special issues on selected statistics topics published at irregular intervals. econ.newsletter quarterly The quarterly English-language newsletter is published only on the Internet and informs an international readership about selected findings, research topics and activities of the OeNB’s Economic Analysis and Research Section. This publication addresses colleagues from other central banks or international institutions, economic policy researchers, decision makers and anyone with an interest in macroeconomics. Furthermore, the newsletter offers information on current publications, studies or working papers as well as events (conferences, lectures and workshops).

For further details see www.oenb.at/econ.newsletter

Financial Stability Report semiannual Issued both in German and English, the Financial Stability Report contains first, a regular analysis of Austrian and international developments with an impact on financial stability and second, studies designed to provide in-depth insights into specific topics related to financial market stability.

Monetary Policy & the Economy Q3/07 ◊ 121 Periodical Publications of the Oesterreichische Nationalbank

Focus on European Economic Integration semiannual The English-language publication Focus on European Economic Integration is the successor publication to Focus on Transition (published up to issue 2/2003). Reflecting a strategic regional research priority of the OeNB, this publication is a channel for communicating our ongoing research on Central, Eastern and Southeastern European (CESEE) countries ranging from economic country studies to studies on central banking issues and related topics. One of the purposes of publishing theoretical and empirical studies in the Focus on European Economic Integration, which are subject to an external refereeing process, is to stimulate comments and suggestions prior to possible publication in academic journals.

Workshops – Proceedings of OeNB Workshops three to four issues a year The Proceedings of OeNB Workshops were introduced in 2004 and typically comprise papers presented at OeNB workshops at which national and international experts, including economists, researchers, politicians and journalists, discuss monetary and economic policy issues. Workshop proceedings are generally available in English only.

Working Papers about ten papers a year The OeNB’s Working Paper series is designed to disseminate, and provide a platform for discussing, findings of OeNB economists or outside contributors on topics which are of special interest to the OeNB. To ensure the high quality of their content, the contributions are subjected to an international refereeing process.

Economics Conference (Conference Proceedings) annual The Economics Conference hosted by the OeNB represents an important international platform for exchanging views and information on monetary and economic policy as well as financial market issues. It convenes central bank representatives, economic policymakers, financial market players, academics and researchers. The conference proceedings comprise all papers presented at the conference, most of them in English.

Conference on European Economic Integration (Conference Proceedings) annual This series, published in English by a renowned international publishing house, reflects presentations made at the OeNB’s annual conference on Central, Eastern and Southeastern European issues and the ongoing EU enlargement process (formerly East-West Conference).

For further details see ceec.oenb.at

122 ◊ Monetary Policy & the Economy Q3/07 Periodical Publications of the Oesterreichische Nationalbank

Annual Report annual The Annual Report of the OeNB provides a broad review of Austrian monetary policy, economic conditions, new developments in the financial markets in general and in financial market supervision in particular as well as of the OeNB’s changing responsibilities and its role as an international partner in cooperation and dialogue. It also contains the OeNB’s financial statements.

Intellectual Capital Report annual The Intellectual Capital Report is a review of the OeNB’s intellectual capital and its use in the OeNB’s business processes and services. The report clarifies the relationships between different types of human, relational, structural and innovation capital and describes various determinants that influence the OeNB’s intellectual capital. The report provides an integrated view of the OeNB and serves to assess the consistency of the OeNB’s intellectual capital with its knowledge-based strategic orientation.

Monetary Policy & the Economy Q3/07 ◊ 123 Addresses of the Oesterreichische Nationalbank

Postal address Telephone Telex

Head Office Otto-Wagner-Platz 3 PO Box 61 (+43-1) 404 20-6666 114669 natbk 1090 Vienna, Austria 1011 Vienna, Austria Fax: (+43-1) 404 20-2398 114778 natbk Internet: www.oenb.at E-mail: [email protected]

Branch Offices Western Austria Branch Office Innsbruck Adamgasse 2 Adamgasse 2 (+43-512) 594 73-0 6020 Innsbruck, Austria 6020 Innsbruck, Austria Fax: (+43-512) 594 73-99

Southern Austria Branch Office Graz Brockmanngasse 84 PO Box 8 (+43-316) 81 81 81-0 8010 Graz, Austria 8018 Graz, Austria Fax: (+43-316) 81 81 81-99

Klagenfurt 10.-Oktober-Straße 13 10.-Oktober-Straße 13 (+43-463) 576 88-0 9020 Klagenfurt, Austria 9020 Klagenfurt, Austria Fax: (+43-463) 576 88-99

Northern Austria Branch Office Linz Coulinstraße 28 PO Box 346 (+43-732) 65 26 11-0 4020 Linz, Austria 4021 Linz, Austria Fax: (+43-732) 65 26 11-99

Salzburg Franz-Josef-Straße 18 PO Box 18 (+43-662) 87 12 01-0 5020 Salzburg, Austria 5020 Salzburg, Austria Fax: (+43-662) 87 12 01-99

Representative Offices Oesterreichische Nationalbank (+44-20) 7623-6446 London Representative Office Fax: (+44-20) 7623-6447 Gracechurch Street 48, 5th floor EC3V 0EJ London, United Kingdom

Oesterreichische Nationalbank (+1-212) 888-2334 (212) 422509 natb ny New York Representative Office (+1-212) 888-2335 745 Fifth Avenue, Suite 2005 Fax: (+1-212) 888-2515 10151 New York, U.S.A.

Permanent Representation of Austria to the EU (+32-2) 285 48-41, 42, 43 Avenue de Cortenbergh 30 Fax: (+32-2) 285 48-48 1040 Brussels, Belgium

Permanent Representation of Austria to the OECD (+33-1) 53 92 23-39 Rue Albéric-Magnard 3 (+33-1) 53 92 23-44 75116 Paris, France Fax: (+33-1) 45 24 42-49

124 ◊ Monetary Policy & the Economy Q2/07