Being well-off without awareness is unsustainable
by Marco Liera - 20/01/2013
Common sense suggests that the relationship between knowledge and private wealth should be positive: the more you know, the better the chance of increasing your wealth. Research indeed shows that a higher education degree corresponds to a greater earning capacity. This rule is not, however, confirmed in Italy. This country is ranked 44th by financial literacy on IMD Competitiveness Yearbook. Ahead of Italy are ranked poorer countries like Mexico or Indonesia. There is no country with a population so wealthy and at the same time so naïve from a financial standpoint as Italy. The average net wealth of Italian households, although declining, is estimated at 350.000 euros, including property and other real assets. According to the Bank of Italy, the ratio between household wealth and individual income in Italy is even higher than that of Germany and France. But in the financial literacy ranking these two countries are ahead, respectively in 14th and 30th place.
The issue of illiteracy in Italy is far more extended than what concerns the awareness in financial decisions. In the last quarterly of Il Mulino, professor Tullio De Mauro remembered that metrics based on international criteria show that only 20% of the Italian adult population is able to live the life of contemporary society (but not necessarily to solve all the problems that it implies). Benchmarked to comparable countries, Italy is below any standard, and among all the areas considered, only Nuevo Leon in Mexico is ranked worse. Having reached a 75/80% share of high school graduates among new generations is not enough. There are large pockets of regression to illiteracy among italian adults, as there is no continuing education program. The most needed would be a national plan for increasing financial literacy, since typically the main financial decisions are taken in adulthood.
How in Italy had it been possible to accumulate a considerable private wealth between the post-war period and the early twenty-first century in conditions of illiteracy - albeit with creative talent and hardworking – is a matter of conjectures. My three guesses are: the huge public debt, the endemic tax evasion and the recurring currency devaluations that artificially supported the exports during the lira’s era. Unique factors, which raise several questions about the sustainability of the Italian road to the growth of private wealth. As it can be argued that the future well-being of Italians will depend on their ability to manage the accumulated assets rather than on income growth - which unfortunately is stagnant or declining - financial awareness becomes even more crucial than before.
I do not know if somewhere is available a ranking of countries based on the rate of abuses on private savings such as mis-selling of financial services or scams. Should I find a ranking like that, I would not be surprised at all to see Italy in the first place.