Getting ready with PISA’s new module on financial literacy

Anna LusardiI am turning in this blog post to the new financial literacy module that will be added to the Programme for International Student Assessment (PISA) in 2012. PISA’s group of financial literacy experts met in Melbourne at the end of September and finalized the questions that will be asked of 15-year-old high school students in 18 countries. I wrote about this module in a previous post (see link below) and it is time for an update.

I have the honor of chairing the financial literacy experts group, and an honor it is because the group is composed of some of the most accomplished and knowledgeable people in the field of financial literacy from a number of countries. Because the importance of financial literacy was first acknowledged outside the school system and was first dealt with by policy makers and regulators, many of these experts come from Treasury departments or hold jobs in central banks, regulatory authorities, or are involved with other government agencies. Nonetheless, the work has been academic in nature, meaning we went through a very rigorous process of designing a set of questions that can measure financial literacy in many different countries.

Our first task was to design a financial literacy framework to help us define the objectives of the module and the areas to cover when designing questions (The framework can be accessed on the OECD web site—the link is below). The development of the framework followed a sequence of six steps:
• Development of a working definition for the domain and description of the assumptions that underlie that definition;
• Identification of a set of key characteristics that should be taken into account when constructing assessment tasks for international use;
• Operationalization of the set of key characteristics that will be used in test construction, with definitions based on existing literature and experience in conducting other large scale assessments;
• Evaluation of how to organise the set of tasks constructed in order to report to policy makers and researchers on achievement in each assessment domain among 15-year-old students in participating countries;
• Validation of the variables and assessment of the contribution each makes to understanding task difficulty across the various participating countries; and
• Preparation of an interpretative reporting scheme for the results.

It was a long journey for all of us. We started this work in June 2010 with a meeting in Boston and we worked steadily for a year and a half. We met at regular intervals, each time in a different country, which also reminded us that our focus was to design questions that could be answered in different economic settings and different educational systems.

The OECD has been a pioneer in financial literacy and adding a new module on financial literacy in 2012 in PISA in countries that have not even formally introduced financial education in school speaks of their long-term vision and their capacity to lead and draw the attention of countries toward important topics such as financial literacy. I particularly like the statement that the OECD displays on the top of their PISA webpage:

“Are students well prepared for future challenges? Can they analyse, reason and communicate effectively? Do they have the capacity to continue learning throughout life? The OECD Programme for International Student Assessment (PISA) answers these questions and more, through its surveys of 15-year-olds in the principal industrialised countries. Every three years, it assesses how far students near the end of compulsory education have acquired some of the knowledge and skills essential for full participation in society.”

This statement serves to remind us that financial education is as important as the traditional subjects taught in school: As I have mentioned often, just as it was not possible to live in an industrialized society without print literacy—the ability to read and write, so it is not possible to live in today’s world without being financially literate. The financial crisis has put economic news on the front pages of newspapers almost daily, requiring individuals not just to be abreast of concepts such as deficit, national debt, and interest rate spread but also to evaluate the economic reforms that political leaders are proposing. Not only are young people required to make one of the most important decisions of their lifetime— whether to invest in higher education—during high school, but they are also confronted with numerous decisions of economic consequence: having a car, a cell phone contract, a bank account, and a debit or credit card. Financial literacy is an essential tool for anyone who wants to be able to succeed in today’s society, make sound financial decisions, and—ultimately—be a good citizen.

We, on the PISA committee, are only at the beginning of our journey. Our next meeting has been scheduled for Heidelberg, Germany, next September, so we fly to yet another country. I have collected little items from those trips to remind me of our meetings. From our trip in Australia, I brought home a little yellow road sign that hangs in my study. It says: “Kangaroos, next 15 km.”

To read the financial literacy framework, please see below:
http://www.pisa.oecd.org/dataoecd/8/43/46962580.pdf
My previous blog on PISA:
http://annalusardi.blogspot.com/2010/09/comparing-financial-literacy-of-young.html