Encouraging a head for business

Gov’t kicks off initiative to improve financial literacy among general population

“Oligopsony” and “Fisher separation theorem” are meaningless terms to the average citizen, but the government nevertheless wants to see the general population get a stronger grasp of the fundamentals of economy and personal finance.

The National Strategy for Financial Education went into effect May 10, as Prime Minister Jan Fischer and a team of experts from the Finance Ministry announced renewed efforts at combating a lack of economic knowledge among Czechs, which they say has a significant drag on the economy. The program will initially be a collection of Web sites that offer independent advice and information about a variety of household finance topics but will eventually grow to include seminars though a network of NGOs and agencies.

Radek Ležatka, spokesman for the Finance Ministry, told The Prague Post that economic knowledge in the Czech Republic is among the lowest in Europe, because “there was no financial market in the Czech Republic for 40 years. The new history began in 1990.”

“The aim of financial education is to increase the level of financial literacy among citizens and to provide them with knowledge and skills that are necessary to understand what they are being offered and to accept responsibility for all their decisions in the financial market,” he added.

According to a survey by the Finance Ministry, 81 percent of Czechs believe they have not received sufficient knowledge for orientation in the fields of finance and banking. Respondents said they would like to receive such information in the form of leaflets, brochures, Internet sites and television programs.

The strategy will address several key areas of economics and personal finance, including family budgeting, financial planning, credit and consumer rights. The government also hopes to raise the basic level of investment knowledge, highlighting the fact that “there is a trade-off between return, liquidity and risk,” Ležatka said.

High schools will be required to address key economic areas in their basic curriculum. For adults, an educational Web site and several financial education programs have been launched.

“The general public will never become financial experts. But a financially literate citizen knows the financial market basics, understands what is being offered, is aware of the main risks and is ready to make responsible decisions,” Ležatka said.

The government’s program has received the backing of several financial unions and representatives of the finance sector, including the Union of Financial Mediation and Advisory Companies (USFČR), which has worked closely with the Finance Ministry since 2005, when the idea of a general system of public economic education was first suggested.

“The roots of the lack of economic and financial knowledge of the average Czech citizen lie mainly in the previous regime, when, because of a centrally planned economy, qualified market choice and individual economic behavior was not needed,” said Jiří Šindelář, managing director of USFČR.

Middle-aged Czechs and senior citizens are especially ignorant about financial affairs, resulting in a nation of rather conservative investors, which has actually had some benefits, Šindelář said.

“On the other hand, a vast majority of the Czech population is under-insured, and the number of insolvent individuals, while still relatively low, is rising. Also the mis-selling of financial products is a big issue on the Czech financial market, as well as insufficient mobility between service providers,” he added.

Making the average Czech financially savvy should lower the number of citizens who fall prey to bad investments, but it will also boost the general economy, as long as the new knowledge is put into practice, said Petr Sklenář, analyst at Atlantik FT.

“The positive effects will be long-term – in the next 10 or 20 years. In economies where citizens have a higher knowledge of economics, the capital market works at a higher level, which positively influences economic growth,” he said.

There is not yet any pan-European study on the general public knowledge of economics. The Finance Ministry plans to undertake a financial literacy assessment in late 2010, and the first international assessment providing a global comparison of economic knowledge will be undertaken by the OECD over the next year, according to Ležatka.

For now, the best way to judge the level of financial knowledge in the Czech Republic is the stock market and the newspapers, Sklenář said.

“We can see a lack of knowledge among Czechs in the way the press comments on economic affairs, and also in the way Czechs invest their savings. Most Czechs save in bank accounts with low interest, and there is a very small proportion of higher yielding investments like stocks,” he said.

National Strategy for Financial Education

What it is: A government initiative to raise financial literacy through curriculum requirements and a network of Internet resources on financial topics
Who it's for: Anyone who wants to research financial products or find independent investment advice
What it will do: The government says a better educated public will provide the foundation for a stronger economy
Web:www.financnivzdelavani.cz

– Filip Šenk contributed to this report.