The plain-spoken, highly quotable former Prime Minister of Luxembourg Jean-Claude Juncker once said of politicians: “We all know what to do; we just don’t know how to get re-elected after we’ve done it.” But maybe he was wrong.
Juncker spoke those words in the context of brutal economic reforms needed in the European Union a decade ago. Today, Elsa Fornero, professor of economics at University of Turin and former Italian labor minister, says people won’t necessarily vote out a politician that takes painful steps—so long as they understand the need for the actions.
She is a long-time champion of financial literacy for that very simple reason. Her theory is that if people in the EU had understood the need for pension reform the past decade they would not have seen it as punishment and would not have taken out their anger at the polls.
This is more than just theory. Fornero led research that analyzed 20 years of pension reform in different countries and found that painful change took less of a toll on politicians in nations with higher financial literacy scores. “This is good news,” she said at a forum in London last month. “We need to work on financial literacy programs exactly because we need to involve people in social change.”
Fornero knows how difficult that can be. She was in charge of reforms in Italy that included changing how pensions were calculated and increasing taxes. She and her family received death threats. But ultimately, “I also received widespread support, mainly by ordinary citizens who realized that this was a necessary sacrifice to clean up the country’s financial mess,” she wrote in The Wall Street Journal.
The people that understood were exactly those with the most knowledge about money management and other financial affairs. “Financial literacy can be a very important instrument to bring about reform,” she told journalist Beth Kobliner. “If you have better, more knowledgeable citizens, you end up with better social welfare. There is a new awareness that the role of financial literacy is essential.” She concluded: “We must stand up for financial literacy.”
Southglenn More on international financial literacy: