On October 10, 2008, Alexey L. Kudrin, Minister of Finance of the Russian Federation and Robert B. Zoellick, the President of the World Bank signed an agreement to establish a Trust Fund at the World Bank to support the advancement of financial literacy and capability programs. The Russian Federation is committed to providing $15 million over the next four years to finance the effort.
The Increasing Importance of Financial Capabilities
Individuals at all levels of economic development increasingly need to be able to effectively manage their long and short-term financial well-being, interact with an expanding array of financial services and products. The rapid growth of private financing for retirement and health care require the stronger ability of individuals to engage in life course planning. Smaller share of publicly financed social insurance programs require individuals to make complex decisions about saving and investment. Access to banking and finance are now understood to be central to development. Yet using financial services involves new kinds of knowledge and capabilities on the part of consumers in order to effectively help raise people out of poverty. The recent financial crisis has dramatically demonstrated the need for financial literacy, particularly the importance of appropriate understanding and management of individual debt that influences economic stability and growth. New financial products and services are introduced every day increasing the scope of these challenges.
Objectives of the Trust Fund
Recognizing this need, many countries are developing national strategies and programs to raise the level of financial literacy and capability of their citizens. Despite the nearly universal nature of the need, there is not yet a consensus about how to best define the knowledge and skills required, how to measure the level of capabilities among different groups and how to evaluate the effectiveness of these programs. The Trust Fund is designed to develop a comprehensive definition of financial capabilities, review current research and information on existing programs and use this to develop and test measurement and evaluation methods. This is expected to lead to standard methods to measure knowledge and capabilities, design and operate financial education programs and evaluate their effectiveness in enhancing the ability of individuals to effectively manage their interactions with a wide range of financial services and products. The knowledge derived from this effort will be widely disseminated to enhance the capacity of countries to develop effective financial literacy and education strategies.