Thanks to the fast development of financial services in recent years, demands on financial literacy have expanded dramatically. In addition to the financial products, the whole financial industry (and the economy in general) has become increasingly globalized. This means that there are more kinds of financial products/markets available in more places, and they have become more complicated and internationalized. So, people need to know what is going on and understand how those products work in the market. In order to help individuals take advantage of today’s opportunities, Svetlana Sherstobitova, a financial consultant, helps people learn about specific products and gives them insights into whether they have a healthy financial situation. Furthermore, during her career path, she distinguished five principles of effective financial education that make delivery of financial literacy to the Public more efficient.
Sherstobitova explains that especially in the 21st it is crucial to know how money works. Within a fast-evolving financial landscape where access to financial services is made easier, more risks are being transferred to citizens. Hence, financial literacy has become a key life skill for individuals as well as micro and small businesses. Even more, if to consider the fact that people in post-communist countries, for example, did not have much relevant experience with financial products, while financial markets are developing quite fast, the significance of the problem raises even more. For this reason, Sherstobitova aims to enhance financial literacy by increasing financial knowledge, skills, and attitudes. In turn, this can contribute to individuals’ participation in financial, economic, and social life as well as to their financial well-being. In addition to financial inclusion and consumer protection, financial education is also essential for rebuilding confidence and trust in financial markets and supporting stability. She also refers to the
notion that financial literacy has several side effects. Lusardiand Mitchell (2009)1 and Lusardiand Mitchell (2011)2 provide evidence that there is a relationship between the level of financial capability on one side and savings and investment behavior on the other. They also illustrate a clear relationship between financial literacy and personal wealth. This is the reason why Svetlana has put so much effort into identifying the best working methodologies of teaching finance and coaching people.
The first principle that Svetlana uses in her work is always identifying who her audience is. She believes: financial education, information, and delivery methods must be customized to the conditions and needs of the clients. “Knowing the population” happens at two levels: understanding the demographic context of the person and evaluating the individual’s own barriers, needs, skills, and motivation. As an effective educator, she also realizes the importance of understanding the individual’s unique situation and mindset. Attitude and needs assessments help both her and the consumer identify gaps and motivations in order to customize the financial education approach.
Providing actionable, timely, and relevant information is another key factor of delivery of financial literacy. Although the academic community has an ongoing debate on the effectiveness of financial education alone, there is broad agreement that when financial information is delivered in an actionable, relevant, and timely manner, people are more likely to retain the information and act on it. The evidence shows that financial education alone has had a small impact on financial behaviors partly because financial knowledge decays within two years of the lesson. On the other hand, some
academics point to the need for behaviorally based strategies, such as nudges or designed choice architecture3, and information provided in close time proximity to when consumers are making financial decisions, known as “just in time financial education.” This type of consistent, timely, and actionable information should cover detailed steps for the consumer and be straight applicable to a financial decision about to be made. For instance, pre-purchase housing counseling takes advantage of what is essential to the individual seeking information and is typically delivered close to the purchase of a home. In another case, benefit estimates in the Social Security statement, accessible through a person’s Social Security account and provided to his/her nearing retirement age, have been shown to help them make more informed decisions about when to claim Social Security benefits, thereby influencing their retirement income.
Paying attention to improving key financial skills is another factor that influences financial literacy and educational effectiveness. Assisting people in acquiring skills in knowing how to attain certain goals, rather than just conveying knowledge about
specific financial goods and services, will give them experience. Practical financial literacy approaches are designed to assist consumers in three ways: 1. Knowing when and how to locate information for making financial decisions 2. Understanding how to interpret information for decision-making 3. Having the skills and confidence to take action and implement their decision. Furthermore, Svetlana asserts that people’s motivations should be used to design effective financial literacy and education programs. She explains that people who are motivated by inner values, desires, interests, or ambitions are more
likely to stay engaged (because they want to learn) than those who are compelled to study due to external demands (because they have to learn). This best practice emphasizes the significance of financial educators who utilize empathy to identify learners’ unique objectives, understand the learners’ financial circumstances, and assist learners in achieving their own goals.
Finally, Svetlana’s professional experience of many years has shown that it’s hard for people to stick with their goals, but the environment or context can make it easier for people to carry out their intentions. Even small adjustments to a process, such as nudges and defaults, can help make it easier for people to make choices. Changing the alternatives offered, reducing hassles and impediments, and providing assistance can help individuals close the gap between their intentions and what they actually accomplish. This best practice also emphasizes how programs may be developed to make it simpler for individuals to obtain financial education by, for example, including financial education into programs and places where people already are, such as their work.
The nature of the financial market is creating constant changes, which are reflected by the demand for innovative approaches that allow it to work efficiently. Some specialists are able to use modern technologies, but not all of them are able to pass the process of transition to the next level. Svetlana Sherstobitova provides expert advice on many financial areas including credit, debt, investments, taxes and her constant search for information enables her to keep up with the newest trends as well as remain current on all legislation. She proves that this is possible and helps her clients to acquire
relevant knowledge and improve business processes by introducing innovative technologies in the finance sphere.
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Author of Article: Аni Safaryan
1 Lusardi, A. (2009). U.S. Household Savings Behavior: The Role of Financial Literacy, Information and Financial Education Programs. In C. Foote, L. Goette& S. Meier (Eds.), Policymaking Insights from Behavioral Economics(pp. 109-149): Federal Reserve Bank of Boston
2 Lusardi, A., & Mitchell, O. S. (2011). Financial Literacy and Planning: Implications for Retirement Wellbeing. In A. Lusardi & O. S. Mitchell (Eds.), Financial Literacy: Implications for Retirement Security and the Financial Marketplace: Oxford University Press.
3 Choice architecture is used to mean the design of the context in which decisions are made. See, Thaler, R. H., Sunstein, C. R., & Balz, J. P . Choice architecture. In E. Shafir (Ed.), The behavioral foundations of public policy (pp. 428-439). Princeton, NJ: Princeton University Press, 2013.