ECB leader’s Mais Lecture highlights added value of financial education for all

A well-informed and financially literate population strengthens the transmission of monetary policy and can make it more effective, Professor Isabel Schnabel, Executive Board member of the European Central Bank (ECB), said while delivering the annual Mais Lecture.

Professor Schnabel explored the theme ‘Financial literacy and monetary policy transmission’.

In an era marked by economic uncertainty and inflationary pressures, she explained, the level of financial literacy plays a crucial role in the extent to which central banks’ monetary policies achieve their objectives. An uninformed public may ignore or misinterpret policy measures, leading to unintended economic behaviour that undermines policy goals.

People with a firm grasp of concepts such as interest rates, inflation and asset prices are better equipped to adjust their financial decisions when policies and economic conditions change, she said, making central bank policies more effective.

From a monetary policy perspective, this means that when central banks raise interest rates to curb inflation, financially literate consumers are more likely to understand the reasoning and the likely impact on them – prompting them to adjust their borrowing and spending habits accordingly.

“While over half of households in the euro area experienced positive real income growth in 2024, only 11 per cent perceived that their real income had increased,” Professor Schnabel said.

“The net percentage of pessimistic households is highest for the bottom half of the income distribution, and it is also higher for households with low financial literacy. This implies that lower inflation, because of restrictive monetary policy, generally had a weaker impact on consumption due to such misperceptions – dampening the recovery.

“Better financial education therefore benefits both individuals and the broader economy.”

When people understand how monetary policy works, they tend to trust central banks more. People’s trust in the central bank and in its ability to maintain price stability has been shown to help anchor inflation expectations and increase the share of forward-looking people in the economy. Central banks, including the ECB, therefore have a keen interest to improve financial literacy and the public’s understanding of monetary policy, Professor Schnabel said.

A work in progress

While financial literacy initiatives have traditionally been the domain of educational institutions and governments, central banks must also play a more active role in making their policies accessible.

Despite ECB initiatives to achieve that, such as clearer communication and engaging directly with the public via digital platforms, she acknowledged that the bank and its counterparts elsewhere still have work to do.

Professor Schnabel also explained that that poor understanding of basic financial concepts can lead to sub-optimal investment decisions and a general reluctance to engage in risk-taking – hindering economic growth.

“Financial literacy is (therefore) also an important cornerstone of the savings and investment union, one of the European Commission’s flagship projects,” she continued.

“Under its first pillar, it aims to encourage citizens to invest in capital markets, which can contribute to financing part of the massive investments needed for the green and digital transitions.”

Professor Schnabel called for efforts by policymakers, financial institutions and educators to improve financial literacy across Europe. This could include integrating financial education into school curricula, expanding public outreach programmes, and leveraging technology to share information.

Concluding her lecture, Professor Schnabel said:

“Fostering financial literacy can support policy effectiveness, enhance public trust in central banks and help people make better financial decisions, ultimately contributing to a stronger economy and individual well-being.

"As Benjamin Franklin, who spent more than 16 years here in London, once said, ‘an investment in knowledge pays the best interest’.”

The distinguished history of the Mais Lecture

The Mais Lecture was established in 1978 to honour Lord Mais, a former Lord Mayor of the City of London and Chancellor of the University. He played a key role in establishing the Centre for Banking Research (CBR) at Bayes.

Previous speakers include then-Shadow Chancellor Rachel Reeves, Rishi Sunak, then-UK Chancellor of the Exchequer, Mark Carney, Valéry Giscard d’Estaing, Gordon Brown, Tony Blair, Nigel Lawson and Fredrick Hayek.

Professor Barbara Casu, Director of the Centre for Banking Research and Deputy Dean at Bayes, welcomed Professor Schnabel to the School.

“Improving financial literacy should be one of the key aims of business school educators,” Professor Casu said.

“Finding effective ways to reduce the gender gap in financial literacy should therefore feature prominently on our collective agendas.

“We are grateful to Professor Schnabel for coming to Bayes to deliver this prestigious annual lecture, which provided us all with food for thought about how we, as practitioners and educators, can play our part in improving society’s financial decision-making.”

Find out more about the Mais Lecture series, hosted by the Centre for Banking Research.

Read Professor Isabel Schabel’s Mais Lecture speech in full.

View the slides from Professor Schnabel’s speech.