Ladies and Gentlemen,

It is a great honor and pleasure to address you at this event dedicated to a very important dimension in the life of each individual - the awareness of the role that we play in creating our pension future. However, today I would like to refer to a broader concept, which undoubtedly involves this issue, and that is the issue of financial literacy - why is it important for each one of us, what is the level of financial literacy, should there be and are there activities and policies in place for higher financial education?

It is more than clear that without understanding the underlying economic and financial concepts, people cannot make good financial decisions, or in other words, they do not have the ability to make the right choice in terms of saving, investing, and borrowing. Financial “ignorance” can create high costs, not only for the individuals, but also for the economies as a whole. The great economic crisis clearly pointed to insufficient financial education as one of the factors that contributes to the creation of the credit bubble, which afterwards burst with long-term implications for the global economy. Understanding, however, the key financial concepts provide awareness, a better risk diversification and search for better and (which is very important) sustainable investment alternatives.

In fact, in the context of contemporary trends, the importance of financial education has been constantly increasing. As noted in the OECD report, "the continued evolution of financial, economic, demographic configuration, and policies has been increasingly translating risks to individuals, thus turning financial literacy into one of the key life skills in modern societies" (OECD, 2016). More specifically, what are the major changes that increase the importance of financial literacy? Let me highlight a few main concepts.

First, it was the growing level of financial intermediation and facilitated access to lending to households that was particularly pronounced in the period before the global economic crisis. The credit boom, which preceded the crisis, was fueled by excessive confidence and irrational expectations of "infinite" growth in asset prices and low interest rates, which is also due to insufficient financial literacy. The consequences of this behavior of individuals, but also of the banks are well known, and we can say that we still feel them. Perhaps an even closer example about the negative repercussions of insufficient knowledge of the risks is the borrowing in Swiss franc in some of our neighboring countries. Low interest rates on this type of loans and the exchange rate stability increased borrowings in this currency, whose strong appreciation in 2010-2011 surged the value of loans by as much as 30%, led to a significant increase in the debt burden on borrowers, inability for regular servicing of liabilities and deterioration in the quality of the banks' loan portfolio. Both examples show that financial literacy, as well as financial information, are an important component not only for the personal finances, but they are an essential element of the stability of the entire financial system, and thus of the overall economy. As Minehan notes: Economies are made up of individuals, and the better informed and educated their economic decisions, the more likely the economy's prosperity.

The second aspect is the demographic, and refers to the aging process of the population, especially in Europe. While in 1990 the share of over 65-year olds in the total population in the EU -27 was 14%, in 2016 it increased to 19%. This aging process certainly meant a burden on pension systems, reform of the pay-as-you-go systems and introduction of private pension schemes. The rising growth of private funds and the transition from defined benefits to defined contributions certainly increases the responsibility of individuals for good management of their own pension scheme, in order to provide sufficient finances later in life. Practice shows that in this domain, even in highly developed economies, the understanding and knowledge of individuals is not at a sufficient level. For example, in the Netherlands, research shows that as many as 58% of respondents lack knowledge about the size of their future retirement income. Pension reforms in Macedonia have long been following the concepts of developed economies, and hence, from now on and in the future, private pension insurance will be increasingly important. This will also increase the need for financial education for proper planning of pension schemes and for increasing the financial well-being.

The growing supply of complex financial products and services from new non-banking financial institutions is the third aspect, which increasingly emphasizes the risk of insufficient knowledge and information of individuals when using new products. In this context, the term “FinTech", which is a broad concept, refers to financial innovations supported by rapid technological development, which appear in various segments of finance - payment transactions, financial market infrastructure, investment management, insurance, but also credit support in the economy. All these innovations mean an opportunity for greater efficiency and competitiveness of the systems, but at the same time, bigger risks and need for greater financial awareness, especially considering the low level of regulation of the FinTech companies.

Furthermore, another aspect is the need for greater financial inclusion, which is getting more attention from international institutions and policy-makers. Access to finance by a larger number of entities, especially vulnerable groups in society, on the one hand, will mean greater inclusiveness in growth and poverty reduction, but on the other hand, it also brings to the fore the need for education. Unlike the countries in northern Europe where the level of financial inclusion measured through access to accounts in financial institutions is close to 100%, in some Eastern European countries, more than 50% of the population has no access to formal banking services. In the case of the Republic of Macedonia, about 72% of the population (over 15 years old) has accounts in financial institutions. Low financial inclusion is a combination of both supply and demand, where insufficient financial literacy is considered one of the main reasons on the demand side for such low financial inclusiveness.

The recognition of the low level of financial literacy and the need for advancement in this regard, especially after the onset of the global financial crisis, has resulted in increased efforts by policy-makers for better financial education and improved information. Some of these initiatives have a supranational character and refer to several EU directives that provide greater transparency, knowledge of and respect for consumer rights, responsible borrowing and management of mortgage debt and putting emphasis on financial inclusion. Many European countries tackle the issue of financial education through national financial education strategies, which are common documents and joint efforts of many stakeholders, including central banks.

Central banks are active participants and promoters of the financial education process in almost all countries. The reasons are multiple: 1) educated entities understand the monetary policy better, which increases the effectiveness of monetary measures; 2) the better the understanding of the economy and finances, the smoother the functioning of financial markets; 3) higher education means less probability of taking excessive risks, which is again in direct correlation with the stability of financial systems and sustainable economic growth; 4) economic and financial education means promotion of public good; 5) good financial education supports the credibility of the central bank and the understanding of its activities.

The National Bank of the Republic of Macedonia is actively involved in these contemporary trends in financial education of the public. Although this segment is still in its beginnings, however, the portfolio of activities has been constantly increasing. A growing accent has been put on active engagement in the field of education of primary and secondary school students for the basic financial concepts, given the need to start education in the early ages. Hence, educational activities have become part of our daily work. An increasing emphasis has been put on the development of various educational brochures and shooting educational films, enriching the set of available data and information to the public, organizing seminars and workshops for targeted groups, and for the first time in the Republic of Macedonia, a pilot project was delivered for social and financial education for the first-graders. The celebration of the 70th anniversary of central banking in the Republic of Macedonia included a more comprehensive training program for 4330 students from 87 primary schools, and 2 documentary and educational films about the purposes and functions of the central bank. At the same time, the need for synergy and coordinated activity by several stakeholders has been recognized through the signing of joint Memoranda of cooperation with all financial regulators, the Bureau for the Development of Education, and other institutions.

Despite the numerous long-standing efforts of policy-makers to increase financial literacy, recent research suggests that the space for further advancement remains broad. The results of the new Standard & Poor’s survey suggest that financial literacy is not only low in developing countries, but is also surprisingly low in countries with well-developed financial markets and high per capita income. In the larger developed economies, only half of the adults are considered financially literate, and in the developing economies, the level is even lower, whereby in the Republic of Macedonia it is estimated that only 21% of adults are financially literate. Similarly, the findings of the OECD survey (a sample of twenty European countries) indicate that 40% of respondents do not collect information at all before selecting certain financial products, over 80% do not seek for alternative offers at all; half of the respondents do not set up long-term financial goals. More generally, the numerous surveys point to several important conclusions: the financial literacy is still low, the level of literacy is correlated with the level of education and income, the respondents often find that they have a higher knowledge of this issue and consider that there is a lack of easily understandable educational content and financial information that would help them make decisions, which is especially emphasized in the information on pension schemes.

Therefore financial education, i.e. its proper sizing, targeting and evaluation will remain to be a challenge for policy makers both globally and domestically. Our positive experience so far urges us to continue our struggle in this field. In this context, I would like to mention our important future projects - development of a national strategy for financial education, introduction of indicators for regular measurement of the level of financial literacy, and therewith, the effectiveness of the measures, support of the project for introducing financial education in primary schools as an electoral subject, and creation of a special national financial education website.

I hope that I managed to capture some of the basic elements of the genesis of financial literacy, its presence globally, its importance and the challenges arising from the rapid financial and technological progress. Allow me to conclude with a statement of Ben Bernanke, the former governor of FED: “…financial know-how is a lifelong undertaking. The types of financial decisions that people have to make - from paying for school to buying a home to planning for retirement – vary through the course of their lives, and thus we need to ensure that access to financial education is readily available at all stages of life.”

Thank you,