The financial crisis that has spread to all financial centers around the world, starting from the initial shock of the subprime crisis in the United States, leads us to question and seek many new explanations that Have probably not yet been proposed. We can ask, for example, “Can a better understanding of finance help avoid financial crises? ”
More precisely, would a better understanding of financial mechanisms, by economic agents who are the authors of the many financial operations carried out daily, be conducive to reducing the “chances” of occurrence of financial crises?
Is early financial education essential?
The President of the Federal Reserve, the central bank of the United States, answers this question without ambiguity: “The subprime crisis illustrates the importance of early financial education”. For Ben Bernanke, a better knowledge of the functioning of the financial mechanisms would be conducive to more balanced decisions regarding the risk / return couple. “The problems in the subprime mortgage market remind us how crucial it is for individuals to acquire financial knowledge at a young age to be better prepared to make decisions and navigate an increasingly complex financial market.
But is access to information not a prerequisite for its treatment? Admittedly, in increasingly complex financial markets, sufficient knowledge is needed to properly collect and process information in order to make the “right decision”. But it must first be possible to dispose of it. Then, only the question of the ability to handle this information rationally can be asked. However, the asymmetry in terms of access to information is a constant on the financial markets. Not all actors have equal access to available information. The asymmetry in the processing capacity of this information will be cumulative to the first form of asymmetry. Here, it is necessary to know before knowing how to do.
In addition, what may be considered an effective choice for some will probably not be for others. Individual rationality and collective rationality do not converge automatically. The actors act in a system. On the one hand, they are interdependent with the decisions taken by the other actors, but on the other they depend on the movements of the system as a whole. The game, on the financial markets, can not always be and everywhere win-win, “win-win”. It can also be win-lose, “Win-loose”. What one gains, the others lose it. Finally, in times of crisis, it can become loser-loser, “Loose-loose”.
It may also be added that behavior, choices and decisions in the financial markets are not only dictated by the rationality of agents in analyzing available information. They are also guided by drives, emotions, “animal spirits” – “animal spirits” according to John Maynard Keynes. In other words, when waves of pessimism succeed waves of optimism, behavior changes and sometimes, what becomes rational is to follow the meaning of collective movement and regardless of the actual content of economic information stricto sensu. Mutual, panurian behavior is in some cases the most rational.
The individual and the system
From microeconomic to macroeconomic levels
Understandably, the understanding of decision processes and financial mechanisms is a highly complex problem to be solved. The decisions of the actors, considered in isolation, fall within a systemic framework which makes the weight of the decision of each one on the whole relatively low. It follows that the sum of the “best individual understandings” and the sum of the individual decisions induced does not guarantee ipso facto that the “collective decision” that will result will be globally effective. There is a long way from the cup to the lips. Economists have long known that the transition from the microeconomic to the macroeconomic level is not without difficulty, even smooth. This is the whole debate, bridge or no bridge between microeconomic and macroeconomic levels.
They also know that in a market economy, and in financial markets in particular, the co-ordination of millions (billion) of individual decisions requires, in order to be effective, close supervision by many institutions. The visible hand of the State and institutions outside the market must accompany the invisible hand of the market so that the sum of individual interests can converge towards the collective interest.
The incompleteness of information, that is, the fact that information about the future is more than fragile, merely reinforces the nuances previously put forward. In these circumstances, the level of financial education is limited. We can not reasonably expect miracles as to the implications of better financial education for the public. But there is to be done, nevertheless!
Should we, therefore, renounce an improvement in the financial education of the public? Probably not ! It seems essential to harmoniously combine individual responsibility with collective responsibility in view of the constraints mentioned above.
Thus, in spite of the reservations, the nuance of the argument that it would be enough to improve the knowledge of individuals in financial matters in order to improve the financial markets and the economy, it is essential to promote the development of culture Economic and financial impact of the public. It is for this reason that there has been an Institute for Public Financial Education in France for several months now: IEFP, as there is already a Codice or Council for the development of economic culture, Idies, Institute for Economic and Social Information of the Public.
To take stock of the importance of the development of the financial culture of the public, we will start from the example of the financial crisis, and real, present.
Without attempting to be exhaustive, we will attempt to highlight some key mechanisms that each citizen should necessarily understand in the current financial crisis so that the chances of a new crisis of this type can be reduced in the end in the future.