Claudia Buch: Financial stability and financial education - why we need to promote a societal dialogue

Introductory remarks by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the Inaugural Conference of the Mannheim Institute for Financial Education (MIFE), virtual, 30 November 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Ladies and Gentlemen,

It is my great pleasure to speak on the occasion of the Inaugural Conference of the Mannheim Institute for Financial Education (MIFE). MIFE's mission is to "conduct basic research on financial education of all population groups".

A high level of financial education in the population is indeed crucial for central banks. Our communication will hardly be understood by the broader public unless there is a sufficient level of financial literacy. Financial literacy is all about understanding key financial concepts: How does compound interest work? What is the difference between real and nominal variables? What are the benefits of diversification? The right answers to those questions are the keys to a good management of personal finance decisions – but also to understanding relevant macroeconomic trends and central bank communication.

Sound financial knowledge couldn't be more important at the current juncture, given that inflation is being so widely discussed. Economic forecasters agree that the present high inflation rates will not be permanent. This is good news. But there is also a high degree of uncertainty about the outlook and the drivers of inflation. The expectations of households certainly matter for price formation. And households adjust their inflation expectations if they receive information about the monetary policy strategy, such as the central bank's inflation target. Financial education thus has a direct bearing on central banks core mandate – price stability.