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When Annamaria Lusardi greets students on the first day of her class on personal finance, she sets the record straight: She isn’t teaching them just how to save or invest.

“This is a happiness project,” Lusardi says. “This course is about learning how to make decisions that will set you up for success.”

It’s an unusual message in economics, a discipline known as the “dismal science.” But Lusardi, a �������senior fellow and director of Stanford’s Initiative for Financial Decision-Making, is used to diverging from the norm.

Through her work over the last 20 years, Lusardi has pioneered personal finance as a specialty within economics. Her “” questions measuring financial literacy — now used in national household surveys in the U.S. and around the world — have consistently shed light on a big problem: Across the industrialized and developing world, most people don’t know how money works. And this suggests they don’t understand how financial systems work either.

“That’s scary,” says Lusardi, whose has linked mastery of basic finances to better decision-making.

Lusardi’s path to personal finance maven began when she was 19 and in her first year at Bocconi University in Milan, near her hometown. There, she says, she “fell in love with the idea that economics gave me tools to understand the world around me and to discover answers to new questions.”

The question that became her life’s work came to her when she was a PhD student in economics at Princeton and working with Angus Deaton, who went on to win the Nobel Prize in economics. Poring over data on consumption and saving behavior, she was struck by an anomaly: People who looked so similar on paper — by age, education, income, and family structure — were accumulating vastly different amounts of wealth over their lifetimes. And the existing tools of economics couldn’t fully explain why.

Lusardi thought that mastery of the ABCs of personal finance, or the lack thereof, could be an important piece of the puzzle. But she couldn’t test her hunch because the necessary data on financial literacy rates didn’t exist.

Enter the Big Three — multiple-choice questions that test for a basic understanding of inflation, interest rates, and investment risks. In the two decades since Lusardi devised them with her longtime collaborator, Olivia Mitchell of the University of Pennsylvania, the simple assessment has become a leading international standard for measuring financial literacy.

Along the way, Lusardi, who taught at Dartmouth and The George Washington University before joining Stanford in the fall of 2023, has championed education as the way to build financial know-how. “Financial literacy is as important as the ability to read and write,” she says.

But Lusardi also knows that money matters make people anxious, and prone to forget what they learn as a result — hence her “happiness” pep talk on Day 1 of class.

“It puts everybody at ease,” she says.

Story by Krysten Crawford. Photos by Ryan Zhang. Published in 2024.