Australia has finally got its act together on financial literacy, with the Federal government releasing its National Financial Literacy Strategy in March this year. The government had the wind put up its backside by the announcement of the OECD that their 3-yearly Program of International School Assessment (PISA) will begin to test financial literacy levels in 2012. The PISA tests are the main way that countries are ranked against each other on their educational standards, hence the mad scrambling by developed countries to implement financial literacy curriculum in schools.
According to the OECD website:
Aspects of financial literacy that will be tested include: dealing with bank accounts and credit/debit cards; planning and managing finances; understanding taxes and savings; risk and rewards; consumer rights and responsibilities in financial contracts.
Why Is Financial Literacy Important?
In this age of mounting debt, unaffordable property and expensive ‘must-have’ technological gadgets, it is more important than ever that young people are educated about how to manage their money. In the Hunter region of NSW, it was reported that some teenagers had been racking up mobile phone bills of more than $6000, through ignorance of excess download clauses in phone contracts. Many teens get their first job and rush straight into credit card use and expensive car loans, soon finding themselves drowning in debt. The Chairman of the Financial Literacy Board, Paul Clitheroe said at the announcement of the National Financial Literacy Strategy:
By teaching kids how to handle money from an early age, you give them the essential knowledge and skills to make wise financial decisions throughout their lives.
Adult financial literacy is also a concern, with the likely reduction in government pensions in the future requiring consumers to take much more control of their superannuation requirements.
How Financially Literate Are We?
Surprisingly, there isn’t a huge amount of research available on the financial literacy of school students in Australia. One of the largest studies, conducted in 2010 by the Commonwealth Bank Foundation, which also surveyed adults, found that 16 – 25 year olds comprised 42% of the bottom quartile of financial knowledge. Less than half (49%) of under 20′s followed a personal budget.
The other main study, The ANZ Survey of Adult Financial Literacy, taken in 2008, only surveyed people aged 18 and over. However the results of the study showed markedly lower financial knowledge in people aged 18 – 24. The highest financial knowledge was shown in adults aged between 50 and 60 years, business people and university graduates. Financial literacy was also low amongst the unemployed, those over 70, and those from a non-English speaking background. This study showed that 88% of people believed they had the ability to save and budget, yet nearly half (48%) didn’t budget at all.
A related finding from the Australian Bureau of Statistics (ABS) in 2006 showed that “more than half the Australian population aged 15 to 74 lacked the literacy and numeracy skills necessary to meet the complex demands of everyday life and work in the emerging knowledge-based economy”. Now that’s just plain scary.
An ASIC consumer financial confidence survey showed that 57% of people who own credit cards and 45% of those with mortgages are NOT confident that they are getting the best deal. The survey also showed that the majority of people do not seek expert independent advice when researching financial products.
School Programs & the National Curriculum
Schools currently undertake financial literacy education on a completely independent basis, however, ASIC and the Financial Literacy Board have been working to ensure that it is included in the new Australian Curriculum, which will be phased in from 2012. It is not clear whether there will be a dedicated subject called ‘Financial Literacy’; more likely the concepts will be incorporated into maths, English and economics learning modules.
What is the rest of the world up to with financial literacy?
The financial literacy push really is a global phenomenon. An OECD site dedicated to financial literacy programs is a veritable United Nations of colourful flags, all with links to programs that have been implemented in that country. The province of Ontario in Canada has just announced a comprehensive program to introduce financial classes into high schools, while in the Asia-Pacific region, a recent study commissioned by Mastercard showed that Thai women were the most financially literate, with higher levels of knowledge than even New Zealand and Australian women who came second and third. The USA is the most active in promoting financial literacy, with hundreds of federally funded and also non-government programs operating.
Is financial literacy education worthwhile anyway?
In a related debate in the US, there are voices of dissent amongst academics who study financial education. In an article on CNN Money, Law professor Lauren Willis has suggested that education programs don’t actually work.
Financial literacy classes give people the illusion that they can successfully manage their finances,” she said. “So rather than seek help, they end up making worse decisions.
She also believes that all the good intentions of financial literacy programs are drowned out by the seductive marketing campaigns of the financial services juggernaut. She believes that it is more important to teach kids how to filter the marketing messages and show them that these companies don’t have their best interests at heart.
Mary Pilon from the Wall Street Journal believes that we should be educating parents first, who will then pass on financial skills to their kids, helping to break the vicious cycle of poverty. On her WSJ blog, The Wallet, she says:
Study after study after study shows that parents influence decisions in the lives of their children ranging from fruit consumption to finance. So rather than toss some pamphlets (or a book or a video or a board game) to kids, shouldn’t we concentrate on modeling better behavior ourselves?
After all, it was the supposedly ‘financially educated’ adults (the bankers) who caused the Global Financial Crisis in the first place. Can we blame today’s teenagers for piling up debt in the chase for instant gratification, when this is exactly the behavior we as adults modelled on both a personal and global level for the past 15 years? I think not.
Positive Steps Forward
The National Financial Literacy Strategy has launched a website, moneysmart.com.au which is aimed at helping us consumers obtain unbiased financial information and advice. The site has a lot of useful information, including an online budget planner, which is super easy to use, and a fun quiz to test your financial literacy. There are also sections dedicated to the under 25′s, and those planning on starting a family.
For the younger ones, the Commonwealth Bank has a cool new interactive site for tweens and teens called The Hit List which helps kids work towards their saving goals by rewarding them with exciting games and content. They plan to integrate a social networking community within the site in the future. They also have a sister site, Coinland, for primary school aged children, and their SmartStart in-school program has reached more than 240,000 school students to date.