Oran Hall | Financial education for school kids

QUESTION: What are your thoughts on young people being financially educated? Not for the person who wants to become an accountant, but wouldn’t it be beneficial to the country if children could learn finance as part of their curriculum like English or maths?

– S. King

FINANCIAL ADVISER: You have asked an interesting question at an interesting time, for it seems to me that it is being recognised that educational institutions have a role to play in making our children and young people financially literate, and many young people, from the questions they raise with me in various settings, seem to be making financial decisions without fully understanding their implications.

According to the Organisation for Economic Cooperation and Development’s Programme for International Student Assessment 2018 Financial Literacy Framework: “Financial literacy is the knowledge and understanding of financial concepts and risks, and the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life.”

Financial literacy, then, involves not just the reproduction of accumulated knowledge, but the mobilisation of cognitive and practical skills and other resources such as attitudes, motivation, and values. Its purpose is to equip individuals to use what they have learned about personal finance for effective decision-making in real-life situations.

Young people, to a great extent, learn financial behaviours from their parents, family, and friends. Their financial behaviours often reflect the behaviours of those who have helped to shape their development.

Many of them are likely to have shopped to buy household goods or personal items; some would have taken part in family discussions about money; and some would have already begun to earn and save money. Some already have experience of financial products and commitments through a bank account, a school savings programme, or a mobile phone contract. Nevertheless, a grasp of concepts such as interest in relation to loans and investment, inflation, and time value of money are soon going to be, if they are not already, important for their financial well-being.

But there is usually a huge gap between where their knowledge of financial matters is and where their behaviours are and where they should be.

They are living in a world that is becoming increasingly sophisticated in that more and more financial services and products, many with complex features, are being developed. In time, they will have to search for financial information and make decisions on their own. Having the requisite knowledge and skills is required for such a time.

The PICA 2018 Framework mentions that efforts to improve financial knowledge in various settings, such as the workplace, can be severely limited by a lack of early exposure to financial education and by a lack of awareness of the benefits of continuing financial education. It is, therefore, important to provide early opportunities for establishing the foundations of financial literacy.

In addition to preparing young people for their adult life, financial education for them generally, and particularly in schools, can also address the immediate financial issues facing them.

Educational institutions – already offering training to a significant portion of our children and young people – are in an ideal position to fill the void in the provision of meaningful financial education, but educators must be properly trained to do so and should have the necessary tools to prepare their students to practise smart financial behaviours.

To the extent that the young learn and develop these behaviours, they are able to carry them into adulthood and are empowered to make decisions that eventually redound to the economy.

Recognising both the importance of financial literacy for youth and the unique potential to improve the knowledge and skills of future generations, an increasing number of countries have embarked on the development of financial education programmes for children and young people. These include efforts to introduce financial literacy topics into existing curricular subjects, such as mathematics and the social sciences, as well as extracurricular activities, such as educational games.

Existing empirical evidence shows that young people and adults in both developed and emerging economies who have been exposed to good-quality financial education are subsequently more likely than others to plan ahead, save, and engage in other responsible financial behaviours

Other research indicates a number of potential benefits of being financially literate. There is evidence that in developed countries, those with higher financial literacy are better able to manage their money, participate in the stock market, and perform better on their portfolio choices.

Financially literate consumers can make more informed decisions and demand higher-quality services, which can, in turn, encourage competition and innovation in the market. All of these factors can lead to a more efficient financial services sector. In addition to the benefits identified for individuals, widespread financial literacy can be expected to improve economic and financial stability, according to PICA.

Financial education should not just be seen as being for the young who aspire to be accountants. It should be for all because everybody makes financial decisions regardless of their profession or status in life. The time is ripe for structured financial literacy programmes in our schools.

- Oran A. Hall, author of ‘Understanding Investments’ and principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel.finviser.jm@gmail.com