Tuesday 30 September 2014: Financial Literacy in Schools - Improving the Wellbeing of Students?

Tuesday, period five; Economics class. The mid-afternoon sun isn’t immediately noticeable as none of the windows are facing the right direction, but the room is heated to around the temperature that puts people to sleep. A teacher is lecturing, pointing vaguely at a diagram drawn on the board and expecting the students to understand what the diagram means. Which they do, because it has been explained to them.

But what if there was no diagram? Would this full class of students be able to apply the knowledge in a meaningful way? How many of the 25 students actually understand how what they're learning can be used? Even though these students know about how rises in interest rates affect the real estate market, not many have considered their own individual spending habits, or even know exactly how the real estate market works. Even though these students are studying the economy, are they financially literate?

The world of business is seen by the layperson as a foreign and faraway landscape. A place where people get rich very quickly and no-one knows how, but then equally quickly can be completely chewed up and spat out. Because of this mentality, people don't seem to know that an understanding of the world of business can lead to an understanding of the world, generally.

Financial literacy refers to the basic skills and knowledge needed to navigate the ‘grown-up’ world; things like tax, interest, dividends and the real estate market. Understanding these economic concepts is the first key step in being able to contribute meaningfully to society. It has been suggested that students should learn financial literacy in school. Specifically, a policy has been seriously considered over the past few years to implement a financial literacy program at Mount Roskill Grammar School.

Many teenagers don't even budget the money they earn, if they earn money at all. This leads to teens making financially irresponsible decisions with the cash that they have -- mostly because there is no real need to be properly thrifty with their cash, as parents pay for and provide essential services. This leaves the money that is actually earnt to be used for 'recreational' activities or luxury items. This graph to the right shows that even intelligent people are not necessarily financially literate and able to hold on to and manage their money - done in a survey by Felix Salmon for an article on that topic.

This 'cycle of financial irresponsibility' means teenagers don't cultivate good spending habits or have any real concept of what money is actually used for in 'the real world' until it is far too late and they have left home. Implementing a financial literacy program in schools would mean they received advice on good spending habits and maintaining these long before they leave school.

High-school student definitions of financial literacy vary, from 'Do you mean 'don't give your money to the Nigerian scammers?'' to 'Do you mean in terms of teaching people what assets and liabilities are, or more in terms of economics?' These two specific definitions came from Mount Roskill Grammar School students James Ashworth and Diana Qiu -- both Commerce students who should have some form of financial literacy and understanding.

However, the dictionary definition of financial literacy is actually relatively simple.

'The possession of knowledge and understanding of financial matters', as found here.

The simplicity of this definition, of course, undercuts the complexity of the issue it defines – as becoming properly financially literate and knowing how to use this knowledge takes possibly years of experience and practice. The definition (in this context) means the skills and knowledge required to understand business matters in relation to personal finance -- so the ability to budget and understand concepts like tax and interest in relation to the loans and everyday situations teens would find themselves in in later life.

There are several reasons suggested in this article for why financial literacy is not taught in schools. The fact that not many teachers have actually taken courses on teaching personal finance and that many of the others don't feel qualified enough to teach it are just some of these suggested reasons. Being forced by law to teach these classes with a lack of qualification would be detrimental to the learning of students, as they would be 'learning' incorrect facts.

Students also had some insight as to why financial literacy is not taught in schools -- Miss Qiu again said that 'there's no place for it. I mean, NCEA takes over most of the curriculum. The conversation about financial education should be had between friends or parents and their kids?' Mr Ashworth had similar opinions on the subject, suggesting that schools were to lazy to teach it or that it was unrequired by the curriculum.

Another key argument put forward is that there is simply not enough money to teach financial literacy as a subject without removing money from the budgets of other subjects.

'In an increasingly difficult economic marketplace, consumers must be relied on to make well-informed financial decisions ... financial illiteracy is widespread even in well-developed economies' (as this paper states).

As discussed in this article, that would mean consumers must become more financially literate. Therefore, some form of financial education should be provided in schools. This would help students to cultivate better spending and saving habits, and therefore make better economic decisions. Promisingly, in 2011, the Australian Securities and Investments Commission launched a National Financial Literacy Strategy, which aimed to improve Financial literacy in Australians.

So, the twenty-five economics students in that period five class are probably more financially literate than most of the country -- with fewer than 260 schools (out of 2,600; this number includes all schools in NZ, public, private, primary and secondary) fully integrating financial literacy education in their curriculum. Along with these figures, questions of teacher qualification lead to two potential solutions; students have to be willing to try and work out these things by themselves, or specially trained teachers can teach the students financial literacy.

Ultimately, whether or not the financial literacy program suggested to be implemented at MRGS comes to fruition, financial knowledge and awareness needs to be enhanced. This applies not only to MRGS, but also across the country. This could mean simply discussing it with family and friends or having properly taught classes. In this case, anything is better than nothing.