Financial literacy programs need to get real

Dec 26, 2016 by

Rachel Kurzyp –

My mother used to say: ‘You have to have money to save money’. And for the most part, she was right. But this isn’t the standard advice young Australians are given at school.

Most young people grow up hearing that if you spend less money than you earn, and save a nice percentage of your earnings each week, all your financial problems will be solved. While that’s nice in theory, our financial literacy programs are just that; theory.

The National Financial Literacy Strategy 2014-17 defines financial literacy as ‘the combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve wellbeing’.

Put in action, financial literacy means individuals are able to ‘understand and negotiate the financial landscape, manage money and financial risks effectively, and pursue and attain financial and lifestyle goals’. It is a core skill and, thanks to increasing tertiary education costs, rising job insecurity and high housing costs, it’s a skill young Australians need to master earlier than their parents did.

This is why the Australian government developed its National Financial Literacy Strategy and the Australian Securities and Investments Commission (ASIC) MoneySmart Teaching program, which aims to integrate consumer and financial literacy education into the school curriculum.

The program is designed to help young adults become more ‘financially responsible‘ by providing ‘financial knowledge’. But is knowledge enough? Especially when we know there is a large gap in financial literacy between young people from the most advantaged and disadvantaged backgrounds.

The 2014 ANZ Survey of Adult Financial Literacy in Australia found that groups with the poorest financial awareness and skills are those under 25; those with no formal post-secondary education; those on low incomes and working ‘blue collar occupations’, and women.

While it makes sense to provide these groups with financial information on home loan interest rates and superannuation, this advice wouldn’t have helped my mother. Especially when she had to decide between buying groceries for the week or getting the car serviced, knowing full well that by delaying the service she would be doing further damage to the car and, therefore, the bill from the mechanic would be more.

“Teaching people to make sound financial decisions from a place of relative financial security is one thing. Teaching people how to make decisions based on real-life scenarios with no ideal financial solution is another lesson altogether.”

It’s a fact that people with low incomes pay more for everyday staples and services — from toilet paper to bank fees to car insurance — because of personal circumstances often associated with lower economic status such as renting their house instead of owning. Even with extensive financial knowledge, a large percentage of Australians still wouldn’t be able to attain their lifestyle goals due to our complex financial systems. Teaching people to make sound financial decisions from a place of relative financial security is one thing, however, teaching people how to make decisions based on real-life scenarios with no ideal financial solution is another lesson altogether.

But this is only half the problem. According to the2013 National Financial Literacy Strategy — Background Report, attitudes and beliefs about money, as well as confidence levels, influence people’s knowledge and understanding of financial matters. Yet, little time is being devoted to teaching students how to avoid financial problems and break the cycle of debt.

Red, final notice reminders were commonplace on my fridge, hidden among the finger paintings and birthday invites. As were my mother’s friends who’d drop by to return the $20 they’d borrowed for a layby payment, or to lend my mum money to pay the electricity bill before the power was turned off. Being in a constant state of debt was unavoidable and even accepted.

Individuals who fall behind financially often turn to payday loans not because they think it’s a sound financial decision but because they have no other choice. Their financial options are limited because they are unable to qualify for a credit card or personal loan. But they can qualify for payday or interest-free loans that have been designed specifically to take advantage of this fact. Without a greater availability of low-cost financial products and services, people are left with two options: payday lending or emergency relief services. Breaking this culture of financial debt and dependency is difficult, especially when financial literacy is focused on explaining how things work and not where to access information to help make the right decisions.

Financial confidence comes not from having a bank account but from being in control of one’s own finances. An individual’s ability to make the most of their money, manage financial risks and avoid financial pitfalls not only has a positive impact on their financial wellbeing but also on their families and communities. This is why we need to rethink what it means to be financially literate. Our national financial literacy program needs to shift the focus from individual ‘responsibility’ to ‘capability’, and from theory to real-life examples that don’t reward students for reciting terminology but empower them to use their money to improve their wellbeing.

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