To Flore-Anne Messy, executive secretary of the OECD’s International Network on Financial Education, there are two ways for policymakers to look at financial literacy. “It’s the glass half-full, or the glass half-empty argument,” she suggests.
One way involves considering the costs to societies and economies of a lack of understanding — costs that have been highlighted by the pandemic. According to the National Financial Educators Council in the US, for example, US citizens estimated that a lack of financial knowledge cost them an average of $1,634 in 2020.
But the other way is to consider the benefits of understanding how money works. Messy says these include “better health, less stress . . . On a macro level, there is the economic potential from a population that is financially literate, a better functioning financial market, a bigger market, bigger pension savings, a lower level of debt, or debt better managed. It has a real benefit for governments and the economy.”
And, in recent years, both arguments have led policymakers to put a growing emphasis on financial literacy, particularly to tackle the adverse effects of a lack of understanding on women, children, and other vulnerable groups — such as those with low incomes or limited technological knowhow.
Late last year, the OECD released a formal Recommendation on Financial Literacy, to “assist governments, other public authorities, and relevant stakeholders . . . to design, implement and evaluate financial literacy policies”. From May 2020, more than 70 countries across the world were creating or already implementing national financial literacy strategies, the OECD said.
However, in a 2020 OECD survey across 26 countries from Asia, Europe and Latin America, only 26 per cent of adults answered questions on simple and compound interest correctly. In the same survey, in a series of questions where full marks indicated a basic knowledge of financial skills, behaviours and attitudes, respondents scored less than 61 per cent on average.
Private organisations and charities across the world are now working to improve these statistics. Many are trying to effect change from the bottom up, working with children and young people (the FT has recently launched a foundation to improve money management skills for the most vulnerable groups, specifically young people, women, migrants, and black, Asian and minority ethnic communities).
“The challenge has really been to add it in at school, because if you don’t, people have to learn it themselves,” says Annamaria Lusardi, founder and academic director of George Washington University School of Business’ Global Financial Literacy Excellence Center.
Lusardi says governments and education systems can be reluctant to change, and have resisted many recommendations. “This is really going to hold back a generation,” she warns.
In the UK, financial education has been part of the national curriculum since 2014, but its application is varied. In many schools, it is not taught comprehensively. “Half of young people in the UK say they don’t get any financial education even though it’s on the national curriculum,” says Steve Korris, a founding member of financial education charity MyBnk.
MyBnk works with young people in schools and youth organisations to plug the gap. In one project, about 1,000 people aged between 16 and 25 living in care or sheltered accommodation joined a programme teaching financial and digital skills relating to living costs, such as rent and bills.
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The project conclusively improved rates of youth homelessness. Independent evaluators found participants were three times less likely to have unsustainable debts, and there was a 64 per cent drop in evictions among those previously at risk of losing their homes.
In the US, Tanya van Court, the founder of Goalsetter, a debit card and savings app, is trying to break the “barbed wire” around financial terms by teaching young people using memes, popular culture and games.
Looking to understand diversification? Consider the hypothetical investment options of the pop singer, Rihanna: should she invest all her money in her own beauty brand, Fenty Beauty; a competitors’, or a mix of the two?” Van Court says.
Goalsetter aims to counter the idea that giving a teenager a debit card makes them financially literate or responsible. “I thought that was hogwash,” she says. “Teaching kids how to send and spend money is not financial literacy.” But she is hopeful the pandemic has increased the urgency of her programme and others around the world. “I am really optimistic about the growing awareness of it,” she says.