They say that education prepares you for later life. For many sleep-deprived teenagers staggering through the corridors on a Monday morning, this is the sole motivation to learn — the hope that upon graduation, they will be equipped with the tools and wisdom necessary to navigate the intimidating minefield of adulthood.
So it is expected that the education system, from the work of individual teachers to the coordination of national education policy, strives to do students a service by creating curricula that actually achieve this goal.
However, in one key aspect of teaching life skills, some governments are failing.
When I started at the 1,800-strong high school in the United Kingdom where I am currently studying, I found that the majority of my peers had part-time jobs alongside their studies. Leon Riley, Principal at John Leggott College, expects the number of young people employed to have increased due to the Covid-19 pandemic: “There are lots of students working 40+ hours in lockdown, mainly in supermarkets,” he told me.
Even though the responsibilities of financial independence are delayed for students without part-time jobs alongside their studies, the basics of saving, budgeting and debt management will inevitably become a fact of life for all young people, whether they have been taught the skills to manage them or not.
“While illiteracy makes one’s life uncomfortable, financial illiteracy makes one’s survival impossible.”
Alan Greenspan, former Chairman of the Federal Reserve
Despite the clear necessity of these skills, school curricula in most countries lack a comprehensive approach towards financial education. In my experience as a student, lessons on budgeting and compound interest are few and far between. I’m not the only one; the 2019 Young Persons’ Money Index (YPMI), a yearly report examining the financial capability of young people in the U.K., states that 82% of students want to learn more about money and finance in school.
The same is true for economic education. Economics is a crucial subject, impacting our everyday lives and dominating the news at elections. Despite this, Ross Cathcart, Organizing and Membership Manager at Rethinking Economics, an international network of students and academics striving to promote pluralist economics in the classroom, states that “Economics is not grounded in people’s real experiences. [In schools] it’s quite a scary, exclusive subject which many students don’t feel confident talking about.”
This is by no means a problem confined to the young people of virus-stricken England. Financial illiteracy threatens to leave people around the world prone to predatory lending, poor retirement planning, and crippling debt.
Economic illiteracy creates significant information asymmetries that prevent voters from making truly informed decisions when they head to the ballot boxes. This is an international problem, with governments globally approaching it in different ways.
This article will begin by looking at five countries’ financial education policies before noting some key takeaways, and then discussing the growing issues around economic education.
The U.K. government introduced financial education to the national curriculum in 2014. As a result, the 2019 YPMI states that twice as many students of High School age now report access to financial education (from 29% in 2015 to 64% in 2019).
The same cannot be said for primary schools (the U.S. equivalent of elementary and early middle school). Primary schools in England are not subject to the same curriculum as secondary schools, for which financial education of some form is mandatory.
Financial education is rarely taught independent of other subjects in the United Kingdom. According to the Money Advice Service’s survey of English secondary schools and colleges, 96% of schools integrate this material into existing subject lessons, such as Math, PSHE (Personal, Social, Health and Economic Education), and Business Studies.
However, Dominic Vallier, Head of Financial Capability Relationship Managers at the London Institute of Banking and Finance (LIBF), highlights Wales as “a real success” with regard to the way it has used its devolved powers (powers transferred to the constituent countries of the U.K., giving them more autonomy) to embed mandatory financial education in the curriculum in both primary and secondary schools. Some 9% of Welsh students receive dedicated personal finance lessons sponsored by the Principality Building Society.
Although teaching financial education is firmly part of the national strategy in the U.K., this has not translated into all students benefiting. The national curriculum only applies to state schools managed by local councils, and academies (independent schools which get their funding directly from Westminster rather than a local council) which closely follow the national curriculum. As a result “Students who don’t attend state schools or academies are much less likely to have access to financial education in school (47% say they still don’t have any access)”, said Catherine Winter, Managing Director at the LIBF.
The task of coordinating school curricula is largely delegated to the individual states in the U.S., leading to significant regional differences in the way financial education is administered. This contributes to inequalities in financial literacy between high school students across the nation. In tests administered by PISA (the Programme for International Student Assessment), 45% of students in higher-income schools were top performers, compared to just 3% of students in lower-income schools.
National delegation of curriculum-setting has a part to play in this, as traditionally poorer states such as New Mexico, which ranks 48th in state per capita income, require financial education courses be offered — but do not feature financial education in their standards to ensure consistent delivery state-wide.
Given current developments, it is worrying that provision is not universal. In the Council for Economic Education’s 2020 ‘Survey of the States’ Report, it is highlighted that “With the rise of student loan debt, there is concern that student borrowers are not fully informed when making decisions about how much to borrow and from where”. The increasing desperation of students struggling to meet repayments has led to the rise of student loan scams, promising lower repayments for an upfront cost. These have already cost students $95 million in fees.
However, it should be noted that there have been marked improvements in financial education provision in recent years. The aforementioned report states that there has been a “notable increase” in the number of states mandating students take standalone or integrated personal finance courses (in total, 21 states now do so.)
The U.S. also recognizes April as ‘National Financial Literacy Month’ in a bid to encourage families and young people to establish and maintain financial responsibility in their lives.
In many cases a lack of confidence and support from teachers towards teaching this content can hinder efforts to widen access to financial education — there have been many compelling initiatives targeted towards resolving this issue. For example, in 2009 researchers carried out a study in Eastern Kentucky wherein teachers were given a $250 stipend in return for teaching students in elementary, middle, and high schools a predetermined personal finance curriculum featuring saving, spending and credit, and money management. The results were conclusive — there were statistically significant improvements in personal finance knowledge across the K-12 spectrum.
There are also private non-profit initiatives such as Jump$tart, which work to provide professional development courses for teachers to increase their confidence teaching personal finance, with a view to making them more inclined to provide this education to their classes. Successful projects such as these could have even greater benefits if implemented on a universal scale.
China has historically scored very highly in financial literacy assessments. In the 2015 PISA assessment of financial literacy, 15-year-old students in the regions of Beijing, Shanghai, Jiangsu, and Guangdong (B-S-J-G) in China ranked 1st of all 15 countries that participated. There are a number of reasons for this success.
There has been substantial government backing behind financial education since the 1990’s, with money management topics being included in the national curriculum for primary and secondary schools since then. However, since 2001, the Chinese government has given more independence to regions, districts, and individual schools to alter the curricula students within their remit are taught. This change aims to take into account local backgrounds, engaging students through a syllabus personalized to the financial challenges they encounter on a daily basis.
China also dedicates the month of September to educating citizens about the topic. During this month, government agencies, alongside private entities, promote financial literacy to families (recognizing the importance of parents in educating students) and teach different topics within the sphere of financial education.
Like the U.S. and the U.K., China predominantly teaches financial education through integrating it in other subjects. For example, calculating a firm’s revenue and the interest to be paid on a loan are concepts taught in math classes.
China emphasizes making prudent investment choices in its financial education. For example, much focus on last year’s financial literacy month was set on making ‘rational investments’, and the national Chinese Regulatory Securities Commission (CSRC) has recently started offering optional “investment education” to primary and secondary school children. Even Chinese elementary school textbooks are expected to teach definitions of terms such as “price-to-earnings ratio” or “buy and hold”.
This campaign to improve awareness when investing has been driven partly by a recent uptick in the incidence of loan and investment scams in the country, with some Chinese reportedly committing suicide after losing tens of thousands of dollars to fraudsters. The hope is that educating children to be wary of these risks will help to curb future such incidents, as children convey their new-found knowledge to their parents and family relatives.
France has historically performed poorly in PISA financial literacy examinations — students in France scored below average of the 13 OECD countries and economies that were assessed in financial literacy in 2012. Since then, authorities have taken a bold stance to improve financial literacy nationwide.
Since 2016, Banque de France, the French central bank, has been responsible for harnessing the power of public and private sector intervention to coordinate France’s financial education strategy.
Examples of its work include partnering with the Ministry of Education to develop joint teaching resources for schools to aid teachers in planning and delivering lessons, as well as public outreach, both physically (through the ‘Cité de l’économie et de la monnaie’ (Citéco), an interactive museum in Paris aiming to improve financial and economic awareness, particularly among young people), and digitally, through websites such as the ‘ABC of economics’ which simplifies concepts and provides teaching material for children and families.
The private sector has also played a notable role in outreach programs, such as “Un banquier dans ma classe” (‘a banker in my classroom) — an initiative inviting bankers to schools to talk about finance, and “Finances et Pédagogie” (“Finance and Education”) — an association set up by the Caisses d’Epargne (a retail banking company), intended to raise awareness and provide training on the use of money.
Brazil is at a relatively early stage with regards to implementing financial education in schools, having carried out numerous test pilots to test the effectiveness of different curricula. Through these pilots, Brazilian authorities have developed a clear idea of what their financial education needs are. The country plans to create ‘generational behavior change’ and make citizens more aware of financial issues. They plan to do this by inserting financial education concepts into Portuguese, mathematics, sociology and history classes.
There will also be an emphasis on both ‘space-related’ goals (involving improving social awareness and encouraging responsible consumption and saving), and ‘time-related’ goals, advising students on how to plan responsibly and make decisions in the short-, mid- and long-term.
Looking at these countries’ challenges and policy responses relating to financial education, there are several conclusions all countries can learn from to develop a more effective financial education policy.
Make financial education mandatory
Although optional financial education is without a doubt a step forward in the right direction, for financial education to be truly impactful for students, it should be made a mandatory subject.
Many students, given the choice to study financial education, will likely turn this option away. This is either due to a lack of knowledge regarding what these courses entail or due to an (understandably) popular decision to value subjects that seem more compelling today (such as coding or robotics) without considering the potential value of the knowledge acquired in later life.
In both cases, students do not necessarily understand the real importance of taking a personal finance course. But should they be punished several years down the line for this when they tremble over their first tax return? It should be the responsibility of schools to ensure no child is left clueless when they consider taking out a pay-day loan — and mandatory financial education is the answer.
Make financial education a standalone subject in students’ timetables
In the YPMI Report, 60% of U.K. students surveyed would like it to be a separate subject, as opposed to it being included in math, economics, PSHE or citizenship. By making financial education a standalone subject schools give it the importance it deserves. This also forces students to spend dedicated time considering issues of personal finance without considering it a minor detail within the sphere of a broader subject, such as math or PSHE.
As with making financial education mandatory, making it a standalone lesson is part of ensuring that the information disseminated makes a real impact to the way students choose to lead their financial lives.
Vallier said, “Personally, as a parent and an ex-teacher of 15 years, [financial education] does need to be a dedicated lesson. … Giving it dedicated time gives it a focus. Like when you go to an Economics lesson, you know it’s Economics. You had your one-hour lesson focusing on finance and budgeting.”
Morph financial education around local and national contexts
Most countries have significant issues relating to personal finance that concern most, if not all, young people. In my own country, the U.K., this issue is without a doubt student debt. In the U.S., student loans and planning for retirement take precedence. In India, it’s saving responsibly. There is a compelling argument for making these nation-specific issues a large part of financial education courses. Doing so allows students to realize first-hand the usefulness of financial education by setting it in the context of the country, region, and community they live in.
However, there is still a need to adopt a broad curriculum that teaches students the basics of personal finance, saving, budgeting, and other concepts. Solely focusing on financial problems that have specific importance in national contexts can be counterproductive. This is shown explicitly in the concluding remarks of a 2016 study determining the effects of school-based financial education on financial outcomes in Brazil. The results of the 440-school-wide project showed that although students who received the financial education were more likely to save, budget responsibly, and make prudent independent financial decisions, some students were also more likely to borrow using expensive credit cards and fall behind with credit repayments.
The researchers attributed this unexpected result to the lack of discussion around purchasing responsibly, credit cards, or installment options. In other words, the focus on saving and budgeting was a double-edged sword. Governments should, therefore, ensure that a comprehensive syllabus is taught to avoid these unintended repercussions.
Teach financial education from an early age
Ensuring children are exposed to financial education lessons from an early age is critical. Vallier says that
“It is scientifically proven that if you speak to young people from the age of seven, they want to know how to handle money and enjoy money. So, at seven years of age, that’s when you can start teaching [financial education].”
Starting early also increases the likelihood of parents who may not be financially savvy learning from their children about how to avoid risky investments and loan sharks. The Brazil study mentioned earlier offers an empirical basis for this claim, as the financial education administered to the students was also seen to have “significant spillover effects” on parents.
Make sure people around the student are all involved in delivering this education
We must also devote more attention to the people around students who contribute to their education; namely teachers and parents.
To enable teachers to deliver high-quality instruction and adequate training, incentives are required to make teachers willing, able, and passionate about financial education. Confidence is also key — Vallier highlights that the majority of teachers teaching the LIBF’s Lessons in Financial Education (LiFE) are not experts in personal finance, so ensuring teachers are confident to answer questions on personal finance is vital. He continues, “You don’t need to be a financial advisor or an expert to deliver [financial education], with the right support and training and materials.”
A growing body of research shows that parents also play a critical role in a child’s education, which is why ensuring parents are equally au fait with the content their children are learning is essential for reinforcing a student’s understanding of the subject matter. Therefore, adopting a financial education month, like China or the U.S., could be one way of encouraging this desired parental involvement in a child’s financial education.
Beyond personal experience — economics for young people
In addition to financial education, which revolves around educating individuals to make more informed personal financial choices, there is also the opportunity for teaching broader comprehension of the economies and societies we live in.
In many ways, this larger world shapes and influences the financial decisions we make on an individual level — governments determine the level of tax we pay, whether domestic exporters will benefit from free trade deals with other nations, and whether to adjust minimum wage levels.
When the time comes for the public to vote for which Government they prefer, many of the main headlines are economic: “Where are taxes headed?”, “How will public spending change?” among many others.
Every time there is an election the public has the responsibility of determining the future economic path of the country. Are all citizens adequately educated to make an informed decision on these matters? I would suggest not. As with financial education, there is still a lack of economic education, and this leads to students being under-prepared for adult life (and specifically, informed voting) when they leave school.
In a 2016 poll asking the U.K. public if they felt that “politicians and the media talk about economics in a way that is accessible and easy to understand”, only 12% answered in the affirmative. Many of my peers (future voters in four years’ time) who don’t study economics wouldn’t be able to explain the difference between a progressive and a regressive tax.
Cathcart highlights that “if the purpose of education is to build people into adults that have an awareness and an understanding and the critical faculties to look at the world around them and be able to make an informed decision, and understand, for instance, what their vote is going to provide for them or the people around them, the absence of economics from [early education] is really problematic.”
François Villeroy de Galhau, the current Governor of the Bank of France, states that a lack of economic education represents a challenge to democracy:
“Providing our fellow citizens with the keys to understanding complex economic debates is a matter of respect. There’s no use in complaining about “populism”, … if we can’t provide the “people” with the ability to ask the right questions and then evaluate the answers.”
“Economic literacy is crucial because it is a measure of whether people understand the forces that significantly affect the quality of their lives.”
Gary Stearn, former chief executive of the Federal Reserve Bank of Minneapolis
Despite being arguably more critical, access to economic education is even more limited than financial education. Ali Norrish, head of Research and Schools at Economy, a sister organization of Rethinking Economics, believes that this is partly due to a misunderstanding of the nature of economic education, as “most programs which claim to address economic literacy limit themselves to the financial literacy sphere”.
Clearly, there is a need for a broader roll-out of economics education covering principles such as taxation, the labor market, and trade, allowing the public to better hold their governments to account. With the Covid-19 pandemic upending the global economy and leading to yet more economic uncertainty following Brexit and the ongoing U.S.-China trade war, it is more important than ever that the young people of today are equipped with the knowledge to understand the economic consequences of such policies, enabling them to guide their countries through precarious economic waters every time they head to the ballot box.
Although incorporating financial and economic education into school curricula may seem like an unprecedented task, policymakers have shown recently that such change is possible. Computer science education, for example, has developed rapidly over the past few years. Responding to calls to make the curriculum more relevant, the U.K. government made Computer Science education mandatory for all students aged 5 to 16 in September 2014.
Private initiatives have successfully filled gaps left behind by the state — Girls Who Code U.K. is a non-profit organization working to close the gender gap in technology by teaching girls computer science through out-of-school programming clubs. Its more established ventures in the U.S. have reached 185,000 young women.
There is no choice to be made here. If countries want to preserve the central purpose of education, they must adapt curricula to give financial and economic education the importance they deserve.
Only then can one say that education truly prepares you for later life.