The financial education deficit

07 May, 2020Charlotte Fry

Charlotte Fry was highly commended, in the 16-17 age group in this year’s Young Financial Journalist competition for this essay, which outlines why young people need financial education. 

pile of silver coins with clock in backgroundA hedge fund is the money that you save for neatening your garden. The stock market is where people go to deal oxo cubes. Gross interest is when the weird kid is into you. Liquidation is when you take ice out of the freezer. Stamp duty is speaking to your local philatelist.

For many young people, these definitions are as good as anyone’s! I can’t recall these terms coming up in my secondary school education. Some argue that lessons in finance are extremely uninteresting to pupils and reduce their precious lesson time for subject studies.

It’s time for a radical suggestion. Perhaps teenagers are not in fact that interested in entering the real world bewildered, unenlightened and downright baffled by how to handle money. Perhaps teenagers are not that interested in driving themselves into crippling debt because they don’t understand how credit works.

Perhaps teenagers are not that interested in stagnating rather than investing, because they are in the dark about the returns they could be generating. The most severe financial issue facing young people today is the pandemic of financial illiteracy, and it won’t be many years until the symptoms manifest with dire consequences. 

What is financial literacy?  

The Organisation for Economic Co-operation and Development defines financial literacy as "a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing” (OECD, 2011).  

The Financial Industry Regulatory Authority issues a five-question test as part of is National Financial Capability study, which measures consumer’s knowledge about interest, compounding inflation, diversification and bond prices. And what percentage got all five right? 37% (Investopedia, 2019).  

Furthermore, as stated in the Swiss Journal of Economics and Statistics, the world is in fact ‘flat’, in that income levels or ubiquity of more complex financial products do not themselves equate to a more financially literate population (Swiss Journal of Economics and Statistics, 2019). Indeed, this a global issue.  

So, why should we care about the deficiency of financial literacy in the 21st century?

Empirically, financially savvy people are more likely to accumulate wealth, avoid debt incurrence, plan effectively for retirement and be better positioned to weather a shock.  

In recent years, it has become even more prudent to have an educated population that, in their understanding of finance, really have their heads screwed on.  

A significant change the 21st century has brought is the development of financial technology – or fintech – that is transforming the financial behaviour of young individuals.  

There’s a much darker side to these convenient, effortless modes of transaction. Young people are overextending credit and spending far more than they earn, whilst simultaneously being inundated with credit opportunities.  

A combination of oblivion, vulnerability and temptation – the perfect financial storm.  

We are bombarded by far more complex options in terms of the financial products that are offered. From mortgages to credit cards to mutual funds to annuities – all offering varying interest rates and maturities – it’s increasingly difficult to select the best option for your financial wellbeing.  

And, I think you’ll agree, it’s particularly difficult if you barely even know what those words mean!  

There is a myriad of different companies and services all hunting and scrounging for assets. We are navigating far more expansive and far deeper financial waters. So let’s prevent young people from jumping off the plank with a blindfold still on. 

Lack of financial understanding has been signalled as one of the main reasons behind savings and investing problems. If we really put in both the effort and the funding, we can push against the current.  

By truly informing our next generation of consumers, labourers and citizens, we are pushing for a more stable and economically progressive society.  

It should be provided and emphasised in all schools to create solid grounding from an early stage before individuals make consequential decisions. Substantial investment is needed for expert-led programmes as opposed to being pushed to the back bench.  

It cannot be that people just pick up dribs and drabs of information if they happen to study maths or economics. All young people’s understanding needs to be tested and nurtured – it could potentially become a core subject.  

In the dynamic, volatile economic climate we live in, we need to embark on implementing sustainable solutions to this issue. 

‘Hedge funds’, ‘stock markets’, ‘gross interest’, ‘liquidation’, ‘stamp duty’ – all words from a language many young people simply don’t understand. But as they blindly lose out on investment opportunities, pay for high interest products and spiral into debt, they’ll really be wishing that they did. 

Charlotte Fry 
Charlotte Fry was highly commended for this essay in the 16-17 age group of our 2019/20 Young Financial Journalist competition, which we run in partnership with the Financial Times. She is currently studying for her A'Levels at The Tiffin Girls’ School, Kingston-upon-Thames.


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