{"id":5876,"date":"2020-07-27T11:55:52","date_gmt":"2020-07-27T15:55:52","guid":{"rendered":"https:\/\/cointelegraph.com\/magazine\/?p=5876"},"modified":"2020-07-27T11:56:23","modified_gmt":"2020-07-27T15:56:23","slug":"investment-knowledge-financial-education","status":"publish","type":"post","link":"https:\/\/cointelegraph.com\/magazine\/2020\/07\/27\/investment-knowledge-financial-education","title":{"rendered":"An Investment in Knowledge Pays the Best Interest: The Parlous State of Financial Education"},"content":{"rendered":"

They say that education prepares you for later life.<\/strong> For many sleep-deprived teenagers staggering through the corridors on a Monday morning, this is the sole motivation to learn \u2014 the hope that upon graduation, they will be equipped with the tools and wisdom necessary to navigate the intimidating minefield of adulthood.<\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

However, in one key aspect of teaching life skills, some governments are failing.\u00a0<\/span><\/p>\n

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: \u201cThere are lots of students working 40+ hours in lockdown, mainly in supermarkets,\u201d he told me.<\/span><\/p>\n

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.<\/span><\/p>\n

\u201cWhile illiteracy makes one\u2019s life uncomfortable, financial illiteracy makes one\u2019s survival impossible.\u201d<\/p><\/blockquote>\n

Alan Greenspan, former Chairman of the Federal Reserve<\/b><\/p>\n

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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\u2019m not the only one; the 2019 Young Persons\u2019 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.<\/span><\/p>\n

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 \u201cEconomics is not grounded in people\u2019s real experiences. [In schools] it\u2019s quite a scary, exclusive subject which many students don\u2019t feel confident talking about.\u201d<\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

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.\u00a0<\/span><\/p>\n

This article will begin by looking at five countries\u2019 financial education policies before noting some key takeaways, and then discussing the growing issues around economic education.<\/span><\/p>\n

United Kingdom<\/span><\/h4>\n

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).<\/span><\/p>\n

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.<\/span><\/p>\n

Financial education is rarely taught independent of other subjects in the United Kingdom. According to the Money Advice Service\u2019s 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.\u00a0<\/span><\/p>\n

However, Dominic Vallier, Head of Financial Capability Relationship Managers at the London Institute of Banking and Finance (LIBF), highlights Wales as \u201ca real success\u201d 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.<\/span><\/p>\n

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 \u201cStudents who don\u2019t attend state schools or academies are much less likely to have access to financial education in school (47% say they still don\u2019t have any access)\u201d, said Catherine Winter, Managing Director at the LIBF.<\/span><\/p>\n

United States<\/span><\/h4>\n

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.<\/span><\/p>\n

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<\/em> income, require financial education courses be offered \u2014 but do not feature financial education in their standards to ensure consistent delivery state-wide.<\/span><\/p>\n

Given current developments, it is worrying that provision is not universal. In the Council for Economic Education\u2019s 2020 \u2018Survey of the States\u2019 Report, it is highlighted that \u201cWith 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\u201d. 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.\u00a0<\/span><\/p>\n

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 \u201cnotable increase\u201d in the number of states mandating students take standalone or integrated personal finance courses (in total, 21 states now do so.)<\/span><\/p>\n

The U.S. also recognizes April as \u2018National Financial Literacy Month\u2019 in a bid to encourage families and young people to establish and maintain financial responsibility in their lives.<\/span><\/p>\n

In many cases a lack of confidence and support from teachers towards teaching this content can hinder efforts to widen access to financial education \u2014 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 \u2014 there were statistically significant improvements in personal finance knowledge across the K-12 spectrum.\u00a0<\/span><\/p>\n

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.<\/span><\/p>\n

China<\/span><\/h4>\n

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.<\/span><\/p>\n

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.<\/span><\/p>\n

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.<\/span><\/p>\n

Like the U.S. and the U.K., China predominantly teaches financial education through integrating it in other subjects. For example, calculating a firm\u2019s revenue and the interest to be paid on a loan are concepts taught in math classes.<\/span><\/p>\n

China emphasizes making prudent investment choices in its financial education. For example, much focus on last year\u2019s financial literacy month was set on making \u2018rational investments\u2019, and the national Chinese Regulatory Securities Commission (CSRC) has recently started offering optional \u201cinvestment education\u201d to primary and secondary school children. Even Chinese elementary school textbooks are expected to teach definitions of terms such as \u201cprice-to-earnings ratio\u201d or \u201cbuy and hold\u201d.<\/span><\/p>\n

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.<\/span><\/p>\n

France<\/span><\/h4>\n

France has historically performed poorly in PISA financial literacy examinations \u2014 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.<\/span><\/p>\n

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\u2019s financial education strategy.\u00a0<\/span><\/p>\n

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 \u2018Cit\u00e9 de l’\u00e9conomie et de la monnaie\u2019 (Cit\u00e9co), an interactive museum in Paris aiming to improve financial and economic awareness, particularly among young people), and digitally, through websites such as the \u2018ABC of economics\u2019 which simplifies concepts and provides teaching material for children and families.<\/span><\/p>\n

The private sector has also played a notable role in outreach programs, such as \u201cUn banquier dans ma classe\u201d (\u2018a banker in my classroom) \u2014 an initiative inviting bankers to schools to talk about finance, and \u201cFinances et P\u00e9dagogie\u201d (\u201cFinance and Education\u201d) \u2014 an association set up by the Caisses d\u2019Epargne (a retail banking company), intended to raise awareness and provide training on the use of money.<\/span><\/p>\n

Brazil<\/span><\/h4>\n

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 \u2018generational behavior change\u2019 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.<\/span><\/p>\n

There will also be an emphasis on both \u2018space-related\u2019 goals (involving improving social awareness and encouraging responsible consumption and saving), and \u2018time-related\u2019 goals, advising students on how to plan responsibly and make decisions in the short-, mid- and long-term.<\/span><\/p>\n

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