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Do you talk to your kids about finance?
By Kathryn Creasy
The meme that always makes me laugh (and I don’t know where it came from to give credit!) is the “I’m glad I learned about parallelograms at school instead of how to do taxes, it’s really come in handy this parallelogram season…”.
We learn so much great foundational knowledge at school – and I truly believe algebra has come in handy even though I hated it – but the one thing we aren’t taught, is how to manage our finances. Yes, many of us had a Dollarmite account with the Commonwealth Bank, and when they came to school we lined up to deposit our pocket money – so savings are instilled from a young age, but what about budgeting, interest rates, understanding loans, and the big one – tax.
I asked around for some insight into what the education system is lacking. A recurring theme is the understanding that credit cards aren’t free money, but there were a lot of ‘how to’ questions that aren’t addressed at school, how to:
- Get a tax file number;
- Read a pay slip;
- Use an offset account;
- Know when an interest rate is too high; and
- Know when bank fees are crazy and when they are reasonable;
Managing your personal finances, applying for loans, budgeting, saving – they aren’t difficult concepts but it seems that kids have been finishing school without understanding much more than what a basic bank account is, and the framework they require for making financial decisions is lacking.
This year ASIC has been going through a consultation process to update the National Financial Literacy Strategy for 2018, the last update having been released in 2014. The first proposal they are making is to change the language of the initiative to ‘financial capability’, to broaden the focus from understanding financial products, managing money and negotiating financial risks effectively; to encompass the context around financial decision making as well. They recognise that building Australia’s financial capability also needs to include reference to the cultural, societal and structural factors that affect the relationship people have with money.
There is a long way to go.
A study1 published by the OECD (Programme for International Student Assessment, PISA) in 2017 assessed the financial literacy of 15-year-old students from countries around the world. The focus was on their capacity to apply their learning to real life financial decisions and issues.
Whilst Australian students performed higher than the OECD average, Australia’s performance actually declined from the previous study in 2012. Further, 20% of Australian students in the most recent PISA study did not meet basic levels of financial literacy (for comparison, in Canada there was only 13% of students who didn’t meet the basic levels) 2.
Where to from here?
Programs are now being implemented in primary and secondary schools to address financial principles, and there are some pretty cool software solutions to introduce mini economies to classrooms so that kids can practice saving, investing and even spending by setting up online payments.
For your own family – the PISA study also gives insight into which students perform better, and that can certainly be motivation to talk to your kids about money rather than leaving it to the education system. The study found that students perform better when:
- They already have their own bank account (learning comes from experience).
- Their parents discuss money with them.
- They seek information on financial matters from parents rather than friends.
It seems the key to building financial capability for the next generation is education and experience, that needs to be fostered by the education system as well as around the dinner table, and it can’t just be limited to education on how to save. The context for making financial decisions and understanding financial risks needs to be built over time.
Lastly – if you don’t want a virus on your computer, teach your kids about scam emails! One of the test questions showed them a (scam) email asking them to provide their lost bank account details, and a majority of Australian students chose to click on the link provided instead of contacting their bank3.
Kathryn Creasy is a Private Client Adviser with Capital Partners, helping individuals and families lead richer and happier lives.
1 OECD (2017), PISA 2015 Results (Volume IV): Students’ Financial Literacy, PISA, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264270282-en
2 Thomson, Sue and De Bortoli, Lisa, “PISA 2015: Financial literacy in Australia” (2017).
3 Singhal, Pallavi, SMH 2017 “Australian 15-year-olds declining in financial literacy: PISA report” http://www.smh.com.au/national/education/australian-15yearolds-declining-in-financial-literacy-pisa-report-20170523-gwbqem.html
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