Financial Literacy in Schools Is More Crucial than Ever — Here’s Why

Achieving financial literacy is still a global challenge. According to the OECD/INFE 2020 International Survey of Adult Financial Literacy, only about half of the adults worldwide (52.5%) are financially knowledgeable. Given that we live in the information age, this number may cause us to wonder what is going on with financial literacy in the educational system around the world.

Money is associated with every aspect of our lives. We use our money to buy a fresh cup of coffee, pay electricity bills, pay rent or buy houses, and build roads we use every day (with money from our taxes). Therefore, it is rather concerning that many people are unprepared to face the rapid changes in the financial landscape, especially after the inflation has been surging at an unexpected rate this year.

Financial literacy is more than just understanding taxes and ways to gain income. To simply explain the term, we can categorise financial literacy into five main aspects.

5 Core Competencies for Financial Literacy

1. Earning - income streams (traditional fixed income, passive income, etc.)
2. Spending - budgeting and taxes
3. Saving - different types of banks, funds, and investing
4. Borrowing - loans, credit cards, managing debts
5. Protecting - frauds and insurance

These five cores cover all of the basic financial skills everyone needs to have to decrease the chances of being in high debt, mortgage defaults, or insolvency.

And here are why schools should partake in educating children on the essential aspects of financial literacy, specifically before graduating.

3 Reasons Why Schools Should Teach Kids about Money

1. Prepare for College (and for life)

Despite the fact that many college students still rely on their parents' financial support, they begin living independently and must budget their allowances. Then right after the stressful and busy academic years, they need to start their first job and be financially responsible.

Budgeting for college students and first jobbers becomes more crucial, especially when we consider that, in the U.S. alone, the overall student loan debt skyrocketed to $1.7 trillion this year. This means that these young people must be experts in budgeting their first income for their living expenses and for paying their loans.

Though not everyone is in debt right after graduation, many people begin taking a part-time job at the age of 16-18 when they are in high school. Likewise, the salary of fresh graduates does not tend to be very high. So, it is only reasonable to prepare them to manage their income and learn how to spend the fruit of their hard work wisely.

It would be challenging to learn personal finance while managing all these stressful problems. Personal finance is not actually learnt until you put strategies into action and go through trials and errors. Therefore, the advantage of knowing about finance before attending university is to start a life with fewer debts and with a clearer plan and direction.

2. It’s Not Only about Them

Kids are the future of a country. You don’t want to leave the nation in the hands of people who do not know how to pay their own taxes, do you?

Planning for finance became more and more important, especially with the COVID-19 recession forcing more than millions of people into unemployment. Having financial literacy does not only mean knowing how to save but also how to invest. Investing creates stability for individuals. They will have savings if they lose their job or more money for retirement.

Investing can also create job opportunities as companies may use funds from investors to work on new projects that require more hands to complete. It ensures steady GDP growth in the country, which will lead to less homeless rate, less unemployment rate, and less poverty rate. Furthermore, the less money spent on these matters means the more money distributed to education, public transportation, and healthcare.

Hence, to achieve economic growth, governments must not only promote investing campaigns or distribute bailouts and subsidies. They should also start to regulate financial literacy as mandatory lessons for children and young adults.

3. If Not in School, Then Where?

Some argue that, unlike maths or history, everyone’s financial problems are unique and of their own. So, could it be that teaching finance in educational institutions may not be the answer?

Financial issues may be personal, but it does not mean that every household would have the resources readily available. If a kid is lucky enough, they will have a good role model who is well equipped with the proper knowledge and time. But given that some families are still burdened by unsustainable debt, leaving financial education to every parent may not be the best decision.

Jayne Pearl, the author of "Kids, Wealth and Consequences: Ensuring a Responsible Financial Future for the Next Generation", explained in an interview with CNN that parents often avoid giving kids financial conversation due to the fear that they are not an expert and may not leave a good impression on their children. Therefore, the only place kids can rely on is school, where they spend most of their time learning vocational skills.

Moreover, personal finance is not so personal that educational institutions cannot generalise and develop a foundation that is suitable for every student. Nowadays, some countries have begun to mandate financial literacy courses. For instance, the U.K. started to regulate personal finance as a mandatory course for students in 2014. While Norway, the country ranked first as the country with the highest percentage of adults with financial literacy (71%) in The Standard & Poor's Ratings Services Global Financial Literacy Survey (FINLIT), made financial literacy compulsory earlier in 2009.

Challenges with Financial Literacy in Schools

Financial literacy remains a challenge even for developed countries. In the U.S., an additional 2 states introduced financial literacy in schools in 2022, making the total 25 states where children have more access to financial education before graduation. This may sound nice unless, from 2011 to 2022, the number of states providing personal finance education has only climbed from 22 to 25 (only 3 additional states in 11 years!)

In some developing countries, like Thailand, finance might be one of the lessons taught alongside social studies, but personal finance is not thoroughly explained to students. This could potentially lead to hardship in managing their day-to-day expenses when they grow up.

To make matters worse, even in countries where financial education is accessible, the lessons taught do not always meet students' needs. To elaborate, it is good news that 73% of young people (15-16 years old) in England reported receiving personal finance education in school. But up until the age of 18, more than half (62%) of young adults from the same survey stated that they had not yet learnt about taxes from classrooms.

Even if the situation is severe, there is no such thing as “too late” for starting to make changes. Initially, the improvement of financial literacy may leave just a small impact on the children. However, from this new beginning, the improvement will progressively have a greater impact on the nation's financial well-being.

Financial literacy alone might not end the world’s poverty. Still, it will shield our future working adults from making terrible decisions and falling victim to financial exploitation.