By Stephen Agnew*
Even as an economics student at university, I remember heading into town on a Friday night knowing what I needed to pay the bills before I could spend on socialising. But despite having the financial literacy to know better, Monday could still sometimes begin with a trip to the bank to ask for an overdraft extension.
So it was encouraging to hear that financial education has become a political talking point ahead of this year’s election. Both Labour and National are promising to deliver compulsory financial literacy classes as part of the school curriculum.
Labour’s proposed financial literacy programme would include the basics of budgeting, financial concepts and how to be good with money. It would also include explanations of interest rates, retirement savings, insurance, debt and borrowing.
And when Prime Minister Chris Hipkins said “it shouldn’t matter what circumstances you were born into, you should still be able to learn concepts to help you”, he was right. Improved financial literacy can only be a good thing for New Zealand.
With the country in a recession, New Zealanders are facing both ballooning debt and a legacy of poor saving. The average household debt in New Zealand is now more than 170% of gross household income. This is higher than the United Kingdom (133%), Australia (113%) or Ireland (96%).
And yet, researchers remain divided over whether financial education can actually have a positive impact on financial behaviour in the long term. In New Zealand and elsewhere, it seems factors closer to home have a greater influence on a person’s financial literacy than anything learned at school.
Education, borrowing and debt
One 2014 meta-analysis of 188 research papers and articles concluded financial literacy interventions had a positive impact on increasing savings, but had no impact on reducing loan defaults.
A second analysis of 126 studies, published in 2017, found financial education positively affected financial behaviour – but this had limits for lower-income families. Much like the earlier study, the researchers found borrowing behaviour was more difficult to change with formal education than saving behaviour.
An important caveat is that these analyses measured the short-term response to hypothetical questions, not long-term behaviour.
But even when examining the impact of financial education on short-term behaviour, researchers found it was difficult to influence how people handled debt. Compulsory financial education did not improve the likelihood of getting into debt, or the likelihood of defaulting on loans.
Financial literacy advocates give Labour policy thumbs up https://t.co/yuGBXJAgsP pic.twitter.com/1lwp1xOvyt
— 1News (@1NewsNZ) August 20, 2023
Home and financial knowledge
In his famous work on social learning theory, psychologist Albert Bandurra proposed that observation and modelling play a primary role in how and why people learn. They are particularly relevant to the development of financial attitudes, confidence and behaviour.
Specifically, young people learn from the financial behaviour modelled by their parents, discussions about money in the home, and from receiving pocket money.
It has been suggested the differences in how money and finances are dealt with in the home are linked to why women generally score lower on financial literacy quizzes, as do people from lower socio-economic backgrounds.
Parents’ education and their financial sophistication – whether they have stocks, for example – have been shown to affect their offspring’s financial literacy. Women are also found to have lower financial confidence, even when they have the right knowledge.
Did you learn enough about personal finance in school? 🧐
— Malala Fund (@MalalaFund) March 17, 2022
Young women in India, New Zealand and Nigeria sound off on how financial education — or lack of it — has affected their lives and share what needs to be done to close the financial literacy gap. https://t.co/DGcX8FSz9h
In a New Zealand study of over 1,200 young people aged 14 and 15, the age of the first financial discussion between parent and child was found to be an important influence on future financial knowledge, attitudes and intentions.
The study found boys, on average, had their first financial discussion in the home at a younger age than girls. The age at which these initial discussions happen influence a person’s financial literacy levels at tertiary education age and beyond, even accounting for other demographic variables.
These findings suggest the way parents talk and manage finances in the home may be subject to a gender bias, contributing to different levels of financial literacy – and confidence – between girls and boys.
So, as we consider adding financial education to New Zealand’s curriculum, it’s important to consider all of the factors that will feed into a student’s money literacy – and not just focus on test results in a classroom setting.
*Stephen Agnew, Senior Lecturer of Economics, University of Canterbury. This article is republished from The Conversation under a Creative Commons license. Read the original article.
15 Comments
Researchers remain divided over whether financial education can actually have a positive impact on financial behaviour in the long term.
Given how fat everyone has gotten, despite all the messaging and education about diet and exercise, one would have to remain fairly sceptical.
People need to be educated about how our monetary system works first as we are given completely the wrong information by our economists and who don't seem to understand it themselves.
They tell us that the banks lend out other peoples savings and that taxation and borrowing finance the governments spending and all of which is incorrect.
People need to know where the money for their savings comes from and why they may not have any savings and who they can then blame. It may not just be the fault of the individual for not being able to budget as there are much larger financial influences as work. Our deficit with the rest of the world and the governments fiscal balance all play a part and we can see this in operation through the use of sectoral balances. https://en.wikipedia.org/wiki/Sectoral_balances
So if we had two members of the public:
Person A: knows how monetary policy works, and who to blame
Person B: knows about compounding interest, savings, good vs. bad debt, personal budgeting, etc
Which one will have the best outcome? Person A has a greater excuse for their failures I guess.
People should be starting with basic skills before moving onto high concept mechanics.
Most people who eat a bit of kaka in life usually could've avoided their own situation, or it's just bad luck. The better ones learn from it, the rest fall back on scapegoats.
The average schmo is better off in a market with an elastic money supply than a fixed one.
The average schmo is better off in a market with an elastic money supply than a fixed one.
Unfortunately the sheeple have been brainwashed into believing this. They don't understand that the property bubble is largely about the money supply. It works until it doesn't.
A limited supply of money invariably ends up in fewer hands, and lower overall economic activity. The ability for the average person to improve their lot solely via bootstrapping the limited funds available to them in a fixed monetary system is significantly harder.
These are the kinds or articles that really irk me.
Academics pull out a piece of research (in this case one that the academic hints is a poor one) and say that we should/shouldn't be doing something. This is often supported by some pretty poor research studies (see replication crisis). They then either suggest that we should do more pieces of research/gather a panel of experts/do nothing rather than getting on with trying, reviewing, learning, adapting, trying again etc.
Academics always think that there is some magical piece of research out there that will tell them the answer and only after we have exhausted every possibly piece of research can we possibly consider trying anything. The world doesn't stand by waiting for perfect though. People in the real world have to come up with an idea, attack it from a few angles in an attempt to finetune it, then put it into the real world to see what happens.
Without needing to consult any studies, I don't think anyone would argue that in home education would be better than formal education. The problem is that the majority of people who are missing out on this at home education don't have the parent figures with the knowledge/skills to teach them this important life lesson.
Is there a proposed solution as to how you think that we could do this at home education in homes where the parents aren't equipped to deliver the education? If not, what was the point of this article?
Any chance we could develop some kind of international information transfer network ( shortened to inter net ) and build applications (shortened to apps) that access it to deliver curriculum so that knowledge can be passed on without requiring an expert in the home? Back in my parents day they did not teach quantum mechanics / quantum programming in any schools, this appears to have completely prevented anyone whose parents were not involved in quantum research from entering the field. Given the small (manageable) size of the total data set, it could be interesting to investigate the % of the current crop of quantum programmers who had a household expert in the field whilst they were growing up. It might show if having an expert at home makes any difference (maybe analyse the % of children of quantum programmers who themselves have become quantum programmers as well) ? It may turn out that requiring an expert at home is a cop out for laziness?
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