The increasing complexity of our financial lives means it is more important than ever that young people are taught to be financially literate, as Sue Thomson explains.
As members of society we are required more and more often to make our own financial decisions, and young people today face financial issues at an earlier age than the generations before them.
For example, decisions about higher education, the need to be able to manage online payment facilities or even mobile phone plans require a level of financial literacy.
While the financial sector has grown increasingly complex, OECD research has shown that consumers generally overestimate their financial skills on the one hand yet show little interest in financial issues on the other.
Indeed, research by the OECD and the International Network on Financial Education indicates that the lack of understanding by households of common financial issues such as credit and investment played a key role in worsening the effects of the 2008-09 Global Financial Crisis.
The need for additional financial literacy education was recognised and endorsed by Australia’s ministers for education in 2011 and has since been incorporated into the Australian Curriculum.
One of the first opportunities to collect information about the financial literacy of Australian 15-year-old students, and compare that with their peers internationally, was during the 2012 Programme for International Student Assessment (PISA).
The supplementary PISA Financial Literacy assessment measured the knowledge of personal finances and ability to apply it to financial problems of more than 29 000 15-year-old students from 18 countries and economies.
Overall, Australian students set a high baseline mark, with a score of 526 points, significantly higher than the OECD average of 500 points. While only two other participating regions achieved higher than Australia, the results revealed scope to significantly improve the financial literacy of young Australians.
Sixteen per cent of Australian students were top performers, while 10 per cent were found to be performing at the lowest level of proficiency, a level at which they were only able to participate in a very basic way in financial activities. This level of skills and probably even those at the baseline of Level 2, achieved by 19 per cent of Australian students, are likely to impede students in making financial decisions in the future.
That 43 per cent of students in Shanghai-China achieved at the highest proficiency level, and just seven per cent at Level 2 or below, suggests financial literacy skills and knowledge can be taught, regardless of students’ socioeconomic background. ■
Read the full report:
Snapshots Issue 6, March 2015, ‘Financial literacy’ by Sue Thomson. < www.acer.edu.au/snapshots >