This article is a preview of a longer article and text that I am in the process of writing. I thought I’d just explain a little bit about what I’m thinking.
Financial education is in need of a shake up. New Zealand prides itself on being one of the top countries in the world for financial education programmes and financial literacy rates. According to results from the 2014 S&P FinLit Survey, New Zealand has a financial literacy rate of 61% — that is, 61% of NZ adults are financially literate. Lower than Australia with 64%, but still in the top bracket worldwide.
Does this financial education actually relate to the conditions that we find ourself in? This is the central question I’m asking myself, after the COVID-19 pandemic taught us a thing or two about instability, precarity, and rapid change without warning. We learned that having savings for months spent out of work is necessary to face a crises, and we also were forced to confront the fact that actually saving in the first place is not really that feasible for a large proportion of people, living day-to-day, paycheck-to-paycheck.
Here are some of the indicators that might point to the fact that we are on the wrong track with our financial education:
- Millennials are expected to be the first generation in quite some time to be less well off than their parents’ generation (the boomers). Studies in both the UK and US have pointed to this fact, and there is similar data for the NZ case. Millennials earn on average 20% less than boomers at the same stage of life.
- Economic models themselves are shifting, and we are coming to see the role of the economy in a different light. Take Doughnut Economics by Kate Raworth as one example, and the fact that the NZ Government is now measuring prosperity by measures other than just economic growth, such as wellbeing.
- The role of the consumer is changing. Consumers are no longer passive things to which companies must aggressively sell to: most people are waking up to their ability to change and modify the market through their economic and purchasing decisions. Not to mention their ability to influence the stock market, as can be seen with the recent GameStop debacle.
- Climate change has shown that there are other effects to our consumption than just the loss of our own money which we could have spent on something else (the opportunity cost). There are environmental, social, and economic costs to our purchasing decisions that need to be part of the purchasing decision process.
- Behavioural and cognitive sciences are showing us more and more heuristics — ways that our brains are wired towards making traditionally ‘unrational’ decisions — that influence our decision making. Can we really be expected to make a table of the prices of goods and compare their benefits, when we’re more than likely to make the final decision based on factors such as social standing or pleasure?
- Further to 5., the Kempson model of financial wellbeing shows us that only around 10% of our overall financial wellbeing is determined by our financial knowledge and experience (the things you get from traditional financial education — knowledge of risk, financial product experience). If this is the case, we should be spending proportionate amounts of time teaching other financial wellbeing skills, in the psychological and social domains.
The ANZ Financial Wellbeing Summary Report uses the definition of financial wellbeing of Professor Elaine Kempson: “The extent to which someone is able to meet all their current commitments and needs comfortably, and has the financial resilience to maintain this in the future.”
This is a very narrow definition of financial wellbeing, and only focuses on the extent to which an individual can meet their needs. It doesn’t go in to the extent to which the community, group, or family can meet its needs, the extent to which the individual can psychologically cope with their spending decisions, has the mental resources to buy from Amazon because they offer the cheapest price, whilst being morally conflicted about this decision…
All these points demonstrate that there is a lot more to financial wellbeing and financial education than just knowing how to manage your money. This is a result of the increasing extent to which ethical questions play out in the marketplace, and the increasing conscious awareness of the role consumers can play in the economy. If we really want to have financially ‘literate’ populations, we need to be teaching more than the basics of saving and spending.
And we need to change the examples in our resources as well — the Sorted in Schools Saving resource says that Sam at high school has been “spending most of his wages ($380 per month) on iTunes downloads and new stereo gear.” Not sure of anyone who really purchases iTunes downloads that frequently anymore. More likely is that Sam is part of a family plan for $22.50/month and Sam, assuming he’s in a family of four, pays his parents $5.60 per month for his music. He’s probably not going to be going to Bali any time soon (Sam’s savings goal), and he might be reconsidering buying a car because of the ecological impact and high cost of petrol and other on-road costs (which he can’t guarantee to be able to pay with an unstable and low-paying job).
It is because of these basic pointers that I think we need to rethink financial education. This is a timely question, with the new strategy of the new Retirement Commissioner coming out soon. I’d be interested to hear your thoughts, and be sure to look out for a more in-depth discussion of this topic, forthcoming.
Jack Goldingham Newsom is the Chief Objektioner and Founder of the Objektion Project. We help people, social enterprises, and volunteer organisations to carry out their mission more effectively by challenging current ways of thinking, and developing new frameworks to support their vision.
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