Helping Australian kids become financially literate
Money educator Nicole Pedersen-McKinnon and Paul Fog, General Manager of Financial Planning at NAB, explain why teaching younger Australians to be financially literate has never been more important.
If financial literacy were a school subject Australia would get a C– says high-profile money educator Nicole Pedersen-McKinnon. It’s not a matter of numeracy but a lack of ‘money smarts’.
“Schools spend so much time on the 3Rs but so little teaching responsible money management and self-reliance,” she says. Pedersen-McKinnon believes in instilling financial literacy as early as possible. She argues fostering good financial habits in children “will have as positive an effect on their lives as, say, reading to them at night”.
Unfortunately, many children don’t learn financial literacy either at school or from their parents. Many adults aren’t financially literate themselves. And even if they have acquired the skills to manage their finances, they’re rarely familiar with the world the younger generation has to navigate.
“Teaching people about money was once as simple as: ‘This is the pay envelope with our cash for the week and here’s how you should divide it up,’” says Pedersen-McKinnon, who regularly runs her ‘Smart Money Start’ presentation for high school students in the hope of instilling the motivation to attain financial freedom.
“The plethora of credit and debit cards, internet banking, and smartphone-enabled financial transactions means money has become almost invisible to younger Australians. Add to that traps such as unexpected in-app purchases and unfathomable mobile plans and parents face a big challenge helping their children manage their money.”
Living the dream
Few children, indeed few adults, are excited by the prospect of educating themselves about money. The key then, Pedersen-McKinnon argues, is to point out the fantastic return on investment arising from devoting a little time and effort to understanding how to budget and how the financial system functions.
“The earlier you start, the easier – and cheaper – it is to secure your financial future and live the life you want,” she says. “In contrast, poor financial literacy often condemns people to a lifetime of debt and insecurity, even if they earn a good income.” Pedersen-McKinnon points out that the young have one enormous financial advantage over the not so young. “They have time, which means they can access the magic of compound interest.”
The GFC wake-up call
This country weathered the GFC better than some countries, but it certainly gave a lot of free-spending Aussies a fright. One of the upsides was a renewed appreciation of the value of financial literacy.
Government policy responses included the development of Australia’s National Financial Literacy Strategy 2014-17 and the Australian Securities and Investments Commission (ASIC) MoneySmart Teaching program. It aims to integrate consumer and financial literacy education into the school curriculum.
“Advocates of financial literacy education in schools suggest that this is not only the most effective place for this learning to occur but the best way of reaching a large number of young people from all socio-demographic backgrounds,” says Peter Kell, ASIC Deputy Chairman.
Why it matters
Paul Fog, General Manager of Financial Planning at NAB, says financial institutions benefit from a financially literate population, so they’ve long made efforts to educate schoolchildren, as well as their adult customers.
For example, NAB has partnered with the Foundation of Young Australians to support the $20 Boss program, which encourages thousands of teenage Australians to take an interest in financial matters. Providing secondary students with $20 in start-up capital, it then helps them acquire skills in budgeting and financial management while encouraging a greater understanding of business and entrepreneurship.
But it’s not just the young who need help, Fog is quick to point out. He observes many people have a poor understanding of their insurance and super policies, as well as how both debts and investments function. Unfortunately, this means they often make less than optimal financial decisions. “If people aren’t aware of their obligations, and the impact that those obligations can have on their cash flow, then problems can arise,” he says.
Raising levels of financial literacy among women is of particular importance given they are in a weaker financial position than their male counterparts. In particular, they retire with significantly lower super balances. “Part of that is related to pay inequality. Part of it is a result of many women electing to take time away from their career to have children,” Fog says.
NAB has developed an industry-leading behavioural change program tailored for women called Start Counting. Fog notes that it’s not about pushing financial products or services, or even providing formal financial advice. Rather, it aims to empower women to build good money habits and thus boost their overall wellbeing.
“Financial literacy is crucial whether you’re young or old, male or female,” says Fog. “It’s often the difference between being able to make decisions about what to do in life or having other people making decisions for you. There’s plenty of research that shows a strong correlation between having your finances under control and feeling satisfied with your life. That’s hardly surprising given financial stability is key for both individuals and families to achieve their goals.”
To find out more about Start Counting please visit: www.startcounting.com.au
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