Tuesday, May 29th, 2018
Does your child understand financial decision-making? If they don’t know the difference between a personal loan and a mortgage, or how choosing the right bank account can help boost their savings goals, it seems they’re not alone.
When an OECD study – the OECD Programme for International Student Assessment – was released last year, the findings revealed that around one-fifth of all Australian 15-year-olds are lacking the basics in financial literacy knowledge.
According to the OECD, the definition of financial literacy is:
Knowledge and understanding of financial concepts, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial wellbeing of individuals and society, and to enable participation in economic life.
Despite the fact that more space for financial literacy studies, via lessons in both maths and humanities, has been added within the Australian curriculum, the report was damning – showing that today’s school students have less financial literacy skills than in previous times, with students tested showing their struggle to understand payslips and have the insight to pick up on potential financial scams.
The results highlighted a gap between students in city schools and those who attend schools in rural or remote regions, and also showed a wider gap of knowledge with students who come from lower socio-economic backgrounds. One finding from the report that was interesting showed that girls performed better than boys.
With the findings from the study now behind us, analysing why the gaps exist and why financial literacy seems to be declining further is overdue.
With the advent of ever-evolving patterns of work and study today’s generation of young people face, combined with the boom in technology that sees less and less school students tackling learning the non-digital way, the result, it seems, is a new generation of Australians who seem increasingly confused by today’s financial/economic landscape.
But despite the complexity they face, the notion that they may simply need to be brought back to the basics of learning how to manage incomings versus outgoings seems obvious.
The 2007 global financial crisis was the motivating force for the Australian government to invest more than A$10 million in the Helping our Children Understand Finance policy – as well as other related initiatives. The creation of the MoneySmart brand, under the watchful eye of the Australian Securities and Investments Commission (ASIC) is a solid foundation and is billed as a one-stop shop for all money-related topics, as well as being a very useful resource for teachers and schools.
But with bitcoin, property investment-related taxation laws that change, and many parents who just don’t have their own skills to pass on to their children, it is an uphill battle to keep today’s young people on top of the intricacies of managing their money well.
The great news is that an estimated 79% of Australian students have a bank account.
Just how many actively use them, though, was not revealed.
Teaching children the benefits of building up savings can be done in small steps – showing them the benefit of big things growing from small things and introducing the concept of interest and how it might benefit them – a topic which can then lead on to how interest on credit card debt will work against them, if they do not approach issues of loans and credit carefully as adults.
Being better educated about the financial products and services available to them – including when applying for personal finance, a home loan, or a business loan, might be suitable – is an important flow-on.
For parents and teachers – as well as those working within the financial services sector – sharing financial information that sets people up to be smart savers who think carefully about important financial decisions, seems a positive step towards a better financial future.
With so many choices available to them – from deciding on what type of loan is right for them, to choosing the bank or financial institution to suit their needs – today’s younger generation can take control of their financial future, covering everything from understanding how to prepare a household budget and manage their income, and how to access discounts by paying bills on time, to taking steps to understand the implication of tax minimisation and smart investment and how financial literacy can help them build a more secure future.
For more information about ways a loan might help ease your financial stress, talk to our loan broking specialists at Loans Actually today.