Learning Personal Finance as a Life Skill
THE HAGUE — As the world claws its way out of an economic crisis, a recent global comparative study on the financial literacy of 15-year-olds has placed a spotlight on the growing importance of economic competency training in secondary schools.
The study, the Program for International Student Assessment, or PISA, conducted by the Organization for Economic Cooperation and Developmentin 18 different countries, produced some surprising results: For example, young people in the United States, the world’s largest economy, know less about money than their peers in eight other countries; and teenagers in the Shanghai region outscored everyone else, despite living in a nominally communist country.
Much less of a surprise is the fact that, compared with other skills tested and tallied by the study, like math, reading and problem solving, the skill of money management is not one that most young people have grasped.
Experts appear to agree that this is an increasingly necessarily skill, but that the PISA findings show that not enough has been done to teach it.
Ángel Gurría, the O.E.C.D. secretary general, called the results a “Sputnik moment,” referring to the turning point in the Cold War space race. And Queen Máxima of the Netherlands, who presented the results in her function as a special advocate of the United Nations secretary general, said the results served as a “wake-up call.”
But the inclusion of financial literacy in PISA, considered the most important global comparison of 15-year-olds, is a sign that the subject is taking center stage in the education discussion around the world, paving the way for its inclusion in already packed primary and secondary school curriculums.
In countries where it is being taught, financial literacy has been in classrooms for less than five years, but many national programs are currently being developed, strengthened and formalized with a network of leading countries discussing and comparing advantages and strategies.
Besides having to understand a more complicated array of financial products available to increasingly younger consumers, young people are more often forced to make major financial decisions early, as many economies turn away from state-funded health care, welfare and higher education, experts say.
“If you have less job security, you need to think harder about saving and creating financial buffers,” said Mathijs van Dijk, a finance professor at the Rotterdam School of Management.
“There’s been a shift, from risk being held centrally, to risk being held by individuals,” said Mark Fiander, a director at Money Advice Services, an independent agency created by the British government in 2010 giving citizens free advice on financial matters and debt reduction.
Like other financial experts, Mr. Fiander warns that many adults are having a difficult time keeping their financial affairs in order. “Even in the good times, certainly in the U.K., you have about a third of people who struggle to make it to the end of month without running out of money,” he said.
In response, countries have developed different ways to improve financial literacy, competency or behavior — the terms vary — among the young. Some focus on training teachers, others on providing curriculum material, making the subject accessible through mobile apps, or focusing on specific events, such as a national financial literacy week.
Flore-Anne Messy, a senior policy expert at the O.E.C.D.’s International Network on Financial Education, who was closely involved with the design of the financial literacy portion of the PISA study, explained that besides national strategies for better financial literacy, the impetus of different global players to train their young varied. Citing the example of the Czech Republic, which did particularly well in the study, Ms. Messy said: “When they moved from communism to capitalism, they needed to train the new generation, because they knew that the welfare system is changing.”
The newest financial literacy portion of PISA tested approximately 29,000 15-year-olds in Australia; the Flemish community of Belgium; Shanghai; Colombia; Croatia; the Czech Republic; Estonia; France; Israel; Italy; Latvia; New Zealand; Poland; Russia; Slovakia; Slovenia; Spain; and the United States, representing that age group in 40 percent of the world’sgross domestic product.
There were five levels of difficulty in the test, which was taken by students in 2012. The results, published this month first in Paris and then in Washington and other partner countries around the world, varied widely across countries.
Shanghai, Flemish Belgium and Estonia scored best when it came to the overall PISA score. But students in Australia, New Zealand and the Czech Republic had the best financial sense compared with their scores in other PISA subjects.
Colombia, Italy and Slovakia scored the lowest in overall ranking, with Israel — fourth from the bottom — doing especially poorly in financial literacy compared with its general PISA score.
The United States came in ninth, just below the O.E.C.D. average and just above Russia, with its financial literacy score roughly in line with its scores in other PISA subjects.
“If you look at the questions, they are very basic — the results are not very encouraging,” said Mr. van Dijk, the Dutch finance professor.
One encouraging result was that gender, in almost all countries that participated, was insignificant, a positive difference from gender gaps in adult financial literacy, according to the O.E.C.D.
New Zealand was one of the countries that did very well in the study.
“It is an aggregate of things,” said Diane Maxwell, the retirement commissioner of New Zealand.
Despite its name, the Commission for Financial Literacy and Retirement Income, which Ms. Maxwell heads, devotes about 75 percent of its efforts to training those who are furthest from retirement.
“I’d rather deal with people when they are 13,” she said in a telephone interview.
“We need to prepare the next generation for a very different retirement landscape.”
The commission has been overseeing an investment of half a million New Zealand dollars, or about $430,000, by the country’s financial sector to build curriculums and learning aids, many of which can be found on a special website available to all teachers. Ms. Maxwell, who oversees various programs to train teachers, says one of the most important aspect of teaching financial literacy is getting the teachers comfortable with subject.
“Many understand for the first time what the impact of being financially more literate could be on someone’s life,” she said. “They had a fire in their belly about what it means and why it matters.”
The Dutch, who were not among the nations in the most recent comparative study — though they will be part of 40 additional economies where financial literacy will be tested by PISA in 2015 — run a program called Money Wise, coordinated by the Ministry of Finance with support from various of financial service providers.
Part of the program focuses on changing general aspects of school curriculums to include more emphasis on financial transactions. Another aspect of the program is a National Money Week, usually held in March, when financial experts go to schools to give guest lectures.
Olaf Simonse, the head of Money Wise, estimated that during this year’s National Money Week some 5,000 guest lessons were given to 150,000 school children.