After reading our previous newsletter that stated that children mostly learned about money from their parents, several of you asked what about schools? If parents fail to be role-models in budgeting, prioritising and anticipating expenses, could school ensure equal access to financial education and contribute to breaking a potential cycle of “bad financial habits” passed over generations? What role could schools play in financial education?
Introducing financial education into the school curriculum has been a hot topic since 2008 on the premises that the financial crisis was made possible by the financial illiteracy of US homebuyers who could not repay their mortgage (more on this later). A few countries have officially included it in their curriculum. Often, the programme consists of general guidelines and the teachers have to find ways and time to include financial education into their packed curriculum. Most of the times it is squeezed in the social studies or maths classes, and like any other subject, it focuses on knowledge or practical exercises. Is it effective? In 2012, the OECD measured 15 year-old students’ financial literacy in 18 countries (PISA test) but the report did not comment on any correlation with formal financial education programmes that may be taught at school. The PISA analysts however found correlations with the socio-economic background of students (students from wealthier families performed better while immigrants had lower average scores for instance- which further proves the important role of parents), whether students already had a bank account and students’ mind-set towards complex problem solving.
To be able to measure its effectiveness, the first question to ask is what financial education aims to do? If its purpose is controlling expenses, encouraging savings, planning and anticipating expenses, managing debt, can this be learned in textbooks or exercises? Is the knowledge of managing money, budgeting or carefully spending… the objective? Or do we aim to let children acquire the skills and habits of doing so? Only the habit of budgeting, tracking expenses or comparing options before taking decisions can impact the lives of youth and this can only be instilled through actually doing it repetitively. A budgeting exercise that youth take 30 minutes to do when 15 may be of little use when they have to choose a place to live when they are 20. Could schools nudge children to change habits?
Schools could actually play a bigger role. Too often financial literacy is reduced to a self-centred view of money, ignoring its social nature (we would not use money if we were alone – money is a social tool). As a community or “micro society”, schools are very well placed to nurture what has been cruelly missing: interacting with money and others. Schools could nurture values that make a sound, harmonious and resilient society such as trust and accountability. Big financial issues at society level are not the inability of many of us to balance a budget… but corruption, tax evasion, scams, unfair deals. How can schools foster accountability, trust and harmony: by entrusting the school budget – or part of it – to students. It can be small for the youngest students: the budget for a special occasion: a year-end party or an outing. Children will learn to plan costs, inquire and compare different options, negotiate with third parties and between themselves, track the real expenses. They will practise transparency and accountability; besides this will cut short any complaint about the party being badly or cheaply organised… they will be in charge. As they get older they could be involved in bigger budget and decision (the cafeteria, for example). They will gradually learn to be trustworthy; they will practise collective decisions, and at the same time acquire skills that they can use in their families or for themselves, and at society level. Through encouraging and practising managing part of the school budget for years, we can hope that youth learn governance and accountability which could contribute to reducing corruption and helping schools fulfil their most important mission: prepare tomorrow’s citizens.
Encouraging managing public money with peers may also address how youth interact with each other: when money is only used as a consumption tool – to buy clothes, electronics, etc…- or a way of expressing identity (through brands and fashion for instance), peer pressure only consists of purchase pressure and exacerbates social differences. But as they manage an amount of money as a group, students will interact with a broader range of financial decisions and will have to learn to deal with their different social and wealth backgrounds, which influences how they take decision. In a world that tends to put up social barriers and ghettos, this could foster discussion and tolerance. This may also address mistrust between generations.
Enabling students to manage public money in real life for years may also help fulfil another objective of financial literacy, i.e. stabilise our financial system. The 2008 crisis can give us more lessons on the need for financial education: before 2008, bankers with very short term profit objectives sold mortgages to people who could not afford them and repackaged them in complex financial products that they sold over and over without assessing their potential consequences. We may wonder who the illiterate is: the one without knowledge or the one with knowledge failing to act on this knowledge... this example alone – due to its impact on a worldwide scale – shows that knowledge by itself is not enough, and that focusing on a self-centred view of money can harm the society because it fails to take into account the two sides of any financial deal: the one who receives the money and the one who spends it, as well as the intention and feelings associated with money. Any transaction is a relationship between human beings who are not deprived of intentions or emotions. Reducing it to an exchange of a thing or service against money is failing to address the issues arising from our human mind-sets: honesty, trust, greed, moral asymmetry (not applying the same norm for oneself and for others), contentment, empathy, generosity… all these are the fabric of what holds together or tears apart our societies– should it not be the focus of financial education, i.e. learning how to manage the money entrusted to us – whoever it belongs to – in the most balanced way for everyone? This experience would benefit us all – companies, public services, non-profit… employees, civil servants, volunteers, would have gained a thorough experience of managing money and budgeting in a responsible way even before they are recruited.
The financial education school curriculum would then focus on equipping students with the knowledge and skills to enable them to manage the school money: this would include budgeting, simple bookkeeping, inquiring before choosing, auditing, meeting bankers, teamwork and negotiation complemented by discussions about values, including the power around money (some adults may struggle to “give away” the power associated with finance), as long as case studies on ethics, consumption, fair trade… Income generation projects could also be added, to complement potentially scarce budgets, and prepare students to identify sources of income in a world where a full-time employee job from graduation to retirement is no longer the norm. This would address corruption and mismanagement (whether from ignorance or bad intentions) at its core roots and put schools at the forefront of building strong democracies. This would demystify money and have the next generation manage it in a more rational and mindful way. Are School Directors and Ministers of Education bold enough to let students become really financial literate? Does your school want to join and try this bold experiment?