Smart About Investments – Millions Need Financial Literacy
This piece on financial literacy is the third one in our “Smart About Investments” series of inspiring discussions on the learning curve and savings habits evolution of CEE citizens. Financial literacy is still lagging behind in CEE. Why? Because for decades, an omnipotent State used to make all the important financial decisions for us. Individuals were not expected to have this kind of knowledge themselves. What for, since many of them did not feel the need to have their own bank account? It is time to act and change this.
Guest post by Martin Ježek, Director at AISIS – NGO specialized in developing financial literacy projects in the Czech Republic
The financial crisis has helped boost the interest in financial literacy. Thus subject is more often talked about today; more is done about it, whether for grown-ups or for children. The truth is that individual states, the EU and OECD have dealt with this topic long before the crisis. Why?
- We are confronted with increasingly more complex financial products and we have to know more on how to use them properly, not “just” using them with common sense;
- 40 years in Eastern Europe with the State taking care of everything instead of a responsible individual have left a strong mark on people and made it necessary to support personal responsibility for administering one’s own assets and liabilities;
- Children manage their money starting from a young age (pocket money, paying for their lunch at the school canteen, expenses related to traveling to school) and they need help to get the required skills enabling them to manage their finance.
Understanding Money Summer School for children in the Czech Republic
Financially literate persons manage their money better. What does this mean in real life? Such persons are careful not to take loans that they could not repay. They are better able to use products offered on the market because they understand them and are not afraid of them… Thus, financial literacy leads, among other things, to the elimination of information asymmetry between the customer and the product provider.
For banks, financial literacy becomes almost a “mandatory” part of CSR. (Is there a bank saying that it does not deal with financial education?). Why?
Firstly, it enables employees to convey their experience and be trained at the same time. Would you like an example or two? GEMB employees in the Czech Republic deliver lectures about bank products to teachers. In the first place, they help them become able to teach financial literacy at all (so far, Czech teachers do not learn how to teach financial education at universities but on the other hand, they are perfectly able to calculate the number of metatarsal bones in a chimpanzee’s foot). Second: they improve their skills to “agree” with the customer – this is something that training with a colleague from the bank as a sparring partner does not enable.
Secondly, it cultivates the consumer. Here, we base our assumption on the fact that a financially literate customer is a less difficult (delinquent) customer than a customer with a lower level of financial literacy.
And thirdly, market regulators urge banks to be active in the area of financial education.
Bank BPH in Poland is involved in two programs: ‘The Academy of a Young Economist’ for secondary school students and ‘The Children Economic University’ for 5th and 6th graders. These programs are aimed at developing economic interests and entrepreneurial behaviors in children. Participation is free of charge. Apart from children classes, parents and caretakers can attend workshops to understand and cherish the entrepreneurial behaviors of their offspring. Bank BPH employees acting as volunteers have already designed and conducted the first round of these unique workshops on how to talk to children about money.
BPH workshops for parents in the Warsaw Technology University
How to engage in the children’s financial education?
OECD, EU, governments, ministries – they all speak about the need to deal with financial education as early as in elementary schools. Again, the reasons are obvious and they apply to our region without any reservations. Elementary school is the only institution that every child must attend. The school should be able to prepare the child for his future life (I shall leave it to the kind reader to judge whether the school is actually doing that). Once you have the children organized at school, why not educate them financially? Who else than their teachers should teach “it”? Alas! If you think that teachers are trained on how to teach financial literacy at their university department, you are mistaken. I have not succeeded in finding a single university department that would teach financial literacy to teachers. This means that when teachers complete their studies, they are not able to teach financial literacy. The teacher has to be retrained which, in real life, means using programs run by NGOs, be it in cooperation with corporations (see the mention about CSR at the beginning of the article) or use various grants. In certain states, central banks step in.
BPH employees teach parents how to talk to children about money
Most recently, experts in finance and scientific circles from Poland have called to ministers of education, as well as science and higher education staff to revise and modify the curricula for teaching the elements shaping the financial awareness of young people. A model of economic education is needed given that, according to a report drawn up by the Warsaw School of Economists, the financial awareness of Polish people is worse than in other nations. The above is also confirmed by other studies revealing that a vast proportion of Poles cannot tell a credit card from an ATM card and consider economic knowledge boring.
In accordance with other studies ordered by the Kronenberg Foundation, 60 per cent of Poles consider their financial knowledge poor or very poor (source: Daily Dziennik Gazeta Prawna from Dec 22nd, 2011). According to experts, the data has special overtones since it concerns young people who start working right after leaving universities. Even Economics graduates from a large number of Polish universities have theoretical knowledge which is completely unsuitable for the realities of the dynamically changing market.
What do we know about the level of financial literacy?
Not much, to be honest. More or less systematic measurements of the financial literacy level are performed in various states, but there is no international benchmarking to date.
As for grown-ups, OECD organized a research on financial literacy of the adult population in 2010. The aim was to establish the level of financial literacy in certain member states. The findings were supposed to be published in the summer of 2011, now it seems that they might be available in the spring of 2012. Let’s make a bet on what they will reveal…
