The age that many New Zealanders are thrust into the adult world and left to fend for themselves.
Suddenly faced with student loan debt, rent, and numerous other expenses that their parents used to take care of for them, many young Kiwis are not prepared.
Even those who had the privilege of picking up good financial habits from their parents can run into trouble trying to manage their finances, often on a very limited income.
And not everyone has the luxury of parents with good financial skills to learn from.
That is why I think it’s important to teach financial literacy in schools. In fact, let’s make it compulsory.
If financial literacy were taught in school, it could equip teenagers with the financial skills required when they eventually leave home.
And financial literacy is of growing importance in New Zealand, with home ownership becoming further out of reach for many, and uncertainty around income with the growing ‘gig’ economy.
Not to mention the precarious situation regarding retirement. According to the Commission for Financial Capability:
‘New Zealand’s ageing population means that the young of today are facing a very different future than their grandparents: when today’s young people reach their 60s and 70s the ratio of New Zealanders aged 65+ will be 1:4. There will be only 2.5 workers for every retiree. Our children need to reach retirement in good financial shape so they can support themselves more and rely on the government less, and that takes a lifetime of planning.’
Good, but not good enough
In the Standard and Poor’s Global Financial Literacy Survey, New Zealand was placed 11th in the world for financial literacy, with 61% passing the test.
However, that still leaves a lot of room for improvement.
In the survey, participants were asked some extremely basic questions around four concepts — risk diversification, inflation, interest, and compound interest. 39% of the Kiwis surveyed could not answer three out of four sections correctly.
That is still an appalling statistic.
It’s why we need to take financial literacy education seriously.
Making it compulsory in schools could be the solution.
With increased financial literacy, individuals will be able to make better financial decisions such as avoiding debt, not living paycheque to paycheque, and starting to save for retirement from an early age.
And with more people able to look after themselves financially, there would be less need for handouts from the government, benefitting society overall.
Shouldn’t parents teach this to their children?
Some people argue that school is not the place to learn life skills — these should be taught by the parents.
In an ideal world, perhaps this would be the case. But the world is far from ideal.
Yes, children should be able to learn financial literacy in the home. But many parents aren’t equipped to teach their children this because they themselves have made bad financial decisions.
Left to the parents, some unfortunate kids will simply inherit their bad financial habits, and the cycle will continue.
That’s why intervention is required.
Make it compulsory in school, and it will ensure that most children do not get left out from learning these vital skills.
But what are the potential issues?
Certainly, introducing financial literacy classes to schools would not be without problems.
Teachers would need training in this area, as they might not be financially literate themselves, which would require time and resources put in.
Also, it would take away valuable school hours that could be used for teaching other subjects.
But really, what could be more important than children learning practical financial skills that they will rely upon throughout the rest of their lives?
One more issue could be the different financial backgrounds of the students.
Some may get allowances, some may not.
Some will need to take out student loans in the future. Others will not.
This inequality might come up during class discussions and could make those who are less well-off feel uncomfortable.
But, ultimately, it is often those in the most precarious financial situations who would benefit most from learning this stuff.
A proposed curriculum
I believe that children would benefit the most if financial education started from a very young age.
It could start at primary school with teaching the very basics of how money works — earning income, buying goods and services, saving up for big purchases (instant gratification versus delayed gratification), and wants versus needs.
By the time kids reach intermediate school, they might already have a bank account and/or some spending money of their own. That’s when it’s time to start going into a bit of detail about how to manage money. Potential topics could be banking, budgeting, KiwiSaver, and compound interest.
By the time children are in secondary school, it’s time to teach the more advanced concepts — credit cards, debt, insurance, investing, taxes, saving an emergency fund, and saving for retirement.
Phew! With all that firmly entrenched, young New Zealanders would be in an excellent position for when they leave school and embark on their adult lives.
So what are we waiting for? It’s time for schools to introduce this important subject.
Contributor, Money Morning New Zealand