Financial education for youth and in schools
In this context, the focus on financial education for youth and in schools is not new. As mentioned, financial literacy is increasingly considered to be an essential life skill including by regional and global fora such as G20 and APEC (G20, 2012; APEC 2012). In fact, as early as 2005, the OECD Recommendation advised that “financial education should start at school. People should be educated about financial matters as early as possible in their lives” (OECD, 2005b). Two main reasons underpin this recommendation: the importance of focusing on youth, and the efficiency of providing financial education in schools.
Focus on youth
Owing notably to technological advances, younger generations are likely to be more financially included in their adulthood than older generations and to use financial services to perform a wider array of activities throughout their lives. They will also probably have to bear more financial risks in adulthood than their parents. In particular, they are likely to be responsible for the planning of their own retirement savings and investments, and the coverage of their healthcare needs. They may also have to deal with increasingly sophisticated and innovative financial products, services and markets.
In a growing range of countries, youth have access to financial services from a young age. It is not uncommon for them to have accounts with access to online payment facilities or to use mobile phones (with various payment options) even before they become teenagers. Before leaving school, they may also face decisions about such issues as car insurance, savings products and overdrafts. Furthermore, the development of appropriate financial skills can also boost entrepreneurship and provide youth with additional tools in case they will experience economic hardship.
Given the complexities of new financial systems and their constant evolution, as well as social welfare systems (and particularly pension systems) and demographic trends, current generations are unlikely to be able to learn from past generations. Youth will have to rely on their own financial literacy1 including not only knowledge, but more importantly sound competencies and new habits and attitudes to make savvy financial decisions and informed use of professional financial advice where they exist. However, surveys conducted nationally and globally show that young adults display lower levels of financial literacy compared to older generations (Atkinson and Messy, 2012 and Kempson, E., V. Perotti P., K. Scott, 2013).
These new and evolving competencies will thus have to be acquired through an ongoing process throughout individuals’ lives. To be effective and lead to behavioural changes, this process has to start early in life (OECD, 2005). In fact, research and surveys conducted in various countries including Australia, the United Kingdom and the United States (see Whitebread and Bingham, 2013, for a review of the literature) show that the development and integration of financial habits and attitudes begin very early and probably before children reach seven years old.
It is also important that youth be financially literate before they engage in major financial transactions and contracts. In many countries, at around the age of 15 to 18, young people (and their parents) face one of their most important financial decisions: that is, whether or not to invest in college or higher education. The gap in wages between college and non-college educated workers has widened in many economies. At the same time, the education costs borne by students and their families have increased, often leading to an excessive reliance on credit (Smithers, 2010; Bradley, 2012; Ratcliffe and McKernan, 2013).
Finally, efforts to improve financial literacy in adulthood through the workplace or other settings can be severely limited by a lack of early exposure to financial education. It is therefore important to provide early opportunities to establish the foundations of financial literacy.