Stamping out financial illiteracy

The feature regarding the work of economics teacher Anna Coenen on raising awareness on personal finances among children (July 23) merits a wider discussion.

Ms Coenen has managed, through her efforts, to single out a complex issue that, sadly, seldom finds itself in the arena of public debate. She has embarked on a project called Money Matters inspired by the apparent inexperience of children, especially teenagers, with regards to personal financial management. She has also written two booklets with basic financial information that should help students and young people cope with an ever-increasing digitalised and sophisticated commercial environment fraught with elaborate marketing techniques.

I always wonder how we Maltese have a strange way of introducing our children to fundamental rules that may well govern their futures through their individual choices. Be it sexual health, basic first aid or coping with entering the adult world, such as in the case of money and investing, these are more often than not left to experience and incidental bits of information gleaned from friends and family.

The absence of any formal introduction to the many surprises which life has in store remains to me a complete mind boggler. As we cram their little heads with mountains of information, our system has not yet found space to teach our kids some of the fundamental rules that govern our lives.

With credit cards, internet shopping and hefty mobile bills, today’s young adults are increasingly at risk of racking up debt faster and deeper than previous generations. Be it if the children are school leavers and are seeking employment or to continue studying, money matters will immediately become a permanent feature of their lives. With financial deregulation and increased competition, today’s young adults are much more exposed to money and credit than, say, the baby boomers and generation X-ers.

While our parents were for the most part unable to access easy credit, today’s young adults can quickly avail themselves from money in the form of credit. Older generations have learnt to manage their finances diligently, often going by on what they earn or save, eschewing from spending money they do not have unless it was for some major investment like a home. For today’s teenagers, tasting financial independence for the first time and having access to easy credit can be a dangerous thing. If financial naïvety takes the upper hand, debts left unchecked can have long-term implications.

Teaching our children the basics of personal financial management has got to do not only with spending but also with saving. It all starts with making a budget. Teens should understand what money they have coming in and where it is best spent. Ultimately, they must understand the implications of spending and saving wisely and to not live beyond their means.

I have a strong suspicion that the importance of saving has taken a back seat in our increasingly consumerist, I-want-it-now modern culture. The usual suspects remain the relentless marketing campaigns that fuel our desire for objects that, for the most part, we do not actually need.

Teaching our children the magic of compound interest should relieve some of the increasing fears about unsustainable pensions in the long term. Putting a small sum each month aside can in, say, 30 or 40 years become a not unreasonable pot to lean on in their old age. Consider that saving €100 at 10 per cent will become €4,525 in 40 years’ time. It may sound incredible but it is true!

A recent study by Junior Achievement/The All State Foundation – 2010 Teens And Personal Finance Survey – reveals a number of realities on the subject. The study carried out in the US shows the increased need to educate youth about how to effectively manage money. The survey concluded that teens struggle to reconcile spending and saving. Many teens lack a profound understanding of budgeting and its implications. Furthermore, financial naïvéty contributes to a false sense of security.

The president of Junior Achievement sums up the findings succinctly: “Teens are admitting that they don’t have knowledge of some of the basic money management skills around investing, budgeting and using credit. Despite the alarming numbers, teens overwhelmingly still have high hopes for future stability. The poll shows we need to do a better job of ensuring our youth are financially literate.”

Unfortunately, we have very little or, possibly, no public information and statistics on the situation in Malta with regard to teenage finances and levels of indebtedness. As in other thorny subjects, most of our information remains sporadic and anecdotal at best.

The learning to be financially responsible should be one of the best lessons parents can teach their children. Young adults can learn so much and avoid so many problems if their parents just sit down and teach them about financial planning. I know it sounds boring but it would surely serve in good stead once they become totally responsible for their personal finances.

info@carolinegalea.com