Reading Exercise 9

Financial literacy

Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Raising interest in personal finance is now a focus of state-run programs in countries including Australia, Canada, Japan, the United States and the United Kingdom. Understanding basic financial concepts allows people to know how to navigate in the financial system. People with appropriate financial literacy training make better financial decisions and manage money better that those without such training.

 The International Gateway for Financial Education launched a program for financial literacy worldwide, which aims to serve as a clearinghouse for financial education programs, information and research worldwide. 

Worldwide people are not that good in controlling their finances. A survey of Korean high-school students showed that they had failing scores – that is, they answered fewer than 60 percent of the questions correctly – on tests designed to measure their ability to choose and manage a credit card, their knowledge about saving and investing for retirement, and their awareness of risk and the importance of insuring against it. A survey in the US found that four out of ten American workers are not saving for retirement.

Additionally, a growing number of financial literacy researchers are raising questions about the political character of financial literacy education, arguing that it justifies the shifting of greater financial risk (e.g. tuition fees, pensions, health care costs, etc.) to individuals from corporations and governments. Many of these researchers argue for a financial literacy education that is more critically oriented and broader in focus; an education that helps individuals better understand systemic injustice and exclusion, rather than one which understands financial failure as an individual problem and the character of financial risk as apolitical. Many of these researchers work within social justice, critical pedagogy, feminist and critical race theory paradigms.

In 2011 Austrian government released a National Financial Literacy Strategy — informed by an earlierASIC research report 'Financial Literacy and Behavioural Change' — to enhance the financial wellbeing of all Australians by improving financial literacy levels.The strategy has four pillars:

·         Education

·         Trusted and independent information, tools and support

·         Additional solutions to drive improved financial wellbeing and behavioural change

·         Partnerships with the sectors involved with financial literacy, measuring its impact and promoting best practice

ASIC also has a MoneySmart Teaching website for teachers and educators. It provides professional learning and other resources to help educators integrate consumer and financial literacy into teaching and learning programs.

Financial Literacy in Saudi Arabia

A nationwide survey was conducted by SEDCO Holding in Saudi Arabia in 2012 to understand the level of financial literacy in the youth. The survey involved a thousand young Saudi nationals, and the results showed that only 11 percent kept track of their spending, although 75 percent thought they understood the basics of money management. An in-depth analysis of SEDCO's survey revealed that 45 percent of youngsters did not save any money at all, while only 20 percent saved 10 percent of their monthly income. In terms of spending habits, the study indicated that items such as mobile phones and travel accounted for nearly 80 percent of purchases. Regarding financing their lifestyle, 46 percent of youth relied on their parents to fund big ticket items. 90 percent of the respondents stated that they were interested in increasing their financial knowledge.

In fact, most countries around the world need to establish an inaugural financial literacy hub for teachers in to empower school teachers to infuse financial literacy into core curriculum subjects to embed pedagogically sound activities to engage students in learning. Such day-today relevant and authentic illustrations enhance the experiential learning to build financial capability in youth. It is the vision of the Hub to empower educators to equip their students to be financially savvy so as to make informed decisions and exercise discipline in managing their personal finance. The Hub is committed to spearheading high quality education programmes with research embedded for continual improvement so as to provide evidence-based practices.

In the Arab world many people are failing to plan ahead. Many people take on financial risks without realising it.  Problems of debt are severe for a small proportion of the population, and many more people may be affected in an economic downturn.The under-40s are, on average, less financially capable than their elders. 

There are also numerous charities in Egypt  working  to improve financial literacy  and financial status through work such as Masr El Kheir. Also, the Egyptian government is trying to help people embrase the idea of investing in small projects, starting businesses and social integration. The government understand that unless citizens have financial capability the country will face more unrest. The government is also trying to  gauge people's knowledge and experience with investments and fraud. The government understand that there is a need to educate and inform investors about capital markets and investment fraud. Education in this area is particularly important as investors take on more risk and responsibility of managing their  savings.

Financial Literacy, including personal financial planning concepts and tools, should be taught to youths early on in High School. This financial education should include concepts like the 50/30/20 Budgeting Rule, the Rule of 72 and Time Value of Money. The 50/30/20 rule recommends spending 50% of one's income on life necessities like housing and food, 30% on entertainment like travel and dining, and 20% to be saved for short and long term needs. The rule of 72 calculates the amount of time it takes for an investment to double once by dividing 72 over the interest earned. A third concept is the Time Value of Money (TVM) which calculates a future value of an initial or annual investment.

References

 Klapper, L; Lusardi, A (2015). "Financial Literacy Around the World". Journal of Pension Economics and Finance. doi:10.3386/w17107.

 "International Gateway for Financial Education > Home". financial-education.org.

 "Social Justice and the Gender Politics of Financial Literacy Education | Pinto | Journal of the Canadian Association for Curriculum Studies". Pi.library.yorku.ca. Retrieved 2013-10-18.

 Saudi Gazette (2012-09-06). "SEDCO launches Riyali financial literacy program". Saudi Gazette. Archived from the original on 2013-10-19. Retrieved 2013-10-18.

 Wolfsohn, R., & Michaeli, D. (2014-02-03). Financial Social Work. Encyclopedia of Social Work.

Further reading: 

"Improving Financial Literacy – Analysis of Issues and Policies" OECD 2005

Lucey, T. A., & Cooter, K. S. "Financial Literacy for Children and Youth"

Federal Reserve Bank of San Francisco. "Community Investments: Financial Education" 2009.

M. Schuhen / S. Schürkmann: "Construct validity of financial literacy", International Review of Economics Education, Elsevier, Amsterdam 2014.

Questions: 

Do you consider yourself financially literate ? Why?
Do you think your financial habits are sound? Why?
Have ever thought of starting your own business? Why?
What do spend most on? Why?