Financial education must be embedded throughout the schooling system to nurture the next generation of investors, says Tale Heydarov
Despite government efforts worldwide, the data consistently shows that financial literacy - including in economies with well-advanced financial markets - is woefully low. A 2014 Standard & Poor's report found that only one in three adults show an understanding of basic financial concepts. However, researchers have also found that with more years of schooling, the greater the financial literacy. This demonstrates the importance of incorporating financial management concepts throughout the curriculum, from primary education all the way to university. As the founder of the European Azerbaijan School, an investor and, importantly, a parent, improving financial literacy is a topic which is very close to my heart.
As understanding plateaus, or even worsens, the number of financial products available to both the investor and the individual is multiplying almost daily and becoming increasingly complex. While the democratisation through technology of financial tools has clear advantages, there are dangers to those without a solid understanding of concepts such as risk diversification, interest and inflation investing via downloadable trading apps or applying for complex loans online.
Despite government efforts worldwide, the data consistently shows that financial literacy - including in economies with well-advanced financial markets - is woefully low."
Earlier this year, the US Treasury department released a report recommending that universities introduce mandatory financial literacy courses for students. While this may prove difficult in practice, it demonstrates the concern in the USA that a generation of university students, burdened with debt, are entering the world of work with little idea of how to make important financial decisions. If concepts of saving, investment, risk etc. were introduced more effectively from an earlier age, there would be less pressure on universities to provide students with these skills. Furthermore, bad habits may have already taken root by the time a student reaches university.
This is why financial education should be introduced from an early age. Different countries may have diverging approaches to teaching financial concepts to primary age children, but there are nonetheless some best practice approaches which should be universally adopted; for example teachers should be adequately trained and confident in explaining concepts, and ideas should be integrated into a range of subjects and activities, and taught in such a way to make it enjoyable; rather than dull. I am passionate about instilling a sense of fun throughout the learning process, whether that relates to financial education, reading or sports - this interaction and liveliness are core values at the European Azerbaijan School. Currently, within countries as well as between them, the financial education you receive is too much a product of where, and to which parents, you happen to have been born. Only a concerted effort by policy makers globally can change this.
As children enter secondary school, more complex concepts can be introduced. Many teenagers begin to earn their own money through weekend or holiday jobs; however if their parents do not help them, they may have no idea how to store or save this income. Financial education at this stage must focus not only on abstract concepts of interest or inflation, but also practical aspects such as selecting and opening a bank account and avoiding debt. A concerning 52% of UK teenagers have been in debt by the time they are 17 years old.
This is why, while the US Treasury report's conclusions around mandatory classes for college students are valid, they cannot be the only solution. Not all teenagers go on to higher education, and as a core life skill, financial literacy sits firmly within the remit of primary and secondary education. However, it is true that if we look particularly at the university-educated population, the gap between the actual skill-level and those required to navigate a market of complex financial products is worrying. Now, the average university-educated individual will not only be faced with debts, but also the prospect of living for more years after retirement than the generations before.
Already, from their early twenties, they need to consider loan repayments and pension pots. They are also confronted with apparently ‘easy' investment options, which can be accessed via their phones, without recourse to investment managers. Clearly, when considered alongside the data on the limits of the population's knowledge of financial concepts, this situation has the potential to become a crisis.
To look at it from a positive angle, there is a strong link between smart financial planning and wealth. Whichever way you put it, there is a heavy incentive for policy makers, educators and even investment management companies to prioritise financial education. Coordinated national strategies should be created around financial literacy, ensuring classes are mandatory at primary and secondary school levels. As for universities, they should be responsive to their students' needs. Some may need guidance on selecting a credit card, while others want to learn about getting into stock-market investing.
Programmes should also teach students to critically evaluate financial offers; so that they are less susceptible to making bad investment decisions. Above all, and at every learning stage - as well as beyond formal education - it must be embedded that finances are not to be feared. Only by starting young and building on knowledge in an engaging way can we educate future generations of savvy investors.
Tale Heydarov is a leading Azerbaijani businessman, and founder of the European Azerbaijan School, TEAS Press Publishing House and LIBRAFF chain of bookstores in Azerbaijan.