Frank Conway
The Department of Finance is currently in the midst of developing a national financial literacy strategy. A primary ambition of the current process is to improve the financial skills and wellbeing of the general population.
Having developed and delivered financial literacy into Irish schools for over a decade, the Department of Finance initiative is well overdue. But it also risks an over-sell as to the benefits. For example, at a recent seminar that included a mix of financial literacy stakeholders, one of the keynote speakers from the Central Bank of Ireland hinted to the ‘inexperience’ of Generation Z to make informed financial decisions. Their view is that the financial wisdom of ‘older people’ could be recycled through future financial literacy campaigns for the wellbeing of those younger than them. It was lofty stuff. I work with many people in their 20’s and 30’s and what has surprised me (pleasantly) is how well-informed many of them are when it comes to investments, seeking out higher rates of returns on deposits and even pensions. Many are active users of ETFs and even point out the unfairness of the excess taxes they must pay on any profits they generate. In fact, many put their 50-something colleagues to shame when it comes to their approach to diversification and seeking out ways to grow and stretch their money.
People are complex.
When it comes to money, while many people support financial literacy, there are other forces at play. This includes individual financial personality traits that trump all of the financial knowledge in the world.
Financial personalities win every time
Some people are born to spend. Others to save. And for each, there are benefits and risks equally. For the spender, they may run out of money or have a great time buying a home of their dreams. As for the saver, they can end up hoarding cash but only to have inflation erode its buying power over time. There are risks to every money decision so it’s about finding balance. Without some form of forced steps to finding that balance, it is near impossible for those with one financial personality type or other to make any significant changes when it comes to managing their money, despite all of the financial education in the world.
The future today – why financial visibility is key
One tool I developed is called the Future Needs Calculator. It is designed to show people the steps they need to take to maintain a quality of life into the future. For those that have a spending personality, this makes a lot more sense than some arbitrary explanation about how compound interest works on pensions. Or, for the saver, what motivates them to take steps to protect against the impact of inflation is a clear, simple demonstration of how the purchasing power of their money falls over time because of inflation. This powerful tool is popular across all age groups as it offers tangible examples of what even the simplest changes to their money habits can deliver for them.
Where financial literacy efforts fall down
I have seen a lot of financial literacy efforts over the years. A common thread, and failure is the one size fits all approach. Too often, there is an over-reliance on financial terminology, or an assumption there is a base-level of financial knowledge that needs to be explained a little better. Such an approach is a death-knell to real engagement.
If the Department of Finance financial literacy strategy is to be a success, it must ensure it delivers a programme of content that clearly explains to people how money works and how it relates to them.
Hybrid is a must
Financial literacy delivery must be hybrid. It must include a lot of face-to-face engagement, not just some version of a distance learning course offering easy access but little personal relevance. A common concern I hear is that such material can often use opaque language, financial maths that is off-putting and few practical calculators so that users can tease out the numbers that matter to them. This is one of the extraordinary benefits of the Future Needs Calculator developed by MoneyWhizz. It can be tailored to any personal circumstance, income level, present financial capacity and future financial needs. It is from this approach that financial literacy become more relevant and meaningful.
Ultimately, financial literacy needs to serve one purpose. It must demonstrate how it can offer a real financial benefit to the people it seeks to engage and offer benefit to.
Frank Conway is founder of MoneyWhizz. It provides free financial content and video-based learning material to schools across the Republic of Ireland. He has also developed a financial literacy framework that is used by leading employers to improve the financial wellbeing of their employees as a key benefit.
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