Financial literacy Wikipedia the free encyclopedia

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From Wikipedia, the free encyclopedia

Financial literacy is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. [ 1 ] More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. [ 2 ] Raising interest in personal finance is now a focus of state-run programs in countries including Australia. Canada. Japan. the United States and the UK. [ 3 ] [ 4 ]

The Organization for Economic Co-operation and Development (OECD ) started an inter-governmental project in 2003 with the objective of providing ways to improve financial education and literacy standards through the development of common financial literacy principles. In March 2008, the OECD launched the International Gateway for Financial Education, [ 5 ] which aims to serve as a clearinghouse for financial education programs, information and research worldwide. In the UK, the alternative term “financial capability” is used by the state and its agencies: the Financial Services Authority (FSA) in the UK started a national strategy on financial capability in 2003. The US Government also established its Financial Literacy and Education Commission in 2003. [ 6 ]

§ International findings [ edit ]

An international OECD study was published in late 2005 analysing financial literacy surveys in OECD countries. A selection of findings [ 7 ] included:

In Australia. 67 per cent of respondents indicated that they understood the concept of compound interest, yet when they were asked to solve a problem using the concept only 28 per cent had a good level of understanding.
A British survey found that consumers do not actively seek out financial information. The information they do receive is acquired by chance, for example, by picking up a pamphlet at a bank or having a chance talk with a bank employee.
A Canadian survey found that respondents considered choosing the right investments to be more stressful than going to the dentist.
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.

“Yet it is encouraging that the few financial education programmes which have been evaluated have been found to be reasonably effective. Research in the US shows that workers increase their participation in 401(k) plans (a type of retirement plan, with special tax advantages, which allows employees to save and invest for their own retirement) when employers offer financial education programmes, whether in the form of brochures or seminars.” [ 7 ]

However, academic analyses of financial education have found no evidence of measurable success at improving participants’ financial well-being. [ 8 ] [ 9 ]

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 supports 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. [ 10 ] [ 11 ] [ 12 ] [ 13 ] [ 14 ] [ 15 ]

§ Asia Pacific Middle East Africa [ edit ]

A survey of women consumers across Asia Pacific Middle East Africa (APMEA) comprises basic money management, financial planning and investment. The top ten of APMEA Women MasterCard’s Financial Literacy Index are: Thai 73.9, New Zealand 71.3, Australia 70.2, Vietnam 70.1, Singapore 69.4, Taiwan 68.7, Philippines 68.2, Hong Kong 68.0, Indonesia 66.5 and Malaysia 66.0. [ 16 ]

§ Australia [ edit ]

The Australian Government established a National Consumer and Financial Literacy Taskforce in 2004, which recommended the establishment of the Financial Literacy Foundation in 2005. In 2008 the functions of the Foundation were transferred to the Australian Securities and Investments Commission (ASIC). The Australian Government also runs a range of programs (such as Money Management) to improve the financial literacy of its Indigenous population, particularly those living in remote communities.

In 2011 ASIC released a National Financial Literacy Strategy (www.financialliteracy.gov.au ) — informed by an earlier ASIC 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: [ 17 ]

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’s MoneySmart website was one of the key initiatives in the government’s strategy, it replaced the FIDO and Understanding Money websites.

ASIC also has a MoneySmart Teaching website [ 18 ] for teachers and educators. It provides professional learning and other resources to help educators integrate consumer and financial literacy into teaching and learning programs.

§ Saudi Arabia [ edit ]

A nationwide survey was conducted by SEDCO HOlding in Saudi Arabia] to understand the level of financial literacy in the youth. [ 19 ] The survey involved a thousand young Saudi nationals and the results showed that only 11 percent keep 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 do not save any money at all, while only 20 percent save 10 percent of their monthly income. In terms of spending habits, the study indicated that items such as mobile phones and travel account for nearly 80 percent of purchases. Regarding financing their lifestyle, 46 percent of youth rely on their parents to fund big ticket items. Fortunately, 90 percent of the respondents stated that they are interested in increasing their financial knowledge.

In response to the massive need in Saudi Arabia for a program that teaches people how to manage their money more effectively and to change their perception towards money being an infinite resource, SEDCO Holding as part of their Corporate Social Responsibility launched a program that addresses this need. This first pillar of SEDCO’s CSR program endows residents/citizens of KSA with financial knowledge through its flagship program Riyali. Through this pillar, 50,000 individuals will benefit over the next 5years. They come from different walks of life; college students, high school students, and low-mid income employees. SEDCO launched Riyali for University/College Students (phase 1 of financial literacy)during September 2012. It teaches basic financial skills such as budgeting, saving,and dealing with credit cards. Thereby,endowing pupils with vital abilities required to make wise financial decisionsin daily life. Riyali is given in colleges and universities through a series of workshops (2 in total) of 3 hours each and covers four modules: Savings, Budgeting, Investing and Borrowing. The material is very interactive and has a series of exercises and group activities that make it engaging.

§ Singapore [ edit ]

In Singapore, the National Institute of Education Singapore established the inaugural Financial Literacy Hub for Teachers [ 20 ] in 2007 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. Integral to evidence-based practices in schools, research on financial literacy is spearheaded by the Hub which has published numerous impact studies on the effectiveness of financial literacy programs and on the perceptions and attitudes of teachers and students. A longitudinal study on the impact of financial literacy education on attitudinal and behavioural change is on-going. The baseline study on financial literacy in Singapore Schools 2008/9 (Koh, 2011) [ 21 ] involved more than 6000 students and a thousand school teachers. 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.

The Singapore government through the Monetary Authority of Singapore funded the setting up of the Institute for Financial Literacy [ 22 ] in July 2012. The Institute is managed jointly by MoneySENSE [ 23 ] (a national financial education programme) and the Singapore Polytechnic. [ 24 ] This Institute aims to build core financial capabilities across a broad spectrum of the Singapore population by providing free and unbiased financial education programmes to working adults and their families. From July 2012 to May 2014, the Institute has reached out to more than 24,000 people in Singapore via workshops and talks. Some of the topics covered in these workshops and talks include: