Lack of urgency around money smarts for kids

It’s time to get serious about financial education. There is some progress, but more urgency is needed. Credit everywhere. It’s more than 1.5 times the size of the economy. The household savings rate has been negative for 19 of the last 25 years. Household debt to income has doubled since 1995. We can’t continue to drive house prices skyward and consider ourselves wealthy because a portion of society is on the property ladder.

A lot of New Zealanders aren’t wealthy and battle from week to week. There is more than $4 billion of credit card debt that is interest bearing at an average interest rate of 17.8 per cent. That’s $1000 of personal debt for every person in New Zealand over the age of 18, charged at an incredibly high interest rate. The Government has had to crack down on loan sharks and truck shops, but the fact people use them is telling. Some reflects necessity. Some reflects poor money skills and getting ripped off.

Poor financial management affects children

The financial difficulties of adults affect young people. The Auckland University Youth 2000 series research saw the percentage of young people reporting that parents regularly worry about having enough money for food increase across all age groups since the series began in 2001. The change was especially evident among those aged under 15.

This figure was greater among children from high deprivation neighbourhoods. These children are anxious about their parents’ stress and family security.

Improved financial education plays an important role in reducing poverty and improving wellbeing. The Ministry of Social Development is a key funder of budget advisory services in communities because it recognises that improved financial skills is needed to support people trapped by poverty.

Increasing household incomes is a key part of the solution to improve our poverty levels, but families living on credit to survive and with limited financial knowledge compounds the poverty trap.

The accumulation of hardship-associated problems is often a contributor to family breakdowns, stress and poor mental health.

The need for money mojo

New Zealand’s current financial environment is challenging for kids.

Let’s start by ditching the terms financial literacy and financial capability. They don’t connect with children. We want kids to have money ‘‘mojo’’. Lacking money skills means kids will likely emulate the relationship with money the adults in their lives have. For a lot of kids, that could be a poor outcome.

Mojo with money is more than learning about budgeting, interest rates and debt traps, and instilling a desire to save.

The world is changing. Disruption is the norm and kids need to be informed and equipped with different skills. The changing nature of work – as technology evolves employment – is going to hit kids. We have a housing affordability crisis. The younger generation are struggling to get a house, and even if they can, they are unlikely to see their wealth grow via booming house prices like we’ve seen in the past.

There is money being left on the table in this changing environment by people not switching power companies or getting the best broadband deal, despite online mechanisms to do so. Money mojo is about teaching kids (and adults) to use the tools on offer, not about turning each kid into a maths whiz or an accountant.

The financial environment young people are growing up in today is vastly different to their parents’ experience.

Today’s youth can make purchases anywhere in the world at any time. It’s an impersonal cashless transaction. Research by the Commission for Financial Capability (CFFC) reveals about a third of secondary school students frequently or sometimes used credit cards.

There has been a sharp rise in online shopping in New Zealand in the past year. One reason has been deferred payment options, and there is limited understanding of the impact of missing a payment. Even Trade Me provides credit on secondhand purchases.

This ease of purchase is compounded by access to a global shopping environment. We reside in a Freddie Mercury world, ‘‘we want it all, and we want it now’’. Young people are bombarded by savvy marketing offering the latest trends, a world of Instagram celebrity endorsements and ‘‘must haves’’ through complex algorithms driving desires.

Are we doing enough?

Financial education in schools is patchy, despite widespread recognition of its importance. The CFFC contracted the New Zealand Council for Educational Research to survey students, teachers and school leaders about financial capability in secondary schools.

Teachers and school leaders were virtually unanimous in backing the importance of financial education. Teachers believe that students’ money management skills are low. Importantly though, 82 per cent of secondary students do want to learn more about how to manage their money, and they see the value of obtaining advice on money issues. But students say that what they are currently learning is inadequate and they want to learn more at school.

While school leaders see the importance of teaching financial skills across the curriculum, just 5 per cent strongly agreed that their school has a strong emphasis on it. About threequarters of teachers thought that school should be a major source of financial learning, while just 14 per cent of students said that they learned a lot from school, and half said they learnt little or nothing from school. However, only a minority of schools have a strong focus on financial education, and about half the students reported learning either little or nothing about financial capability at school.

The main barrier to teaching more financial skills in schools is its perceived irrelevance in an already crowded curriculum. Inadequate resources and professional development are also obstacles. The relatively low status of financial education in schools is another.

Young New Zealanders are growing up in a fast-changing world of instant decisions that can have financial consequences they didn’t foresee. That needs a stepchange in how we deliver financial education.

Mojo with money is more than learning about budgeting, interest rates and debt traps