Why understanding money matters

Why understanding money matters

Financial literacy remains an issue for Australians, particularly our young people, and needs to be addressed in schools.

In a society where levels of personal debt are high, credit is easily available, and financial markets are complex, research shows that more than one-third of Australian men and more than 50% of women are not financially literate.

Financial literacy describes a person’s ability to understand and apply financial skills from budgeting to understanding interest rates and how to manage debt.

In 2016, the University of Melbourne conducted the Household, Income and Labour Dynamics in Australia Survey, which collected valuable information about economic and personal wellbeing.

Participants were asked to answer five questions on interest rates, inflation, diversification, risk and money illusion to determine their level of financial literacy. Only 28% of male teenagers (15–17 years old) were able to answer the questions correctly. As you can see, this has a flow-on effect, with a similar level of financial illiteracy prevalent amongst Australian adult men.

As Professor Alison Preston notes in Financial Literacy in Australia: Insights from HILDA Data: “As a minimum individuals need to understand the concept of compound interest”. Financial literacy can determine the stability of a nation’s financial system and, for individuals and societies, it has an impact on overall wellbeing.

There are currently no subjects that offer financial literacy insight or practical money skills for Year 11s and 12s in Western Australia. In the Western Australian Certificate of Education or WACE, three business subjects are offered: Economics, Business Management & Enterprise and Accounting & Finance. These subjects enable students to better understand business, but do not, necessarily, improve their understanding of money.

Do not get me wrong – enabling teenagers to understand the inner workings of a business is a great pathway into wanting to enter that world once they leave school. But shouldn’t they have an understanding of their own personal finances before tackling something far greater?

If financial literacy is not explicitly part of the syllabus, especially in the later years of secondary education, then we as a nation risk widening the intergenerational wealth gap.

Scotch College is implementing a financial literacy component in 2022 as part of the Year 11 Cognitive Curriculum. It is a positive step towards addressing the problem, and I am pleased to have been given the opportunity to follow my passions in setting up the course.

In the long run, however, governments need to collaborate, engage and develop strong financial literacy education programmes with the finance and education sectors so the next generation of Australians can develop vital financial literacy skills.

Mr Joel Kandiah Commerce Teacher