It was anything but a slow news week globally, but here in New Zealand not much seemed to be happening (not even much summer, at least in Wellington). Perhaps that was why the Sunday Star-Times chose to devote two full pages (with the promise of more in the next couple of weeks) to the hardy perennial cause of – in the words of the headline – “More financial literacy needed”. Especially (it appears) for kids, from schools. In years gone by, there have even been public opinion polls – paid for by people championing the cause – suggesting that the public agree.
I’m as sceptical as ever, perhaps more so as my own kids have progressed through the education system. What follows is mostly from a post I wrote on the issue a few years ago
I’m sceptical at a variety of levels. First, and perhaps most practically, these surveys (and the reported views of advocates) never ask what people would prefer schools to stop teaching. There are only so many hours in the day/year. I’d face the same question as to what should the schools stop teaching, but given a choice, personally I’d rather that schools were required to teach a sustained course in New Zealand and British/European history than that they teach so-called financial literacy. Kids are exposed every day to their parents’ attitudes to, and practices with, money and things. They aren’t directly exposed, to anything like the same extent, to maths, science, history, or foreign languages.
Second, as far as I can see, the evidence is pretty mixed as to whether teaching “financial literacy” makes any difference to anything that matters. Are countries with higher “financial literacy” scores richer as a result, more stable, happier? And a recent report (page 32) for our own government agency that deals with this stuff actually showed that, for what it is worth, the “financial literacy” of New Zealanders scored quite well in international comparisons. What is the nature of the problem?
Third, why would we expect that the government, and its representatives, would be good people to teach children about money? …at a bigger picture level, in one way or another governments are the source of most financial crises – Spain, Ireland, Argentina, the United States, China. Governments are more prone than most to undertaking projects that they know provide low or negative economic rates of return. Governments face fewer market disciplines than citizens. And governments don’t have to live with the consequences of their mistakes. So perhaps I could support a civics programme that included a section on critically evaluating election promises and government policy announcements.
Fourth, much of the discussion in this area is quite strongly value-laden. And no doubt it has always been so. I recall the day when our 6th form economics class was visited by a banker, to try to promote savings etc. He brought along a hundred dollar note – this was 1978, and it was probably the first time any of us had seen one. Trying to set up a discussion about the merits of bank deposits (probably with negative real interest rates at the time), he asked us all what we’d do with the $100 if we had it. Various class mates rattled off their spending wishes, but the banker was totally flummoxed when one of my friends, a strong Christian, told him that what she’d do was to give it away.
And where, for example, in all the discussion of financial literacy is there any reference to the idea that one of the best routes to financial security is to get married and to stay married? There are elements of both causation and correlation there, but finding the right spouse, and learning what is required to make a lifelong commitment work, is almost certainly a more (financially) valuable lesson that knowing that when interest rates fall bond prices rise. But it is not one we are likely to hear from the powers that be – particularly not under the current government.
And fourth, this becomes an excuse for yet more bureaucratic/political bumpf, reinforcing a sense that governments should have “strategies” about everything and anything. I was somewhat surprised to learn that our government has a financial capability strategy. Why?
Building the financial capability of New Zealanders is a priority for the Government. It will help us improve the wellbeing of our families and communities, reduce hardship, increase investment, and grow the economy.
The National Strategy for Financial Capability led by the Commission for Financial Capability provides a framework for building financial capability. It has five key streams:
- Talk: a cultural shift where it’s easy to talk about money
- Learn: effective financial learning throughout life
- Plan: everyone has a current financial plan and is prepared for the unexpected
- Debt-smart: people make smart use of debt
- Save and invest: everyone saving and investing
On this measure, might we assume that “debt-smart” would mean taking as much interest-free student debt as possible and paying it off as slowly as possible? Not an approach I will be encouraging in my children.
More generally, I’m not sure that any of these items represent areas where we should expect governments to bring much of value to the table. One might marvel that human beings had got to our current state of material prosperity and security – let alone how our pioneers built a country that was once the richest on earth – without the aid of government financial literacy/capability strategies. And since when has a traditional Anglo reticence about matters of money been something for governments to try to change? Better perhaps might be a focus on improving the financial capability of governments.
The Commission’s own research (p 26) shows what one might expect, people develop more “financial literacy” as they need it. So-called “literacy” is low among young people (18% of 18-24 year old males are “high knowledge”), who don’t need it much. It rises strongly during the working (child-rearing, mortgage etc) years (53% of 55-64 males are “high knowledge”), and then looks to tail off a little in retirement. All of which is unsurprising, and (to me) unconcerning.
I know the so-called Commission for Financial Capability doesn’t cost that much money, but as I’m sure they would point out, every little counts. The money they fritter away on national strategies and capabilities is money that New Zealanders don’t have to spend, or save, for themselves.
As an easy way into this, consider this US-government funded online quiz, a shop window for a US project on better understanding financial literacy. I imagine that most readers of this blog will score 6/6, while the average American scores 3. But then stand back and ask yourself why the average American (or New Zealander) needs to know the answers to these questions, phrased rather in the manner of a school economics exam. People who read blogs like this take for granted a knowledge of the answers, but in what way has that knowledge made your life, or mine, better?
Back to 2020. As ever, in the Sunday Star-Times articles there is no hint of what schools might sensibly cut back on to squeeze in more financial literacy teaching (or “money mojo” as a couple of middle-aged commentators suggest calling it). It isn’t as if our core school academic results – maths, English, science etc- are so impressive that the marginal time would be a zero cost resource. There are only so many hours in the day, weeks in the years, years in a school life. And in recent years, schools have been told to add “digital literacy” to their teaching, they are about to be required to teach New Zealand history (something I generally welcome), and seem to devote ever more time to climate change issues (“all we ever heard about in social studies”, in the words of one of my kids). And yet you’d have thought that binding budget constraints would have been one of the ideas anyone wanting to teach financial literacy would be conscious of themselves, and take seriously.
Similarly for all the talk in the articles about how tough life is, there is no hint of any recognition that (say) average labour productivity (the underpinning of average material living standards) even in underperforming New Zealand is now more than 50 per cent higher than it was when I left school. And equally no hint of any recognition of the role governments – the people who would be teaching “financial literacy” – have played in the alarming underperformance of our economy. There is some mention of housing challenges, but none of the conscious and deliberate choices governments made, and keep on making, to render decent houses all but unaffordable to young families in our larger cities. Fix that at source and life (financially) would be a great deal easier for many of our lower income people. But that would involve governments making good and responsible choices, not continuing to shred the prospects of each successive generation. Even then, there would still be no obvious role for governments doing “financial literacy” education, but at least our governments might have a little more credibility as some fount of discipline and financial wisdom.
Parents do “financial literacy” all the time – not necessarily in the words they use (some more reticent than others) but in the choices they make, and which kids see them making. About consumption, about debt, about giving, about choice and opportunity cost, about budget constraints (if not in quite those words), about celebration (and self-denial), about partnership – about casts of mind (extravagant, frugal or whatever). We model – often inadequately perhaps – the values we encourage our kids to live by. It is how society works, and always has.
And I’m quite sure I don’t want Jacinda Ardern, Chris Hipkins, Simon Bridges, Nikki Kaye (or the teachers’ unions) getting in the way with their corrosive views. Rather better that the politicians focused on fixing the stuff that governments messed up in the first place. I was having a sad conversation yesterday with my daughter, who asked if it was really true that houses had once cost less than $100000. I had to explain briefly the idea of general inflation, but went on to tell her that when I was first house-hunting in 1985 I’d looked at several decent places priced at around $80000. Adjust for the CPI and that would be around $230000 today, but try looking for a house in south Wellington for $230000 – even one with 1985 type fittings, decor etc – and you’ll be stiff out of luck. Even at twice that price it would be almost impossible. That is deliberate government recklessness.