Importance of Money Management and Financial Literacy for Students

The goal of this essay is to provide information about the importance of money management for students and how can these be applied in our school system. The data gathered in this paper was taken from various academic articles and journals. This paper was made in order to capture all the relevant information needed to understand and explore what financial literacy is. In this essay we are discussing the topic of financial literacy, its importance, how other countries apply it and how we can apply it in our school systems.

What is Financial Literacy? The term financial literacy is sometimes used as a synonym for financial education. Even though both of these are different in the sense that financial literacy goes deeper than financial education. The Organisation for Economic Co-operation and Development  says that the idea of financial literacy is a combination of the consciousness, knowledge, ability, attitude and behavior that are necessary to make financial decisions and to achieve individual financial wealth. The main goal behind financial literacy is to help individuals grow a stronger understanding of the basic financial concept so they can manage their money in better ways.

One of the dimensiosn of financial literacy is nderstanding which is the knowledge of personal finance in financial education, and use, which goes in to the management of personal financial knowledge. When you take a look at these two dimensions you see that even if the person in question has financial knowledge he also has to have the skills to apply it when making financial decision or he would be considered illiterate.

Importance of Financial Literacy and Financial Education

Even though there were many differences when trying to conceptualize and evaluate all dimensions related to financial literacy, there was a particular amount of agreement in regard to its importance. Financial literacy is important because nowadays the responsibility of administrating money has become harder for people, especially for the youth. The main group of concern is the youth because they are the generation that is going to live longer thus the decisions they make are going to affect them for a longer period of time. There are different variations as to from what age till what age is considered youth, however we can conclude that youth is a person from 15 to around 30 years of age.

According to Vitt, financial literacy acts an important part when making financial decisions, as it shows effort focused at the growth of positive knowledge, behavior and attitude. However to this day there is no agreement in academia in regard to what tools should be used to model financial literacy.

Governments from different countries want to find practical approaches to improve their nation’s levels of financial literacy by means of creating strategies for financial education with the goal of providing learning opportunities at various levels of education. Aside from the government there have been international institutions and countless studies that have been assigned to this theme. Financial literacy is also very important for the countries that have developing economies because if their citizens improve their financial well being than that will boost the economy of the land.

It is important to know the difference between financial literacy and financial education. Financial education is a method of ability growth that makes it easier for individuals to make correct decisions and to run their personal finances successfully, while financial literacy is the skill to use the knowledge and abilities received. To say it differently, the focal point of financial education is knowledge while financial literacy is not only knowledge but also the behaviors and financial attitudes of people. Financial education is also the foundation; it has to be there to then move on to financial literacy.

According to the OECD, financial education is an approach whereby people improve their understanding in regard to financial products and their related concepts and risks in a way that they can use the information and recommendations provided to expand their abilities to make safe and important decisions to better their financial state.

Anderloni and Vandone states that one of the essential roles of financial education is to serve as a preventive action for managing their liabilities. Education supports the knowledge of people in connection to financial transactions, thus providing them with the necessary tools to make responsible and informed decisions.

How Other Countries Apply Financial Literacy?

Due to the changing of circumstances, changes in the needs of people, the amount time that has passed and the nature of the financial products, it is important to keep updating people of all age groups on financial literacy. For this reason a number of economies and organizations have tried to boost the financial literacy level of individuals. In Australia, Australian Securities and Investment Commission launched the ASIC; New Zealand framed the National Strategy for Financial Literacy. In UK they have the Financial Services Authority of UK and in India they have the Reserve Bank of India (that also opened a variety of financial literacy centers around the country) all of these have been trusted to make efforts to improve financial literacy.

India for example has increased the amount of financial products available for citizens of lower income; an example is that now you have the possibility to open a bank account without a minimum deposit in that way providing more alternatives to choose from.

What Can Be Done Within Our Current School Systems?

Here in Curacao it is not common to teach about financial literacy in the primary and secondary level. At university level there are courses about financial literacy however they are mandatory only for students who follow a finance program. In the other programs there is not a course that specializes in teaching about finance. As mentioned previously it is important for individuals to have financial education and financial literacy to make wise financial decisions about their spending in everyday life.

It is essential to start teaching about finance since a younger age because different researches show that young adults have the lowest level of financial literacy. An increasing amount of nations are acknowledging how important financial literacy is and are incorporating financial education to their school systems. That means that Curacao has to start with this too, to be able to do so they can start with some important points of focus. First and foremost they have to change their school system to include more financial education, then they could establish a learning framework as to what goals they want to achieve with this. Then the teachers and lecturers have to be properly trained to be able to provide quality information to the students.

Furthermore it is important to have the proper tools to teach and also look at the teaching approach. It should not be too boring and formal or the students are not going to pay attention to what it is being taught. A solutions for this could be more interactive classes, play so videos on YouTube about financial literacy to make it more entertaining for the students so they do not lose concentration.

If Curacao is able to apply these points of focus, then the students will be more financially educated for the future which in return will help the economy of the country because the students will be able to make better decisions in their work place once they graduate.

My Own Financial Literacy Level

From one to ten I would say my level of financial literacy is around a six. I say this because in this particular moment in my life I am still living with my parents, thus I do not pay rent, electricity or other household expenses. However I work part time that is why I do make a small budget for my personal expenses every month. In this budget I include an amount for going out, personal care, my car and my savings and for the most part I do not go over that budget. Also at this moment I do not have any debts and I have savings just in case there is an emergency. I also learned in class about investment so I am thinking of investing my savings, I just have to do a little bit more of research on the topic and on what opportunities are there on the island.

References

• Anderloni, L. and Vandone, D. (2010), “Risk of overindebtedness and behavioral factors”, Working Paper No 25, Social Science Research Network, Santa Monica, CA.
• ASIC (2011), “National financial literacy strategy: Australian securities & investment commission Report No. 229”, available at: www.financialliteracy.gov.au/media/218312/national-financialliteracy-strategy.pdf (accessed 23 October 2016).
• Atkinson, A. and Messy, F. (2012), “Measuring financial literacy: results of the OECD/International Network on Financial Education (INFE) Pilot study”, Working Paper No. 15, OECD Working Papers on Finance, Insurance and Private Pensions, OECD Publishing, Paris.
• Filipiak, U. and Walle, Y.M. (2015), “The financial literacy gender gap: a question of nature or nurture?”, Discussion Papers No. 176, Courant Research Centre: Poverty, Equity and Growth.
• Huston, S.J. (2010), “Measuring financial literacy”, The Journal of Consumer Affairs, Vol. 44 No. 2, pp. 296-316.
• National Strategy for Financial Literacy (2012), “Commission for financial literacy and retirement income”, available at: www.cflri.org.nz/sites/default/files/docs/FL-NS-National%20Strategy2012-Aug.pdf (accessed 24 October 2016).
• Organisation for Economic Co-operation and Development (OECD) (2012), OECD/INFE High-Level Principles on National Strategies for Financial Education, OECD Publishing, Paris.
• Vitt, L.A. (2004), “Consumers financial decisions and the psychology of values”, Journal of Financial Service Professionals, Vol. 58 No. 6, pp. 68-78.