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Lessons from abroad on financial education

National mandates overseas won't fly in decentralized US school system

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The U.S. is not alone in its attempts to address financial literacy in public schools. An international push is on to teach kids the money skills they need to navigate today's increasingly challenging financial landscape.

Financial instruments are much more complex than they were a generation ago, when credit card usage was limited and debt was confined to a mortgage and maybe a car loan. The options have multiplied all over the world. "That's why this is a global movement," says Annamaria Lusardi, distinguished professor at The George Washington University School of Business and founder of the Global Financial Literacy Excellence Center. "It's not just the U.S., though the U.S. has a more complex economy and has bigger problems than other countries in my view."

International comparisons are tricky
When it comes to the financial know-how of young people, comparing different countries is difficult. The Organization for Economic Cooperation and Development for the first time included financial literacy questions on its 2012 Programme for International Student Assessment (PISA), an exam given every three years to 15-year-olds around the world. (To see how well you fare on some of the OECD's sample questions, take our interactive quiz.) Those results won't be released until later in 2014. But PISA math results released in December ranked the U.S. at No. 36 -- below average for the 65 countries involved. Since numeracy is tied to financial literacy, it's not a stretch to predict that American students will come out somewhere around the middle of the financial literacy results.

As the feds push for more financial education in public schools, questions linger about how financial subjects should be taught -- and whether they're even teachable for school children
SCHOOL CHALLENGE: FINANCIAL LITERACY

Americans face a more complex financial world than ever, yet most of us don't really understand how credit, debt, banking and investments work. Our special report on financial literacy looks at whether public schools can create more financially capable citizens.

A 2012 World Bank report, "Financial Literacy around the World," provides a glimpse of how adults in different countries compare. It looked at how they answered three questions that cover basic understanding of compound interest, inflation and risk diversification. The U.S. ranks near the bottom of seven high-income countries on the interest and inflation questions, and toward the middle on the risk problem. The surveys were given in different years and some countries used variations on the questions, so comparisons are only approximate.

Lessons from abroad
As the U.S. tries to tackle financial education, it is keeping a close eye on what other countries are doing. Teachers in England are required to incorporate personal finance topics into math classes in 2014, bringing that country up to the standards of Northern Ireland, Scotland and Wales, where schools are already required to teach personal finance. Australia is also rolling out a national financial literacy curriculum in its public schools.

Those kinds of national mandates are not possible in the U.S. with its decentralized education system. "Australia and the U.K. have very top down systems where the government says, 'You will put this in your curriculum,'" says Jeanne Hogarth, vice president of policy at the Center for Financial Services Innovation and a frequent financial literacy speaker. "In the U.S., we have a very grass roots approach when it comes to education. Local school boards decide everything."

The U.S. might draw lessons from New Zealand, whose education system is also decentralized. New Zealanders scored higher than the residents of 14 other countries (not including the U.S.) when measured on eight core financial knowledge concepts by the OECD.

International experts routinely praise the small country for its initiatives -- it was the first to create an independent website dedicated to educational resources for consumers (www.sorted.org.nz). "In the past few years, the government has been putting strong emphasis on increased financial capability as one of the key elements in improving the economic health of individuals in the nation," says Pushpa Wood, director of the Financial Education and Research Centre at Massey University.

Wood points out that other factors probably contribute to New Zealand's high scores: a small population (about 4.4 million) that is relatively easy to reach with educational messages and a high proportion of banked consumers who are engaged with financial products.

Still figuring it out
Wood says there is still much room for improvement. Much like the U.S., New Zealand is still feeling its way to a more financially literate public.

According to Wood, financial literacy is included by implication in the country's core education objectives, which stipulate that a student should be able to contribute economically to the nation by the time they leave school. But New Zealand cannot mandate financial literacy classes in public schools, for reasons similar to those of the U.S. Individual schools decide whether to teach personal finance topics.

We've seen success in schools that have passionate champions for financial literacy and we're working with them to engage with other schools.

-- Malcolm Menzies
NZ Commission for Financial Literacy and Retirement Income

"We're now adopting a beachhead strategy," says Malcolm Menzies, group manager of research and corporate services at New Zealand's Commission for Financial Literacy and Retirement Income. "We've seen success in schools that have passionate champions for financial literacy and we're working with them to engage with other schools."

The government is also trying to address another pain point: teacher confidence. New Zealand is piloting programs to train teachers not only in the financial knowledge they need to pass on, but also in effective methods for teaching it. "The holy grail is to have teachers be confident enough that if a financial question comes up in another class such as social studies, they can address it," says Menzies.

He would like to see the pilot program expanded, pointing to Australia, which is pouring millions of dollars into training thousands of teachers. "If we could put 10,000 teachers through, then we'd be getting somewhere," he says.

See related: Infographic: Brazil top nation for financial literacy, Visa survey finds, 5 credit lessons all parents should teach their daughters, How to teach your son about money

Published: January 9, 2014



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