Earlier this year, the Organisation for Economic Co-operation and Development (OECD) released the findings of the first international study of young people's levels of financial literacy, as part of its Programme for International Student Assessment (PISA). Australian students scored fourth out of the 18 participating countries and economies.

The study represents a major improvement in global knowledge of young people's financial literacy. It also supports the recent efforts of the Australian Securities and Investments Commission (ASIC) and Australia's education sector to prepare younger generations for the challenges of financial decision making beyond school.

This article discusses the importance of teaching Australian students good money habits early in life. It then looks at policy responses to this issue, including Australia’s National Financial Literacy Strategy 2014-17, and ASIC's MoneySmart Teaching program – an initiative developed to integrate consumer and financial literacy education into mathematics, science and English in the Australian Curriculum.

The need for financial literacy

Financial literacy is 'the combination of financial knowledge, skills, attitudes and behaviours necessary to make sound financial decisions, based on personal circumstances, to improve wellbeing' (National Financial Literacy Strategy 2014-17, p6). Financial literacy means being able to understand and negotiate the financial landscape, manage money and financial risks effectively, and pursue and attain financial and lifestyle goals.

Sound financial decision-making is strongly linked with improved financial wellbeing and greater participation in economic life; benefiting not only individuals themselves, but their families, communities and nations. In short, financial literacy is a core life skill. With almost every Australian owning one or more financial products and taking on greater responsibility for their long term financial security, financial literacy is more important than ever before.

To have the best chance of success in improving Australians' financial wellbeing, children must be taught how to manage money as early as possible (OECD 2005). Not only are young people growing up in a world that requires complex financial decision-making, they are also money managers from a young age. For example, the latest findings of Roy Morgan's Young Australians Survey (2014) found that Australians aged between 6 and 13 currently have over $650 million in personal savings. Significantly, over a quarter (26%) of those surveyed either had no savings or couldn't say whether they did, leaving only 74% with a known amount in savings. Also noteworthy is that while the average amount saved by respondents was $285, the distribution of balances was highly skewed, with almost half having less than $50 and 10.2% having $1,000 or more.

In the OECD's 2012 PISA study of 15 year olds' financial literacy skills, Australia performed higher than the OECD average, ranking equal third out of the 18 participating countries and economies. Despite this strong result, 19% of Australian participants performed at the baseline of financial literacy proficiency and 10% below it. 

The OECD's PISA study also highlighted significant differences in financial literacy, both within and between countries. For example:

• Only one in 10 students scored at the highest financial literacy proficiency level in PISA. At the end of the proficiency spectrum, 15% of students, on average, scored below the baseline level of performance. At best, these students can recognise the difference between needs and wants, and make very simple decisions about everyday spending.
• On average, financial literacy is higher among more socio-economically advantaged students. Specific groups of the population such as immigrants and students living in rural areas display on average lower levels of financial literacy.
• In contrast with findings on adult populations, there were no marked differences on average by gender.  Yet, there were fewer top performing girls than boys and more poorly-performing boys than girls. These results confirm the need to reinforce girls' financial abilities to allow them to reach higher levels of financial literacy (and be better able to manage their finances in adulthood); and highlight the need to support boys at the bottom end of the proficiency scale.

The second PISA financial literacy study is scheduled for 2015, with results due to be released in 2016/17.

Advocates of financial literacy education in schools suggest that this is not only the most effective place for this learning to occur but the best way of reaching a large number of young people from all socio-demographic backgrounds.

Policy responses

Over the past decade, particularly since the Global Financial Crisis, financial literacy has gained prominence on the agendas of national governments, with many identifying it as an important complement to financial market regulation, consumer protection and financial inclusion policies. (Perotti et al 2013). In 2012, G20 leaders endorsed the OECD/International Network on Financial Education (INFE) High Level Principles on National Strategies for Financial Education. As of August 2014, 55 countries were in various stages of developing, implementing or revising a national financial literacy strategy that accords with these Principles.

A number of countries are now leading the way by implementing a second national strategy, based on their experience and evaluation of the first national strategy. Australia is one of these countries.

Australia’s National Financial Literacy Strategy 2014-17

In August 2014, ASIC launched Australia's new National Financial Literacy Strategy 2014-17. The Strategy represents an important milestone in efforts to improve the financial literacy of consumers and retail investors, and the culmination of 12 months of extensive consultation with over 200 stakeholders.

The Strategy provides a national framework for action to improve Australians' financial literacy and a roadmap for all those working in this area. It is built around the following strategic priorities:

• Educating the next generation, particularly around the formal education system, including schools.
• Increasing the use of free, impartial information, tools and resources, such as ASIC's MoneySmart website which helps over 400,000 Australians a month make informed personal financial decisions.  
• Providing quality targeted guidance and support.
• Strengthening co-ordination and effective partnerships.
• Improving research, measurement and evaluation.

The MoneySmart Teaching program

MoneySmart Teaching, developed by ASIC in collaboration with education authorities, is the Australian Government's financial literacy education program for primary and secondary students and their teachers. It builds the capabilities of young Australians in relation to five financial principles: planning, spending, saving, donating and investing.

The program has five key components:

• Promoting a curriculum-based approach to teaching consumer and financial literacy in Australian schools
• Providing free teaching resources aligned to the Australian Curriculum that use real life consumer and financial contexts for learning
• Building teacher capability through professional development and personal learning
• Creating partnerships across sectors to develop and implement a nationally consistent and collaborative approach to consumer and financial literacy education in schools, and
• Fostering a whole-school approach which recognises the significant role of families and the wider community in helping young Australians develop the knowledge, skills, attitudes and behaviours needed to make confident and informed financial decisions.

The first two components are focussed on promoting a curriculum-based approach to teaching financial literacy in Australian schools and providing teachers with engaging resources, such as videos and multimedia activities to use in their classrooms. Rather than treat financial literacy as a separate subject, ASIC's MoneySmart Teaching provides students from Foundation to Year 10 with real life learning in important financial concepts across curriculum areas such as English, maths and science, and soon economics and business as well.

The third component builds the capacity of teachers to deliver financial literacy education. Through the MoneySmart Teaching National Partnership Agreement, professional development is provided to teachers via face-to-face workshops and offered online for teachers based in regional and remote areas. ASIC's training also has a personal learning component called Financial Health for Teachers, to help teachers with their own finances.

The fourth component is about creating partnerships – first and foremost with education departments, the Catholic and independent sectors and schools, but also across the Australian government, business and community sectors. ASIC's MoneySmart Teaching is supported by state and territory education authorities and the Australian Council of State School Organisations.

Lastly, MoneySmart Teaching provides an opportunity for a whole-school approach to consumer and financial literacy education and encourages schools through its MoneySmart Schools program to engage with their communities.

ASIC's MoneySmart Teaching also has a strong emphasis on engaging parents and carers in the teaching and learning of their children. This is demonstrated through the development of specific resources for families such as Raising MoneySmart Kids – a series of five videos which offer practical tips and strategies for educating children about money. Participating schools are also encouraged to hold parent workshops to raise awareness of the importance of consumer and financial literacy education.


Conclusion

Since its initial trial phase in 2012, ASIC's MoneySmart Teaching has made significant progress, with over 12,000 teachers completing professional development and more than 2,000 schools now engaged in some aspect of our program. The ultimate objective is to have aspects of financial literacy integrated into all Australian schools, from Foundation to Year 12.

ASIC looks forward to further strengthening our partnership with Australia's education sector and helping young people build more secure futures.

For further information about ASIC's MoneySmart Teaching program and to access free resources, visit moneysmart.gov.au/teaching


References

Australian Securities and Investment Commission. National Financial Literacy Strategy 2014-17. ASIC Report 403

OECD, Recommendation on Principles and Good Practices for Financial Education and Awareness, 2005

V Perotti, S Zottel, G Larossi and A Bolaji-Adio, Making sense of financial capability surveys around the world report, International Bank for Reconstruction and Development. The World Bank, February 2013.

Roy Morgan Young Australians Survey, July 2013 – June 2014