BY JOHN ELLIS, FINANCIAL ADVISOR
According to a recent study from Bank of Ireland many Irish people struggle with financial matters. Many of us are not sure of the best ways to save money, how to get tax back, or what is the best way to prepare for retirement etc.
The study asked more than 1,000 adults 24 questions over nine topics to determine their understanding of things financial. Unfortunately we lag far behind other countries, like Australia, Germany and the UK, when it comes to understanding financial matters.
According to the survey there is a striking difference across demographics. For example, those aged 18-34 score lowest at 48% with the highest score of 58% achieved by the over 65s. A total of 26% of those who took part got fewer than 10 questions correct and would be considered to have very poor financial literacy.
Understanding savings and tax reliefs was lowest, with only 37% of answers scored correctly on savings and 42% on tax relief, while all groups did poorly on ways to reduce credit card interest with just 19% able to identify the various ways to avoid paying interest on credit cards. More than half the group misunderstood the concept of compound interest.
Speaking about the results, Dawn Bailey, Head of Financial Wellbeing, Bank of Ireland said: “The right financial decisions can have a critical impact on our lives. If we are more financially knowledgeable and literate, we are better placed to make sound choices and improve our financial wellbeing.”
With the increase in the use of digital services the OECD in 2020 adopted the ‘Recommendation on Financial Literacy’ report calling on members to develop national strategies that will lead to a sustained and co-ordinated approach to financial literacy.
The recommendation covers three main areas, that national strategies for financial literacy, financial literacy and the various sectors of the financial landscape and effective delivery of financial literacy programmes. It also looked at how to address the needs of vulnerable groups, taking into account the increased digitalisation of finance by drawing on recent research and evidence.
With the fast-changing and increasingly digital nature of financial services particular attention needs to be paid to the development of financial literacy skills to help current and future generations face the fast approaching financial challenges.
School is the place where financial education should begin. It can provide a head start in becoming financially literate. Programmes should be implemented on a national level but in many cases its left to private and ‘not for profit’ stakeholders to roll out their own strategies.
For example, Bank of Ireland have implemented the Money Smarts programme for secondary schools and the Talking Cents resources for primary schools hoping to teach children how to make sound choices and improve their financial wellbeing.
In 2021 the Credit Union launched the New Financial Education Resource for Primary Schools covering money and maths, earning money, budgeting, spending and saving, impulse buying vs investing, financial literacy and the history of a credit union and how it works.
Robert O’Reilly, Chairperson, National Youth Committee, said: “The Start Money Smart is a brilliant new resource for primary school children. Starting financial education from an early age sets the foundation to make more informed financial decisions as the grow up. Start Money Smart has been developed for use by teachers in the classroom and for parents to have fun activities at home with their children.”
But there are warnings in the OECD report in that on the one hand “the involvement of the private sector in financial education can bring a number of benefits; the contribution of financial resources, specialist and up-to-date knowledge on financial issues, and efficient means of communication.
“They are well positioned to reach a wide audience, to exploit teachable moments related to key financial decisions, and to combine financial education with financial inclusion efforts.”
But there are shortcomings that need to be addressed, duplication of efforts, lack of teaching experience and expertise, lack of programme evaluation, and a potentially inefficient use of resources.
Financial education can become a business in itself with the risks that private organisations are more prone than public and not-for-profit ones to target the most profitable and easy-to-reach clients, and can have a preferential focus on short-term views, initiatives and resources.
Use all the on-line resources available but educate yourself wisely.