Financial Literacy is the Key to Financial Freedom

My old high school teacher Mr Smith was passionate about learning. He had a steely conviction in mathematics that bordered on the creepy. But this wasn’t enough.

He didn’t take students with him on his algebraic adventure. Unlike John Keating (played by Robin Williams) in Dead Poets Society, he didn’t engage us – a common failure in so much of what passes for education.

I can’t remember any of my classmates sharing his enthusiasm for our lessons. At that stage my mind was focused on girls and making my first million.

Come to think of it, not much has changed. While Smith was genuinely keen on algebra, we couldn’t see how much street value there was in having a working knowledge of mathmatical theory.

But even as a teenager I understood that having a working knowledge of money management would let me reap the rewards of compounding interest, and so would set me up for life.

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Learn early

We all know that learning about money from a young age is important. The mix of a deregulated finance industry and cut-throat competition, mean there’s a temptation to ruin yourself financially from the day you turn 18.

Credit cards, car loans and mobile phones are all heavily marketed to young people, most of whom don’t have the knowledge to make an informed choice, which can put them behind the eight-ball from day one.

Understanding Money

In response to these problems the Federal Government this week launched the Understanding Money campaign which aims to help Australians improve their financial knowledge and better manage their money. The centrepiece is a booklet that explains the basics of proper money management.

The government is spending lots of (our) money to ensure that everyone hears about the initiative, allocating an advertising budget of $13 million to promote the program.

While the advertising agency that won the tender for the government gravy train will earn enough in commissions perhaps they could have shared their marketing knowledge with the bureaucrats before they went on an eight-figure spending spree.

The campaign attempts to target “Australians”, from secondary school students to seniors – quite a wide market. The booklet apparently is designed for everyone, yet as marketers know too well, by trying to appeal to everyone you run the risk of not appealing to anyone.

And that’s exactly what has happened.

The booklet Understanding Money, how to make it work for you, does a good job of covering the basics of financial literacy, however, just like the students in Mr Smith’s class, I doubt whether too many people are going to sit down and read through the 48-page publication.

Like much of what comes out from government departments, it’s as dry as my mouth on a Sunday morning.

Sure, the information is sound, but that’s not really the issue. Anyone with an internet connection or a library card has access to the same information.

Knowledge is power

The answer to improving financial literacy isn’t found in a bland and boring booklet – it’s about motivating people to use the information to make more informed choices with their money. Therein lies the problem, which no amount of advertising “spend” can solve.

I first learned this lesson as a young graduate at the Australian Stock Exchange. At the time we offered a comprehensive lecture course on investing. Our lecturers were the best in the business, bar none. Still, most weekends we would be lucky to have 50 students, while somewhere over the other side of Sydney a get-rich-quick spruiker of questionable experience and integrity could pack out a concert hall and charge 10 times the amount that we did.

It’s easy to sit on the sidelines and take pot-shots at a worthy government initiative, and much harder to find workable solutions.

Teaching financial literacy

I’m still a big believer in students being taught about the basics of money as part of a well-rounded education.

Frustratingly, there is still no framework for teaching financial literacy in Australian schools, despite evidence that school leavers are among the least financially literate people in society.

Having long left the halls of higher learning, I often find myself in Mr Smith’s shoes, as a young guy who is passionate about teaching people about money. I am well aware that most people don’t share my enthusiasm.

However, unlike my former teacher, I understand that the key to teaching isn’t just a solid grasp of the fundamentals, but having the skills to effectively impart that knowledge in a way that motivates people to want to learn life-long lessons.

I often speak at high schools about the value of understanding money. On one occasion the teacher told me that her class wasn’t the least bit interested in money – apart from spending it.

This is a common misconception I get from both teachers and parents and it simply isn’t true.

Getting the message

I explained to this teacher that my success in teaching was more about science than spreadsheets – it all revolves around hormones.

At the start of my speech I asked the kids to put up their hands if they were interested in learning about financial literacy. After a few moments of the teenagers staring blankly at me and a few kids up the back of the class sniggering, I then asked another question: “Who wants to buy a car when they turn 18?” Immediately all the boys (and most of the girls) put their hands up.

Teenage boys dream of owning a car, simply because it gets them away from their parents and helps them pick up girls. Then, just to make sure that I had converted everyone, I asked who wanted to spend schoolies week partying on the Gold Coast.

From this point I have the class eating off my every word. Suddenly the mundane has become mandatory and far from getting the typical teenage “death stare” they were full of questions about how to achieve it.

The answer to getting to their dream is, of course, by mastering simple lessons: learning how to set goals, following a savings plan, steering clear of debt and learning about investing.

Changing the future

You often hear people say “If I only knew then what I do now things would be so much different”.

Taking the time to teach kids the basic rules of money can radically alter their future, regardless of their academic aptitude.

However, until the education system takes up financial literacy as a curriculum requisite, this task will fall to parents.

Parents can learn from Mr Smith’s mistakes by encouraging their children to discover how money works in the real world – first hand.

Why not show them your credit card statement (and how much interest you’re being charged), or get them to investigate a company they can eventually become a part-owner of via a small purchase of some shares?

Above all, few people like learning in the abstract, it’s only when you have the motivation of a goal when the lessons really come to life.

Tread your own path!

Photo: http://www.flickr.com/photos/denemiles/3971887734/