Autumn 2006

The big picture - in education

What is financial literacy?

Building financial literacy levels will benefit all Australians. It will build our savings, minimise our debts, help us avoid scams and lead us towards secure retirement. It will also have a positive impact on Australia’s economy. Recognising this, the Australian Government has established the Financial Literacy Foundation. Gillie Kirk reports how the Foundation will make it easier to deliver quality education and training in financial literacy.

Financial literacy is about being good with personal finances. It is the knowledge and skill that helps people save, make good spending choices and sound investment decisions.

Why teach it?

Young people are increasingly presented with financial decisions. At first, these decisions are small, whether to spend or save pocket money, but as our young people move towards adult life, these decisions become more complicated. Typical financial decisions faced by 15–20 year olds are whether to take part-time work, how to manage a credit or debit card, containing costs on mobile phones, buying a car, whether to move out of home, and whether to work or stay at school. Youth problems with debt and lack of understanding of financial issues are frequently reported.

Managing personal finances is more complex than ever before. A much wider range of providers (not just banks) offer a much wider and more complex range of services. Healthy competition within the finance sector should deliver a good outcome to the consumer, but only if we are able to understand our options, set goals and differentiate between products.

The following examples suggest that we have not developed the capability to make the most of the financial options open to us:

• Household debt has more than doubled over the past decade, from around 68 per cent of disposable income in 1993 to 135 per cent of disposable income in September 2003. Recently, it has eased a little.
• In September 2005, over $23 billion of Australian credit card debt was attracting interest payments—accounts that are not paid by the end of the interest-free period.
• In January, The Daily Telegraph reported preliminary New South Wales Supreme Court figures indicating that every day in NSW, 11 home-owners are faced with repossession of their homes.

The major benefit of improved financial literacy is access to a more secure and comfortable life. This comes through a person’s improved ability to:

• manage debt
• demonstrate eligibility for finance for major purchases such as a home
• avoid high cost financial transactions
• invest in their education
• meet unexpected problems such as health problems
• make better investments
• secure a comfortable retirement.

The economy, and Australia as a whole, also benefits from improved financial literacy. More informed consumers will result in competition within industry to produce more and better products. This will build a stronger and more resilient industry. Such competition will result in poor practice and scams being squeezed out of the market. More financially literate people are also likely to save more, which in turn should result in increased investment levels and economic growth.

Financial Literacy Foundation

Recognising the need for all Australians to build the skills they need to manage their money in the modern world, the Australian Government established the Financial Literacy Foundation. The Foundation is charged with raising community awareness of the benefits of improved financial literacy and assisting all Australians to make more informed financial decisions and to better manage their money. It receives independent, strategic guidance from an advisory board chaired by personal finance expert and communicator, Paul Clitheroe.

The Foundation is implementing a national strategy, the key elements of which are:

• an Australia-wide information and awareness-raising campaign launched early in 2006
• a website that will host financial literacy information and education resources to support the delivery of quality financial literacy education at www.understandingmoney.gov.au
• financial literacy programs in schools and workplaces, vocational and higher education
• research and benchmarking of financial literacy levels.

Financial literacy education initiatives

The Foundation is committed to working in partnership with key stakeholders. Significant progress has been made supporting the inclusion of financial literacy in the curriculum and programs of the education, corporate and community sectors.

Working with education sectors is a priority. Already substantial initiatives are in place to increase the level and quality of financial literacy education being provided through schools, the vocational, adult and university sectors, and through workplaces.

A network for educators and trainers has been established. Through it, the Foundation collects and disseminates news on financial literacy initiatives. As it develops, the network will become an interactive forum, contributing to a financial literacy education community.

Part of the website will support educators, trainers and human resource professionals in implementing financial literacy programs. Information will include case studies, summaries of quality resources and news on financial literacy developments and events. The case studies may stimulate new ideas for delivering financial literacy education, or encourage collaboration between educators, business, community and government. The website will be progressively expanded during 2006.

The National Consumer and Financial Literacy Framework will progress education in financial literacy significantly. The framework is a descriptive document that sets out educational goals in financial literacy for Years 3, 5, 7 and 9 and will be included in the National Statements of Learning. This will ensure all Australian students access to financial literacy education in their compulsory years at school. The framework will also inform curriculum development, support materials and professional development. The Foundation was a partner in the development of the framework commissioned by the Ministerial Council of Education, Employment and Youth Affairs (MCEETYA).

Vocational education and training (VET) is an ideal delivery pathway for financial literacy education. The Foundation is working with Innovation and Business Skills Australia (IBSA) to improve the access of Tertiary And Further Education (TAFE) and other VET students, including apprentices and trainees, to financial literacy education. Already, financial literacy competency standards have been nationally endorsed as part of the Financial Services Training Package. IBSA, with input from the Foundation and a number of other key bodies, is developing support materials that will assist in the delivery of the financial literacy competencies to apprentices and trainees, adult learners and small business entrepreneurs.

As the workplace is where people are called upon to make decisions about many financial matters, it is an effective delivery point for financial literacy education. The Foundation is about to start work on a workplace pilot with the ACT branch of the Master Builders Association (MBA). This pilot is the first collaboration by the Foundation with an industry association to integrate financial literacy into vocational education. It will see 200 apprentices and cadets receive training in financial literacy skills such as developing and using budgets and savings plans, using debt and credit, and understanding superannuation. The Foundation is also working with the MBA to develop a financial literacy seminar package for the 900 ACT members.

To learn more about the Foundation, or join the educators and trainers network, visit www.understandingmoney.gov.au

References

Commonwealth Bank (2005). Improving Financial Literacy in Australia: Benefits for the individual and the nation, available at www.about.commbank.com.au/GAC_File_Metafile/1687,4513%255Fkey%255Ffindings%252520,00.pdf

Innovation and Business Skills Australia (2006). The Financial Services Training Package, available at www.ibsa.org.au

Ministerial Council for Employment, Education, Training and Youth Affairs (2006). www.mceetya.edu.au/pdf/financial_literacy_framework.pdf

NSW Department of Fair Trading (2003). Youth Debt: A research report, available at www.fairtrading.nsw.gov.au/pdfs/corporate/youthdebtreportnov03.pdf

Organisation for Economic Co-operation and Development (OECD) (2005). Improving Financial Literacy: Analysis of Issues and Policies, OECD, Paris, available at: www.oecd.org/ document/28/0,2340,en_2649_201185_35802524_1_1_1_1,00.html

Gillie Kirk is a senior advisor on education and training at the Financial Literacy Foundation, in the Department of the Treasury.

The author owns the copyright in this article. For information related to the reuse of this work in any form please contact the publisher denise.quinn@curriculum.edu.au