As the world economy steadies itself and the tides turn on the financial crisis, a survey reveals half of school leavers are financially illiterate and ill prepared for the future.
The survey, released by the Institute of Financial Advisors (IFA), shows that just over half of the pupils surveyed could answer eight out of 40 questions correctly. The questions covered personal spending and saving, tax, KiwiSaver, earning power and education, credit card interest and rates of return on investments.
IFA president Lyn McMorran says the results underscored an urgent need to increase focus on financial literacy in secondary schools.
“The survey shows some alarmingly low levels of understanding of financial terms and concepts. We can conclude from the survey that most New Zealand senior secondary school students have a poor understanding of personal financial management and knowledge.”
Only 20 percent, or eight out of the 40 questions, were answered correctly by more than half the 443 students surveyed. Students did best on questions where they most likely had experience, such as ATMs and third-party insurance.
McMorran says what is more disconcerting is that more than 27 percent of respondents reported they had received more than 40 hours of financial literacy instruction.
Young Enterprise Trust Financial Education (YETFE) national director, Lyn Morris says the questions were ones the students could reasonably be expected to be familiar with and the result indicates students are leaving school poorly prepared for financial independence. The results were gathered from a cross-section of pupils from 54 schools around New Zealand.
The IFA urges the poor financial knowledge levels to be addressed. “The results support the need for even more training in financial literacy in schools because if they don’t get it at school, where will they receive it?” McMorran questions.
“There is an urgent need to increase the focus on financial literacy and both parents and schools must play a part in ensuring young people are provided with a sufficient level of financial understanding before leaving to partake in the real world.”
Retirement commissioner Diana Crossan says the survey is alarming, but not unexpected considering the historical lack of financial education in schools.
“Students need to be able to understand basic financial concepts to manage their lives effectively. Of most concern is that very few answered questions about credit card interest correctly,” Crossan says.
“Many students see the opportunity of getting a credit card as a rite of passage. But this survey shows they don’t understand the implications of not paying off the card in full every month,” Crossan says.
The Retirement Commission released in September a new set of education resources specially developed for secondary school students, but Crossan says much more needs to be done to target this age group. The resources are designed for teachers to use with Year 11-13 students and cover credit cards, mortgage, budgeting and savings.
“We know from the survey that younger New Zealanders generally have low levels of financial literacy. We have done a considerable amount of work in the past couple of years to get financial literacy introduced to schools for Year 1-10.
“We need to encourage and support teachers to use the resources available. We also need to encourage parents to talk to their children about money matters.”
McMorran says the financial environment is changing rapidly and with it, the needs of students. “Consumers today require greater levels of financial knowledge than ever before. Having financial knowledge enables people to make wise financial decisions and if they are unable to make these devisions for themselves, then they need to know when to seek advice.
“Since many decisions have long term consequences for future financial well-being, financial literacy is an important life skill.”
The 40-item multi-choice questionaire about financial knowledge was commissioned by the Young Enterprise Trust and answered by 443 senior secondary students from a cross section of New Zealand schools. Survey questions were aimed at reflecting the complexity of modern life and McMorran says they were of a reasonable technical nature.