A 2015 financial literacy survey conducted by the Standard and Poor’s found that 33% of adults worldwide were considered financially illiterate. Some countries - such as Sweden, Norway, Finland, and Germany - had literacy rates upwards of 65%. While on the other hand, most countries in South Asia were home to some of the lowest percentages, where only a quarter of adults - or even less - were considered financially literate. This raises a critical question: Why?
The answer is a lack of financial literacy in youth. Financial literacy is typically not stressed in many countries’ education systems or anywhere else when children are growing up. This isn’t to say that we need to teach our kids what compound interest or share buybacks are when they are in eighth grade; rather, we need to stress the importance of budgeting, saving, and spending wisely. We should also stress the importance of teens knowing how to put their money in the bank, investing safely and wisely, and becoming familiar with their country’s financial system.
The Programme for International Student Assessment (PISA) in a 2022 study discovered that one out of five students lack a foundation in basic financial skills - meaning they could not complete basic tasks like creating a beginner’s budget. Another study in the U.S. from Greenlight identified that 74% of teens were not confident in their financial education. The European Union’s “Eurobarometer,” a series of public opinion surveys, found that just 21% of respondents completely agreed with the following statement: “I set long-term financial goals and strive to achieve them.”
The Hidden Debt of Financial Illiteracy
Now that we know that large-scale financial illiteracy in youth is present in nearly every part of the world, we must ask: Why is it a problem? One answer is that it prevents people from meeting future financial goals. The repercussion of financial illiteracy comes in many forms, but one of the largest is debt. When teens go out into the world, whether it is having a job after secondary school or after receiving some form of higher education, illiteracy can be a proponent of poor financial decisions. If youth are unaware of how to spend the money they earn properly or budget with respect to achieving long-term financial goals, it can lead to poor credit, massive debt, and other negative consequences.
Losing money due to financial illiteracy is a theme found even across borders. The International Federation of Accountants (IFAC) - in an article from 2023 - reported that a lack of financial illiteracy during the pandemic cost Americans an estimated total of $436 billion. An older study conducted in the United Kingdom, the IFAC article reports, explained how people who did not save enough for retirement cost the UK government £6.2 billion in income subsidies. The underlying theme: when people don’t know how to manage their money going into adulthood, it often results in debt or missed potential to save more for their future goals.
Breaking the Cycle
Thankfully, there are tangible steps to be taken in order to alleviate the troubles financial illiteracy presents to future generations. One step is advocating for major organizations and even governments to become more active in financial education for teens and youth. The European Union has already started this step, as they combined efforts with the Organisation for Economic Co-operation and Development to publish the Financial competence framework for children and youth in the European Union - a framework to help Member States and practitioners improve the level of financial literacy in children and young people. In Indonesia, the Financial Services Authority launched a five-year strategy to improve financial literacy.
Social media and its ability to influence young people can be harnessed as well. Singapore Business published an article about the potential uses of Gen Z pop culture to increase financial literacy in South Asia. Meanwhile, “finfluencers” - social media influencers whose content revolves around informing people about personal finance and investment - are starting to pop up more and more on people’s social media feeds around the world.
In our current geopolitical climate, there is a large-scale movement of financial illiteracy in our youth. It is a major problem that could result in disastrous financial futures for these young people. Thankfully, we can take appropriate actions to ensure there is a proliferation of financial literacy in teens around the world, and that our future generations will be more informed than the last.
