Why is Australian 15-year-olds' financial literacy declining?

Around a fifth of 15-year-olds in Australia do not have basic financial literacy, according to a new OECD Programme for International Student Assessment (PISA) financial literacy assessment results report.

Financial literacy is defined by the OECD as:

Knowledge and understanding of financial concepts, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial wellbeing of individuals and society, and to enable participation in economic life.

This topic has an elevated status in the Australian curriculum, particularly within maths and humanities.

However, the report showed that young people are doing worse in this area now than previously. In particular, students struggled to read payslips and detect financial scams.

Low socioeconomic background, attending a rural and remote school, and Indigeneity influenced students’ financial literacy performance. Interestingly, girls outperformed boys.

So why the gaps and why is performance declining?

Conventional approaches are driven by the finance industry

OECD Guidelines on Financial Education in Schools argue that the younger generation face increasingly complex financial problems. This is why there is a need to teach students skills and knowledge related to finance from a young age, to help them engage in society in later life.

The most important financial decisions people face involve choices - about work, study, transport, housing, insurances and investments. These choices are influenced by complex and changing economic and financial realities. This means there is a need to focus on basic skills and capabilities that will equip students to be critically informed in managing their money.

Since the 2007 global financial crisis, the Australian government has invested more than A$10 million in the Helping our Children Understand Finance policy and other related initiatives.

This work is led by the Australian Securities and Investments Commission (ASIC). Key to ASIC’s work in this area has been creating the MoneySmart brand.

The MoneySmart website is marketed as a “one stop shop” for all things money-related and includes resources for schools and teachers.

The Commonwealth Bank’s Start Smart program takes a similar approach, with guest workshops facilitated by bank employees. The Commonwealth Bank has a long history of recruiting customers at a young age through its school banking program.

This approach to financial literacy education, which provides “one size fits all” lessons, has been critiqued as missing the mark. Sure, some topics are generic, but local real world problems can vary significantly.

For example, a teacher recently explained to me that some of his secondary students were trading bitcoin. Meanwhile, teacher colleagues in rural communities were concerned about their students’ family farms and financial futures. These stories show that teachers are tuned in to their students’ financial literacy learning needs and interests.

A recent evaluation exploring the potential of MoneySmart in low socioeconomic schools recommended that teaching resources should be reviewed. The report highlighted the value of working with teachers to develop real world mathematics lessons that fit local needs and interests, while exploring ways teaching practice might be enhanced.

With declining financial literacy results, it’s time to question whether conventional approaches are working.

New initiatives that do more to involve teachers in thinking about and planning for student financial literacy learning may have a greater impact.

Students want lessons they can relate to

Around 79% of Australian students have a bank account. What students then need to know about are the types of financial products and services available, and the risks and rewards they might bring.

My research has shown that even primary school students value real world financial literacy learning experiences where they deem the tasks to be useful to their lives beyond school.

Such lessons involve practical tasks like applying literacy and numeracy to making sense of information that is presented in different formats.

Depending on the school, lessons that involve making decisions about takeaway menus, public transport pricing and mobile phone plans can be explored in Years 5 and 6, when students are beginning to think about using these services themselves.

In secondary school, teaching and learning should continue to be dynamic and timely. For example, students need to learn to keep track of their money electronically, pose questions and think critically when interacting with banks, and protect their personal information from scams.

Schools and teachers need support

Behavioural economics research shows that financial behaviour may depend as much on intrinsic values and attitudes learned at home as the knowledge and skills acquired at school.

This explains why the real impact of high school financial education on financial decision-making beyond school is difficult to measure.

There is little Australian educational research exploring how teachers make sense of this subject area - and how they approach it.

Australia is a diverse society in which socioeconomic marginalisation and low educational achievement tend to go hand in hand. This means that “one size fits all” approaches don’t always fit local circumstances.

My work with teachers has revealed that feeling financially literate and being able sensitively to teach financial problem-solving and decision-making to students are two different things.

For example, in a project involving more than 30 primary school teachers, the majority agreed that they were financially literate. But only about half indicated being confident about teaching financial literacy.

Teachers want access to quality professional learning to help them navigate the Australian curriculum and develop their teaching. Teacher associations do a great job at supporting teachers in this work.