Finances play a basic role in everyone’s life. In any area, any of the circles we move in, finances play a leading role. Decisions about how much we spend, how much we save, where we invest our savings, how we taken on debt… all of these decisions follow us throughout our lives. It seems logical, then, to have the knowledge and skills necessary to manage those decisions in the most appropriate way possible.
Just as English –the language of business– and math –the language of sciences– require a prominent place in the school curricula, financial education must also be included in that toolbox of basic knowledge.
Financial literacy is necessary for proper and efficient management of our personal and family finances. It instructs us in the planning necessary to fulfill, through that management, or short-, medium- and long-term life goals. From how to invest in a rolling fund to cover contingencies to how to establish a plan to finance our children’s education or make decisions that enables us to properly finance our retirement.
It gives us the tools we need to analyze, understand and compare the different financial options available to us. It enables us to make more informed decisions and it helps us correctly calibrate the different risks we are exposed to. It even helps us with appropriate emotional management in the event of episodes that are impossible to foresee. Moments that generate enormous amounts of volatility and uncertainty, such as what we are going through now.
Training and information increase our protection against unsuitable financial options, beyond any protectionist regulation. Many operations on preferential shares, multicurrency mortgages, stamp investments, not to mention offers that are clearly fraudulent, would not happen with a trained and informed user.
It is surprising, then, that financial skills are not included in our curricula. It is undoubtedly a pending matter. The last report from the OECD’s Program for International Student Assessment (PISA) indicated that Spanish teens are 10 points below the average in knowledge about money, economics and finances. According to the Survey on Financial Competencies from the Bank of Spain and the Spanish Securities Commission (CNMV) –given to groups between the ages of 18 and 79–, nearly half of all those surveyed felt that their financial knowledge is low or very low. By way of example, 42% are unaware of what inflation is.
Even the World Bank says that financial education is essential to reduce poverty and promote prosperity in society. There is a clear correlation between citizens’ financial training and the collective wellbeing of society, even in countries we seek to emulate and that we look to as role models.
The UN’s Agenda 2030 Sustainable Development Goals establish guaranteeing quality education as a priority, as a key vector to reduce social inequality, reduce poverty, gain employability, and, in short, to build more developed societies.
The true resilience of a society does not come from massive, permanent public aid programs that are inefficient, temporary, limited and scarce by definition. True resilience comes from educating the citizens. The country’s economic resilience stems from the resilience of its domestic economies: personal, family and business.
Perhaps the reason for not including financial education in our required curricula is precisely to erode the ability of individuals to gain the skills and knowledge they need to achieve financial independence. Perhaps the idea is to subject individuals to the discretion of an omnipotent and omniscient state entity that the owe blind obedience to, or the aim is to generate a society that depends financially on the state.
Because education is the best shield in facing difficult situations. Education, specifically financial education, is the first level in overcoming these situations with guarantees. Financial literacy especially favors the most economically vulnerable people, who might not have access to it by any other means because they do not have the material resources to do so. Financial inclusion is the first inclusion on which the rest of them are built.
Financial education improves our abilities to face crisis situations, it helps us properly plan and manage our personal and family finances. It improves our employability and reduces social inequality, helping to escape from the cycle of poverty for those most economically vulnerable. Financial education is essential in promoting the prosperity of societies, it is the first of the social inclusions and it is a decisive factor in their resilience.
Let’s give it the importance it deserves.
Francisco Javier Concepción is professor of Corporate Finance in the Máster en Dirección de Empresas – MBA