Luke English: The potential impact of financial literacy in schools for New Zealand’s indebted population

Gurpreet Kaur, the head of commerce at Manurewa High School, teaching a small group of students financial literacy. Photo / Greg Bowker

OPINION

Last week, the Labour Party announced its plans to make financial literacy compulsory in schools from 2025, to address low levels of financial and budgeting skills among school leavers. The proposed curriculum would cover budgeting, how to open a bank account, how to manage bills, saving and investing, taxes, KiwiSaver, mortgages, and insurance.

Can it work? If implemented well, there is evidence to suggest it could help.

As a country, our financial landscape has been battered by high cost of living, a recession, and Covid-19. New Zealanders are wary of their financial circumstances and looking to take action around the state of their debt and finances.

Half a million New Zealanders collectively owe $3.5 billion of debt to the government. Many owe debt to IRD and StudyLink, the Ministry of Social Development for emergency assistance, or Ministry of Justice for parking fines for example.

That doesn’t include debt for buy now pay later schemes such as AfterPay and LayBuy for which 9 per cent of users are in arrears, the highest rate since data on arrears has been collected. Furthermore, a 2023 consumer report by Canstar states that one-quarter of New Zealanders aren’t saving any money.

It is apparent that financial literacy is of increasing value. While improving New Zealanders’ financial capability is not something that can be achieved overnight, the discussions this week on teaching financial literacy in schools offer a possible start.

Unsurprisingly, financial literacy policy has been suggested before, with most OECD countries implementing programmes on financial education.

Although 2014 research questioned the effectiveness of financial education, particularly for people on low incomes – more recent analysis of universal financial education for children finds that the early teaching of such skills can have a positive effect on children’s financial knowledge. Whether financial knowledge learned as a child changes adult financial behaviours remains to be seen.

That and other research suggests “teachable moments” help to convert financial knowledge into tangible behavioural changes. To foster a deeper understanding, children (and adults) may need to use their education in a real-life financial event of immediate relevance, such as opening a bank account, saving for a purchase, or creating a budget.

Half a million New Zealanders collectively owe $3.5 billion of debt to the government. Photo / 123RF

In that case, simply exposing students to the “what” and “how to” of financial literacy may not be enough. They may also need help to “actually do it” in a real or simulated financial event, ideally one that is personalised.

Research we have looked at suggests there are diminishing returns to financial literacy lessons for children, with 20-40 hours of content being suggested.

ImpactLab has analysed the social impacts of a wide range of charities that have helped to provide 29,000 Kiwis with financial education and capability building resources. The work has offered insights into the ways a lack of financial literacy can affect us as adults, and shown how interventions can work successfully.

We have seen that the most impactful programmes are those that help their clients build autonomy by focusing positively on strengths, but with realistic expectations. Financial literacy programmes in schools can reflect this by promoting autonomy and positive financial habits at a level suited to children.

For example, the Fitness For Life programme in the US has five 45-minute weekly lessons for primary school children that can be integrated into existing classes. The first lesson teaches about trade-offs between present and future consumption through the fable ‘the Grasshopper and the Ant’, which leads into lessons about scarcity, trade-offs, saving money and budgeting.

Financial education of this kind could provide valuable learning for children who may otherwise not get to engage positively with ideas about money in their early lives.

There is limited research linking financial knowledge in childhood to financial outcomes in adulthood. However, if people can learn about finance as a child, it could lower the probability of having to learn about it in remedial interventions in adulthood when they are experiencing challenging situations such as unmanageable debt.

An example of this kind of programme is Money Sweetspot, a new social intervention that pairs debt consolidation with gamified financial education for middle-income working families at risk from debt.

ImpactLab forecasts this model could create $6 million in social value for New Zealand in the first year of operation across a range of financial and wellbeing outcomes. The programme supports customers to simultaneously improve their financial knowledge, resilience, and stability.

Financial literacy in schools, delivered to children who are in the classroom and sufficiently numerate, could help new generations become financially literate – before there is no alternative in the school of hard-knocks.

• Luke English is the Research Lead at ImpactLab, a data firm that provides insights to charities and not-for-profits.