Did you know that economics was the third most popular subject in the NSW Higher School Certificate (HSC) in the early 1990s, just behind English and mathematics? Today, it barely scrapes in at the Top 25.
The question is though – should it matter? Or does it hold our kids back from owning their own home or property?
According to two British economists at the University of Nottingham, “mortgage financial literacy predicts home ownership for younger [households]” and young people with poorer financial literacy take on bigger debts and use alternative mortgage products.”
Savvy, a mortgage and personal loan broking firm commissioned a broad financial literacy survey of their customers in January 2020. They worryingly found parents are lacking critical financial literacy skills, leaving their children in the dark about finance and home ownership.
The big takeaways
A 2017 paper by John Gathergood and Jorg Weber in the Journal of Urban Economics titled “Financial Literacy: A Barrier to Home Ownership for the Young?” produced results from a survey of English and Welsh households on financial literacy, asking about concepts such as amortisation, interest rates, and mortgages.
They found households who score highest on the financial literacy index are 20 percentage points more likely to be homeowners compared with the lowest scoring households and where “mortgage financial literacy among [respondents] is generally low.”
How do people fare in Australia?
Two in five respondents to Savvy’s survey said they had a “good” grasp on finance; about one in five say their understanding is “fair” or poorer.
A whopping four in five have never seen a financial adviser to help them understand their finances and grow their wealth.
The fundamentals are there: two thirds of kids have savings accounts – though 29% had no savings accounts of any kind.
30% of those surveyed have either rarely or never discussed good and bad financial habits with their children; 20% have property investments; 38% have never discussed investments with their kids; 32% have never discussed superannuation.
Funnily enough, 42% of parents taught children a lesson the “hard way” – saying they would have to work for pocket money or income if they were of working age. 14% said their pocket money depends on how many chores they complete or if they work in the family business.
Though parents want their children to own their own homes, it seems that we’re failing to provide our kids the right information so they can make informed financial decisions.
Parents want schools to intervene
A little over a third of respondents rated their children’s knowledge in finance a three out of a possible five.
Who should take the lead in education? When asked, over half of respondents said that schools at the primary and secondary level should give children classes so they can understand finance.
Savvy CEO and financial literacy expert Bill Tsouvalas says that financial education should be as fundamental as English or mathematics in schools; it would seem that we would increase the chances of our kids owning their own home one day.
What’s your take? Are we failing our kids on financial education? Or are we doing just fine? Let us know your thoughts.