Fun and all as that was, it does highlight an issue which is important. Financial literacy, that is to say the ability of people to understand financial concepts, is an important part of being a critical self-aware citizen consumer. From the person opening up a bank account, through their decisions around whether and how much debt to take on, through to financial regulators and legislators, if we cannot understand the details of products we are almost certainly going to come out on the wrong end of them. We do not have good baseline statistics from a reputable source on the extent of deep financial literacy in Ireland. Surveys have been carried out, but these have tended to be episodic. There is not, to my knowledge, a comprehensive “CSO” Style dataset on the extent of financial knowledge across cohorts of the population.
Financial literacy has been shown, In a large study by the World Bank to be associated with much greater financial sophistication in adults. those who are financially literate tend to hold a more balanced portfolio of assets, tend to be more aware of issues around the need for proper pension planning, and tend to be more financially resilient. Given that we as a society have just come through a massive crash, at least in part perhaps attributable to a national financial illiteracy, we might want to ensure that Irish citizens are as financially literate as possible. A really important finding from the US is that there is a non linear relationship between low levels of financial literacy and the usage of high cost products such as pawnbrokers or Payday lending. Even controlling for socio economic and demographic factors those who have the lowest levels of financial literacy are overwhelmingly more likely to use these kinds of products even when cheaper products would be available to them.
A number of studies have also recently emerged which trace the Childhood and young adult antecedents of financial literacy amongst adults. Studies also show a number of possible ways forward to improve general financial literacy
Firstly, knowledge is power. The more people know about financial products, in terms of simply knowing the different types that are available, the more financially literate they become. In particular knowledge about mortgages, how they operate and how they are priced tends to have quite significant effect on overall levels of mortgage delinquency
Secondly, there is no magic bullet. Different cohorts require different types of interventions. In fact different individuals, not necessarily correlated across cohorts, require different approaches. Some work better with simulations, others with games, others with audio visual. A wide variety of training and educational Media are required. This is of course expensive.
In terms of what childhood traits are associated with financial literacy a number of factors are beginning to emerge across studies. increased financial literacy in adults is associated with being brought up in an urban setting, being born to parents who are financially more literate than their peers, having a higher quality of education, and having early exposure to financial products such as school bank accounts etc
We can’t do much about where people are born, or to whom they are born. but we can encourage children to engage with financial products from an early age. Engaging with financial products comes about in two ways. 1 really important issue is that children have earned money. the second element is that this earned money is then saved or otherwise invested. Herein lies the problem in Ireland. in an environment where the employment situation is only now recovering huge lower second level children will be engaged in meaningful paid employment of any level. in that context all week and then do is to try to operationalize the second part. we need to encourage the banks and credit unions to go into schools and to open accounts. well many people will bark at the idea of exposing tender children to bankers at an early age this may well be something we have to get over.
It would also be useful were the central statistics office to be mandated, and resourced, to run annual surveys on financial literacy. doing so would result in the relatively short term in the creation of a longitudinal database which could be used to track the evolution of financial literacy. we have excellent data on a wide and bewildering variety of agricultural phenomena. we have much less on issues like this, which have immediate and ongoing effects and implications for the human population.
Published as a column in Irish Examiner