The Importance of Financial Literacy in Education

Do we want to have a life that takes care of our money, or do we want to continue letting money take control of our lives?

The Importance of Financial Literacy in Education

Do we want to have a life that takes care of our money, or do we want to continue letting money take control of our lives? Answering this question can help us view investment in Financial Literacy as something capital for our future.

Financial decisions have always been capable of causing the greatest joys and the greatest suffering. Therefore, taking the importance of financial literacy seriously is urgent and cannot be limited to a trend. Recent OECD assessments show that Portugal ranks in the bottom places of Financial Literacy evaluation, so addressing this gap becomes not just a matter of choice, but a necessity for individual and community prosperity.

What is Financial Literacy?

Resorting to the universally accepted definition of Financial Literacy as “A combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.[1]”, we realise that the subject is about knowledge capacity building but also behavioural. Working on financial literacy is not limited to teaching what an Interest Rate is, what Compound Interest is, Risk management, or knowing how to define Inflation. All of that is important, but the aim is to integrate this knowledge to ensure that behaviour in financial decision-making is consistent with the goals each person wishes to achieve.

Financial Literacy in Schools

Why is Financial Literacy not a more relevant subject in formal education? The answer lies in historical factors and aspects specific to the current system that prioritises academic subjects to the detriment of practical life skills. It seems we think it is less noble to work on more practical everyday topics. However, as time passes, we realise the urgency of working on this subject in schools without it being in sporadic weeks or integrated into other subjects.

On the world podium of Financial Literacy, we have Denmark, Norway, and Sweden, which are countries where Financial Literacy is treated in schools from an early age with the importance of any other academic subject, with knowledge assessment as if it were Mathematics or History. Interestingly, in these countries, we also observe a less indebted population with higher levels of savings.

If we start in primary education and continue throughout secondary education, students can develop a solid foundation of financial concepts and decision-making skills. Teaching students topics such as: the value of money, the monetary circuit, debt, the effort-return relationship, decision-making according to the time horizon of an investment, among many other examples, can make the learning experience stimulating and focused on individual and community gains.

Beyond the classroom, the approach to Financial Literacy must extend to the entire educational community and the student's own home, as each agent plays their role, and thus we manage to reinforce financial education as something of practical applicability.

What is the Purpose of Financial Literacy?

An effective way to ensure that this subject is not limited to a matter of fashion is to keep the purpose of the work of improving Financial Literacy before us: the "what for" of Financial Literacy.

Individuals with solid financial skills are better prepared to achieve their goals, such as buying a house, starting a business, or saving for retirement. Furthermore, a population with Financial Literacy contributes to economic stability and the country's growth, reducing dependence on the Welfare State. In this way, we have greater freedom in decisions and move towards a life that controls money and not the opposite.

By fostering open conversations about each person's financial management, namely through sharing good practices, families, schools, companies, and friends are all contributing to empowering the next generation to make sound financial choices. There is an evolution from which we cannot be left out. Everyone must be committed to this purpose so that we leave the world better than we found it.