Introduction
When I was in high school, I was very fortunate. I thankfully took two accounting courses, in addition to the normal reading, writing and arithmetic. It was in accounting, that I received some financial literacy education. Anyone who did not take accounting did not get any exposure to basic financial education.
When Ontario grade 10 students went back to school last month, a financial literacy course became mandatory. I applaud this effort.
What is financial literacy and why is it important?
Financial literacy is the education, learning and understanding of different financial subjects related to handling personal money, budgeting and investing. This topic focuses on the capability to manage individual finance matters in a reliable way.
With such education, people gain an understanding of making suitable decisions about their own money. Without a basic financial understanding, how can people develop their financial skills? Where will you learn about things such as investing, insurance, budgeting, saving, retired life and income tax concepts?
I remember my first day at university. Day one all the banks had tables to entice students to sign up for a new credit card. Young adults who have student loans and had never been exposed to financial management courses now had the ability to take on more debt. Not a good thing.
Why is financial literacy important for students?
The typical high school curriculum of education and learning is extremely important. People generally do not get specialist education until they are in a career program. The one area of education that was missing was to equip our youth to be able to make smart economic decisions in their lives.
Our society values money and entrepreneurship, yet for some reason, our institutions appeared to assume you will somehow just know or pick up the proper financial skills to succeed. With a mandatory financial education system in place, we might see the gap between the rich and poor lessen. Teaching basic financial concepts and skills can go a long way to make sure that people can learn good financial habits and keep their heads above water.
Prior to the new mandatory curriculum, the first exposure many people had to financial literacy education was as part of insolvency counselling, which means they already made mistakes before having a chance to learn the basics.
What is now being taught?
The specific expectations of the new curriculum are that students will:
- Learn the principles of financial responsibility
- Evaluate the advantages of a variety of financial savings options
- Explore financial planning tools available with banks and other sources
The main components that the new financial literacy curriculum will cover are:
Financial responsibility
- setup and follow a budget
- sensibly handling bill payments and using credit wisely understanding the difference between
- knowing the difference between a bank and a credit union
- managing their very own bank accounts
- defending themselves against monetary scams and fraud
Financial savings choices
- types of interest-bearing accounts and their associated rate of interest
- tax-free savings accounts (TFSAs)
- registered retirement savings plans (RRSPs)
Different kinds of borrowing and their advantages and disadvantages
- federal government student loans
- provincial government student financings, such as those available with the Ontario Student Assistance Program (OSAP)
- loans or bursaries from their local cities and towns
- personal (unsecured) loans from a financial institution, be it a chartered bank or a credit union
- lines of credit, credit card and overdraft products
- recognizing the benefits and disadvantages of the numerous kinds of credit products
- how the responsible use of a credit card can boost an individual’s credit score ranking
- how improper use of the same credit card can hamper a person’s credit score ranking
- that the proper use of bank loans can allow a person to pay for a costly item, such as a car or home
- how the improper use of loans and excessive debt can lead to a poor credit rating, money troubles and even insolvency and bankruptcy
- how borrowing from family or close friends can be advantageous, but how defaulting on repayment can negatively impact personal relationships
The teacher’s role
The teacher’s role is to provide illustrations to drive home these points. In the context of spending and personal finance, the students will learn the difference between “needs” and “wants”. Teachers will ask the students to reflect on exactly how a person’s values will influence their wants or the ways in which they satisfy their needs. Students will learn what “living within your means” really means.
Students will consider what the impact on a person will be from not paying expenses promptly and from using numerous credit cards.
Students will learn the benefits of beginning to save at a young age. They will be exposed to the advantages of then having a formal financial savings plan. All this will naturally lead to a realization that budgeting for both short-term objectives, such as purchasing clothes, differs from budgeting for long-term goals, such as buying and maintaining a car. Students will also learn about the different types of savings vehicles as well as debt products. They will also learn the proper use of debt.
In my view, the students will learn about the three most important parts of any financial literacy program: 1. proper budgeting techniques; 2. the importance of saving from an early age and the various savings vehicles available; and 3. credit and how to use it properly.