Diya Pingle, a third-year accounting and finance student at Dubai’s Middlesex University, only recently learnt the basics of money management.
Concepts such as the difference between emergency funds and savings, how anchoring and discount traps drive irrational spending decisions, and how to differentiate between wants and needs were unfamiliar to the Indian student until she attended a financial literacy programme a few months ago.
“Schools should prioritise teaching students about financial literacy and money management. This generation is smart and can grasp facts quickly,” says Ms Pingle, 20.
“Even well-educated, financially literate people do not know how to spend their money wisely. They fall into the traps of their wants, not knowing what to prioritise. One should not let their emotions rule them.”
Early financial education can help to foster strong money management skills in adulthood, experts say. But personal finance education is rarely on the curriculum at schools and universities, with youth often relying on their parents to teach them vital lessons about managing money. As a result, it leads to poor personal finance skills in the long term.
About 25 per cent of Americans have no savings and 40 per cent do not keep a budget, according to an April 2019 survey of more than 1,500 adults by personal finance website The Penny Hoarder, which attributed this to a lack of education on personal finance topics, beginning at home and continuing in school.
The survey also found that one third of Americans did not discuss basic personal finance topics when they were growing up – issues such as credit scores, debt, being a smart shopper or opening a basic savings account. Only 13 per cent of those surveyed said their own family’s financial situation was talked about at home.
Four in 10 of those polled who did not discuss finances growing up have no savings at all, but that figure drops by more than half among those who received early financial education at home, according to the survey.
However, there is an increased awareness about the need for financial literacy among young adults today. When asked what they would teach their younger selves about personal finance based on what they know today, Americans polled in a separate Charles Schwab Financial Literacy survey in June 2020 cited the value of saving money (59 per cent), basic money management (52 per cent) and how to set financial goals and work towards them (51 per cent).
On a scale of one to 100, the respondents rated money management (62.9) as the most important skill for children to learn, the survey, which polled 2,046 US adults, found. More than six in 10 (63 per cent) US adults also chose financial education as the most important supplementary graduation requirement to maths, English and science, the poll revealed.
For Ms Pingle, her decision to attend the financial literacy workshop was timely. She has consciously reined in her spending after her father’s business was affected by the Covid-19 pandemic. These days, she prefers to eat at home rather than spend money in restaurants and also connects with friends via Zoom instead of travelling on the Dubai Metro or taking a bus.
Ms Pingle is also on the hunt for an internship to earn extra funds to supplement the pocket money she receives from her mother for her daily needs.
Thanks to the workshop, Ms Pingle says she is now aware of a common personal finance error that many people make: paying only the minimum balance on their credit cards rather than the full amount to avoid high interest charges.
“It is best to pay off the full credit card balance. If you can manage to pay for the purchase with cash, just don’t have a credit card at all. Use credit cards wisely and with caution,” she says.
All children assume that they will learn about money management at some point in the education system but they don't, says Marilyn Pinto, founder of the Kids Finance Initiative. Even college students think they already know what there is to know about money, particularly if they have studied finance and accounting, business management or economics. But this is not true, she says.
“I have taught children who study corporate finance at university level, who know nothing about personal finance,” Ms Pinto says.
That change comes at a very slow pace within the academic system and it will take a couple of years before personal finance education will be incorporated in schools globally, she says.
“We can’t afford to let that time go by,” Ms Pinto says.
The Covid-19 pandemic has highlighted the pressing need for early financial education. Parents are beginning to realise this is something their children should learn about as the health crisis made everyone realise the need to be more careful with their finances, she says.
Ms Pinto’s organisation, KFI, recently partnered with Emirates NBD to conduct a financial education programme for five schools and two universities in the UAE. About 300 pupils and students aged 15 to 21 participated in the initiative.
“Adopting good financial habits at an early age is among the building blocks of long-term financial wellness,” says Suvo Sarkar, senior executive vice president and head of retail banking and wealth management at Emirates NBD.
Some of the common money errors among participants were not knowing the difference between good debt and bad debt, poor knowledge about credit cards, the difference between debit cards and credit cards, and budgeting, says Ms Pinto.
Money management is a critical life skill. It doesn’t matter what career one pursues, everyone needs to learn how to manage money, she says.
“This generation will be working in the gig economy where they won’t have a pay-cheque coming in, money security or pension," says Ms Pinto.
"The current generation is also going to graduate into one of the most economically challenging times in modern history and they are doing it with no money management skills. How can this be a good thing?”
She believes the private sector can do more to promote financial literacy among young students. But structuring financial literacy lessons can be difficult.
Vidhi Sawlani, a Grade 12 student at Dubai Gem Private School, says it is very hard to learn about money management unless one hears it directly from people who have made these decisions.
“You can’t really learn how to make financial decisions through textbooks. You need to talk to people about their mistakes, experiences and lessons learnt and build your way up,” she says.
Ms Sawlani, 16, saw many family members relocate to their home country of India because of financial problems during the pandemic. They did not have a lot of savings to fall back on, she says. This heightened her awareness to build an emergency fund as a safety net during difficult financial circumstances.
“I used to think that if I have too much money, I can’t handle it properly. But now I have realised that if you are rich, you need to learn to work with your money and avoid money mistakes,” says Ms Sawlani, who only recently learnt about saving, compound interest and the concept of an emergency fund.
Meanwhile, in a separate initiative, financial and technology professionals have joined hands to create Financial Awareness Simulation Training, or F@ST, a simulation-based programme to help the younger generation make financially responsible decisions and develop positive money habits.
They are collaborating with schools in Dubai to teach children about financial literacy.
The online programme simulates a family’s financial journey over a 15-year period and encourages discussions among participants on four pillars of personal finance – household budget, long-term goals, asset allocation and managing uncertainties.
“Everyday decisions made by the younger generation on their spending, saving, growth and retirement planning are all directly dependent on their financial awareness. This makes financial literacy a crucial life skill,” says Vijay Srivastava, co-founder of F@ST.
“Young adults are underprepared for life outside the comfort of their homes, at university and beyond due to critically low levels of awareness. With the unprecedented uncertainty the world is going through, it becomes even more important for young people to plan their financial future carefully and equip themselves with knowledge to have better control on their finances through different life stages,” he says.
Anishkaa Gehani, a Dubai-based entrepreneur and a parent to two children aged 16 and 9, says it would be beneficial if schools introduce financial literacy as a part of their curriculum.
“We have always taught our kids the principles of money management from the very beginning, starting with managing pocket money effectively. The current times have laid a lot of emphasis on the need to have a strong foundation in money matters,” she says.
In a bid to instil money management skills early, the family is taking measures to expand their children’s access to investment opportunities.
“My 16-year-old has access to stock investment training to ensure he is not afraid to invest and can take rational decisions related to money management,” says Ms Gehani.