There's no magic formula for financial literacy but talking about it is step one

Conversations around spending matter all the more in the current global economy

Traders on the floor of the New York Stock Exchange on June 10, in New York City. Stocks fell over 800 points that day as inflation fears continued to spook investors. Getty Images / AFP
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Every few days another sore in the global economy is exposed: inflation rose to a 40-year high in the UK on Wednesday. The US Federal Reserve bumped its target interest rate up by three quarters of a point last week. Parts of Europe are braced for a summer of industrial action, as people protest against high prices and stretched pay packets. In this region, Lebanon, already beset by political problems and stalemate, reported an inflation that reached 211 per cent in May. If Lebanon is an extreme example, inflation is a clear and present danger across the world.

The markets are also spooked – stumbling and then tumbling in the early months of the year. Gold, a traditional safe haven asset, has endured an equally rough ride in 2022. Cryptos, the much-talked about newer asset class, have dipped by so much that our money pages were prompted to ask this week whether Bitcoin was in a death spiral. Those who used to fear missing out on the crypto-wave of huge profits that was supposedly there for the taking now wonder if they should hold or fold. There are many sore heads watching the sea of red evident in digital portfolios.

The benefits of teaching financial literacy are many

This is a moment of searing complexity and potential uncertainty for every one of us. And how you feel about the dynamics of the world economy will depend on your personal circumstances and, probably, who you lean on for advice.

Over the past few years there has been greater focus on improving financial literacy both here and elsewhere. Earlier this year, for instance, a major bank and a non-profit introduced a programme to help young people save and budget. There are plenty of other examples of this kind of initiative.

The benefits of teaching financial literacy are many. These schemes are empowering, helping people to figure out the money that flows towards them, how they use that money and, hopefully, they will instil a better understanding of personal attitudes to debt, saving, investment and well-being. Statistics suggest schemes like this are urgently needed. A survey conducted by Visa among people under 25 found that almost half were not ready to manage their own money.

But how do you teach financial literacy in this particular moment and are those lessons really going to be valuable ones right now?

Perhaps, the answer is most of us need to do better far beyond these courses and initiatives.

Very few of us talk honestly and openly about money. Instead, we tend to obfuscate. We grow up with neat phrases like “the best things in life are free” or reminders to “look after the pennies” so the bigger sums will mind themselves, or we are told that “cash is king” even as inflation eats away its value or even that “money can’t buy you happiness”.

The financial institutions we intersect with also need to do better. One of the other homespun bits of advice that most of us will have received at some stage in our life is to “read the small print” before we sign a document to borrow money or invest our savings, putting the onus on the customer to discover any downsides rather than on the institution to articulate the terms of the agreement. If the financial world was a little more straightforward, maybe customers would make fewer mistakes. Financial arrangements too often codify no-detriment to the institution in the event of their investment recommendations not working out.

Indebtedness is also a complex issue. Sadly, debt is mostly hidden and wrapped in shame and anxiety. In our taboo-smashing world, debt remains as a subject that is rarely discussed. Not all debt is bad, of course, especially if used for personal improvement via education or to purchase a property that will increase in value.

Most of us fear being judged for the wrong turns we make in our financial decisions or the debts we accrue when circumstances change or an unexpected bill disrupts the best laid plans. This organisation’s debt panel column has helped bring some of those conversations out, but some of the people who have sought its help do so only as a last resort.

Financial advisers will hammer home that all of us should have rainy day funds to cover these unexpected twists and turns of life, but that is of little comfort to anyone who may be finding it hard just to meet the demands of everyday expenditure. Some influencers on social media may also be overly weighed on the side of hot takes and easy money schemes.

It is a difficult landscape and there is no magic formula to "winning" in financial literacy. But if we want to be better at it – particularly at a time when predicting what happens next in the global economy is somewhere between a best guess and a fool’s errand – then we need to talk about the impulses that drive our spending and financial decisions. And we need to have more conversations about debt, ambition, budgeting and goals. Personal finance is too often wrapped in the opposite forces of silence, lecturing or incomprehensible jargon.

Published: June 24, 2022, 5:08 AM