One of the first concepts we master as we leave infancy and enter childhood is that of money. Children soon realise that, without money, they cannot get many of the things they would like to have: a favourite toy, sweets and buying a small gift for mum on her birthday.

While we all understand how important having money is, many still do not have sufficient financial literacy to ensure that money becomes a good servant.

I have still not seen any local research on how many of us are considered financially literate, i.e. having the right skills and knowledge to plan their finance and manage the risks associated with insufficient financial resources.

I rely on research done in other European countries to describe how so many of us suffer from poor financial literacy. In the UK, half of the population has low confidence in making decisions to do with money, according to research by the Financial Conduct Authority. Other studies link high levels of economic deprivation with low levels of financial understanding.  

Groups with the least know-how include those on low incomes, young people, women and ethnic minorities. But there are other more traditionally educated professionals who have made massive mistakes when managing their finances.

I know of a lawyer with an excellent legal practice who lost a hundred thousand euros when he bought Argentina bonds lured by the high yield they were paying on paper. A dentist borrowed hundreds of thousands of euros secured by a mortgage on his home to buy shares in a company that for a short time saw its share price rocket. He ended up clinically depressed when the value of the shares crushed.

Only high standards of financial education can ensure social equity for everyone

It is time we define literacy more broadly. The PISA process, for instance, tests young people for their ability to read and write and make simple mathematical calculations. The EU statistics office, Eurostat, issues regular reports on metrics that show how successful the various member states are in promoting educational achievement.

Financial education should be a key element in every person’s education. While the national curriculum caters for basic training in financial matters early, robust financial education is often given secondary importance by teachers under pressure to concentrate on more traditional subjects. Being able to calculate simple and compound interest or financial problem-solving in maths lessons is not enough.

Some express a strange sense of pride when they say they are maths-phobic. But we are not short of imagination when it comes to envisioning how our lives could change for the better if only we could earn or inherit a hefty portfolio of money.

Financial literacy programmes should be introduced in all schools. We need to embed financial literacy units more prominently in mathematics and social studies curricula. Formal assessment or examination that tracks competence in financial management should be mandatory.

It is distressing that too much financial “education” is being provided by bad actors on social media. The interest in cryptocurrencies, for instance, is more motivated by an unquenchable desire that many have to get rich quick while ignoring the risks of seeing your hard-earned money evaporate.

One of my main concerns about the consequences of widespread financial illiteracy is how so many people are unable to evaluate financial risk. In the last two decades, low-interest rates have reduced the yield that many investors depend on to bridge their finances, especially retirement.

Junk bonds are gobbled by the public that generally has a poor grip on the pricing of risk.

So far, we have not had a significant crash thanks to often unpublicised official action to rescue companies in distress. But sooner or later, this will happen.

Regulators need to tighten up on issuers of sub-investment-grade bonds by upgrading financial management standards to protect unsophisticated investors from possible financial ruin. It is worrying that riskier borrows who fail the scrutiny tests of banks are allowed to get the money they need from financially unsophisticated investors who do not understand economic risk.

Lifelong learning needs to continue beyond the classroom. University and tertiary education students must hone their financial management skills for the day when they manage their businesses or those of others. They must also be proficient in making sure they balance their families’ books.

Not every child will inherit wealth from their parents. Many have to work hard to build a nest egg for themselves and their families. Only high standards of financial education can ensure social equity for everyone.

johncassarwhite@gmail.com