The financial literacy gap is still a major issue globally. While the market has seen the proliferation of FinTech companies looking to fix the problem, should schools be the place where children learn about investing or other financial services?
The Financial Literacy Around the World report claims that just 33% of the world is financially literate. While countries with lower GDP per capita tend to have a lower percentage of financial literacy, some major economies have a low percentage of financial literacy. For example, Italy and Japan sit around 40%, while financial literacy in China and India are just above 20%. Europe has the biggest financial literacy rate, with an average of 52% of adults being financially literate.
There are countless stats that paint a picture of financial uncertainty. For example, a FINRA study in 2018 claimed 53% of Americans are financially anxious.
To try and make finances more inclusive, there is a question of whether it should be taught in schools. Some schools around the world are already doing this. For example, 23 US states require high school students to take a personal finance course to graduate, as of 2022. Many of the Nordics have similar requirements for teaching children about the basics of finance. It is unsurprising that Norway, Sweden and Denmark boast some of the highest financial literacy levels.
Fredrik Davéus – founder and CEO of Swedish financial analytics API developer Kidbrooke – explained that basic budgeting should be taught in schools, such as how to think about a mortgage or pension investment. This foundational knowledge would do wonders for their adult life.
He said, “[This gives them] increased awareness and an ability to not get cheated on fads and taking on too much risk, plus a better ability to manage the increased risk that is being heaped onto private persons with DC pension schemes, etc.”
Fellow Swedish WealthTech company Bricknode has a similar sentiment on financial education in schools.
Stefan Willebrand – founder and CEO of SaaS financial services platform Bricknode – said, “Personal finance, including investing, is practical knowledge that should definitely have a place in the national curriculum. Bricknode is headquartered in Sweden where personal finance is taught at school level, and global surveys show financial literacy is higher here than in many other countries. Despite this, there are still calls for more personal finance studies in Sweden, and other European countries where it does not form part of the curriculum.”
The role of FinTech
FinTech companies are increasingly looking to solve the financial education gap. For example, this year has already seen two raise funding rounds to bolster their operations.
Beurzbyte, which raised £2.2m, aims to solve the financial education gap through affordable and simple investment tools. Its mobile app allows retail investors to learn the ins-and-outs of investing and discover investment opportunities through video content.
The other financial literacy company to raise capital this year is Prograd. This FinTech, which raised $2.5m, is aimed at helping young people boost financial literacy. Based on the founders’ own realisation they lacked substantial financial knowledge whilst in college, the platform offers tools to learn about money, understand how to multiply their funds, learn of risks and more.
A major player in finance education is US-based Greenlight Financial Technology. The company recently released a new interactive game to improve engagement with children and their learning.
The gameplay has bit-sized challenges filled with videos, minigames, and a mix of multiple-choice, true or false, and scenario questions. Players are rewarded with coins (not real currency), XP and stars based on the percentage of correct answers and earn badges as they advance to the next level. Through the game, kids are taught about earning, spending, saving, investing, managing credit, income, taxes and more.
These are just a small selection of FinTech companies that are looking to educate kids. Willebrand believes FinTechs are well placed to offer these educational tools. He said, “There’s a huge opportunity for fintechs and distributors of investment products to fill the education gap and build trust and loyalty among their customers. FinTech’s focusing on kids’ finances have risen in popularity and are unique because they allow children to actively engage in financial services as part of their learning. This of course requires careful design and parental/guardian oversight, but done right can engage whole families.”
Davéus agreed that there is room for FinTechs to educate kids, but “should be managed in schools first and foremost.” He added, “If a FinTech has a good educational solution for schools then so be it.”
Best method for teaching kids
Gamification, like that introduced by Greenlight, is becoming a popular tool to improve customer engagement. A report from MarketsandMarkets claims that the global gamification market will grow from $9.1bn in 2020 to $30.7bn by 2025.
Davéus believes that gamification is one of the best ways to teach young people about finance. But it is not just through typical educational games like Greenlight’s app. Instead, it is directly within video games.
He said, “Basic economics in games like Roblox where as part of the game the players manage small businesses can be useful.” Roblox is a very popular video game, particularly among children. The game has around 45 million active users each day and 67% of its users are under the age of 16.
Roblox not only allows players to play games and connect with others, but it also allows them to build their own games, which they can earn money from based on how many people play them.
These types of games have already caught the attention of kids and attaching financial education to them will be easier at keeping them engaged, Davéus said.
However, if a kid doesn’t have access to video games, parents could still look to traditional methods of teaching. He said, “I think going back to basics is good, like when smaller kids like to play shop-store, i.e., let them sell some old toys or homemade cookies to people passing by your street and educate them about the basic economics of that.”
Willebrand slightly differed in opinion, but also agreed that the best way to teach kids is through engaging experiences. He said, “Having better access to a variety of learning resources is probably what’s most important and will prove to be effective. That might be a combination of schooling, initiatives sponsored by national investment associations, and tools embedded in investing platforms themselves. Financial services and investing are evolving quickly and so education needs to move with it.”
Risk of lack of knowledge
Having a lack of financial awareness can impact all aspects of a person’s life. It can leave people uncomfortable talking about their financial situation, seeking help or simply being unaware of available services. A recent report from the National Financial Educators Council found that 38% of individuals believe their lack of financial literacy cost them at least $500, including 15% that said it set them back by £10,000 or more.
Davéus said, “The problem for people is that they can get cheated and take on too much risk without realising. The problem for platforms is that products and services may not be properly understood. This increases mis-selling risks but also may limit growth of useful products because people with little understanding tend to go for the more spectacular but perhaps less healthy alternatives.”