Financial literacy needs to start early, ASIC hears

By Lucy Dean

December 11 2017
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An investment manager and communications firm have teamed up to call on Australia’s investment watchdog to promote financial literacy earlier in life.

In a submission to the Australian Securities & Investments Commission, Chicago-based investment manager, Ariel Investments and Australian communications firm, Honner said ASIC should focus more on educating children about investments.

They argued that children should begin learning about financial markets “as early as first grade” as they face a “future of prohibitively high house prices” as well as increasingly expensive university fees and a low-return environment.

Further, disadvantaged children should be targeted first, they continued, explaining that about 20 per cent of Australian 15-year-olds don’t have a basic level of financial literacy.

That figure comes from the OECD, which added that just 15 per cent of Australian 15-year-olds have a high level of proficiency. This level of proficiency means they can understand and analyse complex financial products and solve “non-routine financial problems”.

The two firms said Australia is “going backwards in this area” as the percentage of financially literate teenagers slips.

When it comes to teenagers from Aboriginal communities or low socioeconomic backgrounds, financial literacy falls again.

Noting this, Ariel president Mellody Hobson and Honner founder, Philippa Honner submitted that: “If a national framework was established to target younger children in need, we believe many generous people across the financial sector would be willing to give time and money to support the program.”

Ariel’s financial literacy program in a South Side Chicago school, the Ariel Community Academy (ACA), where more than three-quarters of students qualify for subsidised lunches as a result of their families’ lower incomes awards each class a US$20,000 grant to invest in the US stock market in the final eight years to graduation.

The program at the ACA features four pillars; investing, economics, personal finance and entrepreneurship with students introduced to their investment portfolio in the first grade. By sixth grade, students are trading stocks independently.

The program, in partnership with investment manager Nuveen, is an example of a “small pilot” that shows that change can happen, the submission added.

Continuing, Ms Hobson said: “It isn’t good enough to wait until kids get to university, or even high school, to begin teaching them about investing. Disadvantaged children are less likely to be exposed to investment concepts at home and research has shown that bad money habits tend to get passed down from generation to generation.

“If we want to truly address inequality, we need to start helping children become familiar with the concepts early in life so they are can be comfortable investing on their own behalf by the time they are young adults and have the confidence to seek a job in the financial sector.”

Reflecting on the two years Honner and Ariel have spent working to introduce Ariel’s global equity capability to the local market, Ms Honner said: “A lot of money has been spent in an effort to improve financial literacy in Australia, both at the personal finance level and within super.

“We know these challenges are hard to overcome and Australia’s experience is not unique. This submission simply looks to highlight another approach.

“We believe Australian firms could emulate Ariel’s pioneering approach, working collaboratively with government and educators to introduce financial literacy concepts at an earlier age, targeting children most in need, and ultimately helping move the dial on financial literacy in Australia.”

ASIC sought submissions on its National Financial Literacy Strategy until 1 December. They asked stakeholders to provide feedback on its plans to:

"Update the language of the National Strategy from ‘financial literacy’ to ‘financial capability’;
"Set the timeframe that the next National Strategy will cover; and
"Strengthen the National Strategy’s focus on behavioural change by emphasising the core behaviours that support financial capability."

It also asked stakeholders to provide input on priority audiences, broadening reach and engagement, improving research and evaluation, encouraging greater participation and broadening engagement.

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