Financial literacy can be loosely defined as the collation of necessary knowledge, awareness and behaviour to make financial decisions that contribute to the actualisation of financial wellbeing. It makes sense to assume that the majority of people are financially literate and are fully conscious of the effects of their financial decisions. However, this isn’t always the case.
In the hectic non-stop environments that we find ourselves in, the thought of spending time outside of work hours to calculate taxes or discuss mortgage providers etc. might send the majority of the public off into a deep sleep. Generally, it is thought that financial services have become so convoluted and disparate that people typically do not want to engage in their finances beyond the minimum that is required to live. This is really worrisome when we sit down and think about it; as the common phrase goes ‘money makes the world go round’ – so why isn’t everyone provided with an extensive financial education?
“Money Advice Service has highlighted that 5.3 million children in the UK lack a meaningful financial education.” This is a startling and troublesome statistic presented in The Fintech Times. I remember getting my first bank account and having to go into the branch to set up the card. This involved a long discussion with a bank teller about my requirements for this account and all the rest; whereas now, you can set up a bank account in a matter of minutes.
Now our experience of finance is becoming ever more digital, accessible and readily available. Seeing as the next generation interacts with technology almost as if it were second nature, it should be simple to counteract this financial knowledge deficit at the source.
This is exactly what we’ve seen as Fintechs and digital banks like Starling Bank, who launched the ‘Kite’ card this year, are now starting to engage children in their savings and increase their financial literacy. While we’ve also seen start-ups being founded solely around this mission, such as gohenry and RoosterMoney!, these companies are taking innovative steps towards breaking down the glass barrier between people and their finances, and toward exposing young generations to the reality that is financial management and literacy. Companies are committing their MO to informing and educating children to know the importance of saving, to understand the value of money, and hopefully how they can ascertain financial wellbeing for themselves in the future.
It is great to see that while this rather scary issue of financial illiteracy is becoming more glaringly exposed, people are responding swiftly with realistic and innovative solutions! However, as highlighted at the end of The Fintech Times article, we are then faced with the issue of financial data and digital footprints. As grown individuals we are somewhat knowledgeable about our personal data and how it is used (although I’d argue we are not nearly knowledgeable enough), but now that our personal finances are digital too, this has opened the door for swathes of financial data to be utilised by companies for analysis. The majority of people may not know who, how, or what uses their data, let alone children.
So, in an effort to reconcile the financial literacy deficit, we open a whole other can of worms. We will then have to consider children’s digital footprints and data protection measures, as well as increasing knowledge of how financial data is used more widely.
Before, when banks were physical entities rather than digital, there were risks surrounding financial illiteracy as it tended to be that only the financially savvy procured themselves financial wellbeing. However now, where banking is so simple, accessible and convenient, where ‘gameifying’ user interfaces are becoming an increasingly more popular product-design strategy; it is possible that the innovations in digital banking will lead to the opposite of their desired outcome – a distinct disconnect between the public and their finances. As now, not only do a vast majority of the general public suffer a severe lack of education about finance, they also struggle under the mystical nature of financial data.
In summation: there is no denying that financial education is not prioritised institutionally. This has led to generations of people feeling like they are not able to understand stocks, shares and bonds, for example, all of which have a direct impact on the way they should understand their money. Overall, this leaves them inadequately educated in their finances, and therefore it is likely they will be unable to attain financial wellbeing. As aforementioned, companies are trying to combat this by creating offerings targeted at children, with the hope of exposing them to finance earlier on and debunking the myth that finance is scary or boring. This certainly will engage young people in saving and understanding money as a commodity, which could be a particular challenge now that cash is becoming ever more scarce.
However, as with anything, when you solve one problem another arises; although, the issue of financial data is part of a much larger one facing our society. One which the responsibility to remedy the concern does not necessarily fall upon financial services companies to solve. I believe that in increasing children’s engagement with personal finance through digital banking offerings and in general, producing informative content, we will raise a much more financially literate generation.