Posted on Sep 7, 2022

In the backdrop of conflicts and the cost of living crisis, Europe’s economy is facing its toughest test since the pandemic.

It will undoubtably boost inflation rates, which have already recently reached record highs in both the Eurozone and the UK (8.9 per cent and 9.4 per cent respectively), and it is hard to see how we will be able to avoid a global recession.

Without basic financial education, children and young adults will incur immense difficulties to manage their finances effectively and will face the risk of financial disaster through pitfalls including high debt, bad credit, and lack of savings.

The pandemic has given rise to the age of a cashless society, noted by the increase in contactless payments and surge in e-commerce. Most western countries were already heading towards a cashless future, but the implications surrounding the pandemic meant the transition was drastically sped up.

As retail shops were forced to shut and the population was urged to isolate, our purchasing habits had to evolve, with online shopping and e-commerce booming as a consequence.

Thankfully, we live in a technologically advanced culture with widespread use of mobile phones and apps like Apple Pay and PayPal, so transitioning to a cashless society seems natural. For instance, in Norway more than 95 per cent of the population use mobile payment apps, and 98 per cent of its citizens have adopted the debit/credit card system.

Current challenges

However, having access to digital financial services is not an end in itself. While the ease and speed of a cashless society through the use of digital and contactless financial services is convenient, it presents challenges for people who lack the financial knowledge to effectively use them.

Financially illiterate people could face economic struggles, such as high debt or bankruptcy. Therefore, it is essential that financial literacy moves at the same rate as the increase in innovation and accessibility of digital financial services.

This includes the pace at which online banking and mobile wallets have moved or even the surge in budgeting apps and 'buy now, pay later' schemes.

Worldwide, just 1-in-3 adults show an understanding of basic financial concepts and billions of people are unprepared to deal with rapid changes in the financial landscape. On average, just 52 per cent of adults in Europe are financially literate.

Bulgaria and Cyprus have some of the lowest financial literacy rates, at 35 per cent, and Romania with the lowest at 22 per cent. Without a basic understanding of financial concepts, people will not be able to manage their finances effectively, leaving them a constant source of stress.

Young people at risk

Santander UK found that 44 per cent of adults feel they would be better financially prepared had they received better financial education, and a Greenlight study found that 74 per cent of teenagers do not feel confident about their current financial education.

Children and young people are a particularly vulnerable group when it comes to living in a cashless society. A survey conducted by the Bank of England found that 81 per cent of 15 to 18-year-olds across the UK worry about money.

Additionally, figures unveiled by fintech app W1TTY found the number of young people seeking help with debt, credit cards, and loans increased by 205 per cent, from 951 in 2016-17 to 2,899 last year.

Children benefit from being exposed to situations where physical money is exchanged. So, without physical cash, they are understanding the value of money less than they were able to before, opening up the dangers of debt cycles and falling victim to scams.

Last month, Lloyds Bank issued a warning to parents that their children might be being targeted via gaming scams, and many teenagers have unknowingly taken part in money laundering online through social media apps.

Although incorporated into some secondary school curriculums around Europe, the current state of financial literacy is not where it should be.

The curriculum needs updating to teach practical tips around budgeting, saving and investing in the age of online banking, and a focus on digital skills that can help young people spot scams and financial misinformation.

The use of technology has grown exponentially during the pandemic, and this offers new opportunities for educators, such as digitally enabled learning experiences for children.

Financial education ensures that students will be able to navigate confidently around the ever-evolving financial environment. It provides young people with a variety of financial skills, and the ability to make informed decisions surrounding finances. For example, it aids in protecting from unsustainable debt, saving for retirement, buying a home, or financing education.

Today’s generation of young people learn best when faced with real, relevant and meaningful scenarios, therefore it is vital financial literacy covers topics including taxes, the value of employment and smart saving and investing.

Not only will this benefit the individual, but it will have wider reaching implications and feedback positively into society.

For example, employees will be better prepared for work, and people will be more equipped to help and support others. Financial literacy skills are highly transferable and can boost entrepreneurship as well.

Good financial literacy lays a foundation for students to build strong money habits from a young age to ensure good future financial wellbeing, and avoidance of many of the mistakes that lead to lifelong money issues.

It is crucial that we enable young people to build a healthy relationship with money and contribute positively to our economy.

Original article: How do we teach financial literacy to young people?