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Communications 11 Aug 2016

How are personal finances taught across the globe?

General financial literacy has always been the Achilles heel of Spaniards. It had to be the economic crisis that, precisely, exposed the population’s huge gaps in basic financial understanding.

Although progress has been made, Spain still lags far behind and has a lot to learn from other developed nations in the world in terms of financial literacy.

In some of the most advanced societies, people learn the fundamentals of personal finance almost before they learn to walk, although the global financial crisis proved that, in general, the level of financial understanding across the world is not as high as to contain a shock wave such as the one unleashed by the crisis.

However, it is undeniable that some countries fared better than others during the crisis, and were not hit as hard by it. One of these countries is Germany, which managed to weather it like no other European nation. But… why?

Germany’s secret

Germany is the world’s fourth largest economy, a more than commendable achievement for a nation that came out of the two world wars virtually turned into ruble. Well, they say that there are lessons that can be learnt from past mistakes, and that is something that this country is very well aware about, after the bankruptcy and unsustainable levels of debt that riddled the country after both wars.

This tragedy seems to have marked the generations that lived in the aftermath of the catastrophe, generations that have learned to handle their savings and debt with extreme care. Indeed, it is particularly revealing that the German language uses the same word to mean ‘debt’ and ‘guilt’. Thus, Germans are extremely reluctant to get into debt, and this has led them to develop a much more long-term vision than their European neighbors. Their motto is to save today to enjoy their savings when they retire, when other in other states people do exactly the opposite.

Also, this culture is passed down from parents to children, being a source of pride for all citizens, which is why both grown ups and younger generations are so keen on saving. So, in this case, the main guiding threads of financial education are both families and society, which never overlooks these questions and starts planning for its future well ahead of time.

The United States, the financial center of the world

The case of the United States is paradoxical, because, despite being the world’s financial center, it was its financial system and subprime mortgages that originated the financial crisis. How could Americans have been so unaware of the looming disaster? Weren’t they sufficiently educated?

One of the most pressing issues in the US is how expensive education – especially higher education – is, and the amount of people that cannot afford it. U.S. universities are the best in the world, but also the most expensive, a fact that leads many young students to plunge into debt in order to pay for their studies

In any case, financial literacy is far more widespread among the population, as it is self-made country, where many citizens have traditionally embarked on their own business ventures. That is why there is such a broad assortment of finance-related studies, ranging from courses to masters, postgraduate degrees,  etc. However, the huge inequality in American society creates enormous gaps that still need to be bridged in the field of financial education.

Mexico acknowledges its shortcomings

The case of Mexico is completely different, as the country admits that a large portion of its population is financially illiterate. In fact, according to a report by the National Commission for the Protection and Defense of Financial Service Users (Condusef), nearly 62 of every 100 Mexicans lack even the most basic financial notions, which translates into a series of bad habits when acquiring financial products.

For this purpose, in recent years, the country has started rolling out some initiatives to boost its financial literacy levels, given the considerable rates at which its economy is growing, and which is turning Mexico into one of the prime destinations for many foreign investments.

Mexico’s challenge is finding a way to increase the level of basic financial literacy across such a large country with extremely poor areas that virtually no development options. Thus, we can consider that Mexico still has a long way to go, but the country is hard at work to improve financial literacy.

This circumstance can be extrapolated across South America as a whole, where, due to slower economic development, the financial literacy level of people is lower than that of the people in the developed world. Also, in these countries there are many regions where large segments of the population have no education whatsoever, and this fact contributes to make this goal even more challenging.

A long way to go

Although the levels of financial proficiency are on the rise across the world, according to the report published by Standard & Poor’s, there is still a lot of work to be done. According to said report, based on the responses provided by people over 15 years of age from different regions of the world, only one out of every three have the financial knowledge required to face with certainty the changes that are taking place in the global system.

In the test that S&P drew up to allow respondents to test their skills, countries such as Norway and Sweden got the best results, with over 70% of correct answers, while in others, such as Japan, the U.S., Canada, France, Germany and Italy, only 55% of its citizens were able to pass it. The lowest ranked countries were Romania (22%), Bulgaria and Cyprus (35%) and Greece (45%).

Spain scored slightly under the passing grade (49% of citizens passed the test), while in the EU’s average, the percentage stood at 52%. However, as we mentioned above, globally, only 33% of the population passed the test. Now is the right time to start addressing and solving this shortcoming to avoid reliving the nightmares of a not so distant past.

 

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