• Saahil Menon

Schools and Financial Education: Do We Need It?


It’s one of the first few dreams that us teenagers and young adults aim to achieve from an early onset, and while it’s certainly beneficial to aim for wealth, the process behind sustaining it is far more intricate than it may seem.

Doctors, lawyers, and engineers are incessantly filing for bankruptcy as a result of poor financial management: a fact that inconsequentially goes to show you that earning good money may not actually keep you wealthy, but intelligently managing it will.

Therefore, if you’re aiming high and envisioning a future of perpetual luxuries, consider these 3 concrete reasons as to why financial literacy is important to achieve that feat.

Part I: Summary Into Why Financial Education Is Beneficial:

1. Early building of financial responsibility:

If I were to ask you how much money you’ve spent in the last month, what would you say? Chances are you’d ballpark it and come up with a figure that you believe to be the correct amount. Well, new research depicts that this assumption tends to be deliriously flawed.

A study cited by journalist Rebecca Lake states that the average teen spends around triple the money that they actually earn: for every 1 dirham that comes in, 3 goes out. If this were a business, you’re looking at a cash flow that is likely to never see a day of profit, and that isn’t the path that you want to take when you’re seeking wealth, is it?

To show the ramifications of such reckless spending – as of December 2018 – over 60% of UAE residents are now in debt. Of this proportion, 33% of outflow is attributed to credit cards and 28% rests with personal loans: both of which most likely occurred because there was some form of financial irresponsibility along the way. People didn’t fear the notion of spending more than they earn and building credit debt over time: so they let their cash fly out on a daily basis, only to monetarily suffer now.

This goes to show you that the consequences of minimal financial knowledge only increase as you grow older, which will inevitably create debt, poverty, and bankruptcy. A key quote in the finance community is that “Money only magnifies the person you already are”, so if you’re someone who mismanages your money right now, chances are you’ll continue spending it recklessly unless financial education is instilled in your traditional mindset.

This is supremely why financial education being implemented into school systems would be the first step towards ingraining that sense of monetary responsibility in teenagers, the merits of which will facilitate more financially adept young people in our future economy.

2. Better chances of being awarded loans and bank benefits.

While the notion of a “loan” tends to be associated with financial desperation and bad debt, it can also be a lifeline that keeps a family intact. However, bad financial history precludes one from presenting a reliable front, which causes banks to immediately reject loan proposals regardless of the circumstances. If you have a monetary urgency that’s hanging in the balance, you don’t want to be rejected because of poor financial management in the past.

Consider this example of an unnamed woman last year earning 18,700 dirhams per month, who sought a minor loan but was rejected due to her abysmal credit card debt and poor financial responsibility as a whole. Because of irresponsible spending, her liabilities built up over time to become more than 22 times her monthly salary; a fact that no bank will overlook no matter how genuine her expenses are now.

She needed just over 12,000 AED in financial support to pay rent, buy food and put her children through school, but a bank couldn’t be blamed for naturally fearing that her spending habits would cause her to default on her repayments.

While her current situation is unknown, it can be implied that if schools implemented that sense of financial literacy throughout her teenage years, this woman – as well as the millions of others like her – would most likely never be drowning in debt or providing necessities with struggle.

Her situation depicts the consequences of a mind that learned the importance of financial education far too late, and it is due to this that the advent of personal finance needs to be introduced to people much earlier on in their lives.

3. An improved mindset that seeks financial opportunities instead of luxuries.

Perhaps the most advantageous result of implementing financial education early on is that it prevents financially fatal mistakes from occurring in the future. Instead of being the doctor who spent over 26,000,000 AED on luxury housing and then drowns in debt for 20 years, you could be the doctor that saves and makes 40% profits from investing.

“But the house is an asset! It will make him money too!”

Welcome to the greatest financial misconception of all time. The house is invariably something that could make you money, but only if you sold it; when you’re living in it, how can you expect to make any cash? Keeping this in mind, consider the possible financial returns for the house:

Figure 1: Graph depicting the change in the value of an Emirates Hills mansion over time:

The Doctor – although highly educated and respected – lacked the financial education foundations that would enable him to see opportunities that make him money instead of losing it, which is why he perhaps felt justified after blowing 26 millies on a house. After a year or so, we can see above that he suffers a loss of 23% on his investment (26mn down to 20mn).

In contrast, a financially educated doctor would see the opportunity in using a little bit of money for a beautiful home, and the rest of it for investing instead: i.e. 12 million dirhams to purchase a home of similar quality and proportions, and the remaining 14 million invested into the stock market. The aforementioned amount invested into the S&P500 index fund – which is a combined fund of the top 500 companies in the United States – would’ve been worth 14,751,067.50 dirhams in August 2019.

This is a profit of over 750,000 dirhams (200,000+ USD), within a time when the market had one of the worst downfalls from October 2018 till December 2018.

This goes to depict that a person could be extremely successful and sustain a high salary, but the lack of financial education would inevitably bring upon impulsive purchases and bad debt; so even if you’re rich, you’re poor. In the words of Benjamin Franklin, “An investment in knowledge pays the best interest.”, so seek financial education instead of your wealth’s dispensation.

Part II: An Insight Into the Successful Outcomes of Financial Education:

Financial Literacy Being Implemented into the United Kingdom’s Secondary Schools:

As an example of the effectiveness of financial education being integrated into school systems, take a look at several UK’s secondary schools. Recently, financial education was deemed as a compulsory subject for students above the age of 13, and this has had profoundly positive effects on the level of financial intellect retained by teenagers.

Figure 1: Results of 11 months worth of financial education (1 hour per week)

Sourced From: (MyBNK Research Study, 2019)

Researchers found that 11 months after having short financial education lectures each week, students between the ages of 13-18 sustained “a 45% shift in extreme spending to moderation, a 44% increase in resisting instant gratification spending, and a 27% increase in making informed financial decisions.”. These depict significant changes for the positive, all of which connote the assertion that financial education in schools will inarguably improve teenager’s sense of money management.

This level of progression in such a short period of time is commendable, and certainly depicts that teenagers here have foregone the “boring” aspects of financial education to reap the monetary benefits instead.

Moreover, the positive results of financial learning extended to young adults as well, with individuals aged 16-25 exuding an average of a 23% increase in savings every year after 3 years of partial financial education in school. This suggests that young adults who were instilled with financial education in their early years are clearly on the correct trajectory towards avoiding debt and remaining cash flow positive, similar to the aforementioned success stories above.

To top it all off, the study showed that each £1 (4.54 AED) invested into financial education yielded £3.36 (15.24 AED) in social value, which ultimately implies that the overall impact of improved financial literacy in students outweighs the potential costs to schools: a figurative “cherry on top” regarding why institutes should start implementing personal finance classes.

Overall Sentiment:

As a whole, it’s clear that the merits of financial education sustain sufficient weight to be cast into school systems more often. While it occasionally tends to be met with cynicism – because students find it boring – the long term effects of teaching personal finance are proven to be substantially positive.

An effective way to summarize the importance of financial literacy is billionaire Warren Buffet’s quote saying: “People with traditional education work for people with financial education.”

It asserts the fact that the most successful people in the world are experts at managing money: bringing in more and throwing less out; and if schools want to be churning out prospective front-pagers of Forbes magazine, perhaps it’s time to introduce a new system that caters to ingraining these critical skills.

A student who wants to be a physicist may never want to learn economics; one who wants to be a financier may never want to learn chemistry; but either way, every student will earn an income that needs to be managed and potentially grown.

Why not induce those key skills into the growing minds of teenagers at an early onset, and let them reap the benefits of positive financial literacy in their youth itself?