Financial literacy

Financial literacy education has far-reaching effects

Financial literacy is an issue that doesn’t seem to be going away.

According to the OECD International Financial Literacy Survey, only 52% of adults can be considered financially literate. Looking at other surveys, the results are even more alarming.

“In the EU adult population, just under 50% do not understand basic financial concepts,” said Phillip Haglund, Founder and CEO of Gimi.

“We also see that the level of financial literacy is lower among young adults. In Sweden, there has been a sharp increase in the number of young people who end up at the law enforcement agency and are unable to pay their bills. »

Despite the global rate of financial inclusion rising, financial literacy rates have remained at a consistently low level. Fintech offers the world easier access to financial products, but there is still a problem in the knowledge around them. Some studies have shown that increased digitization has increased the risk of consequences for low literacy.

The problem is not limited to certain areas. Although in some parts of the world the levels are particularly low, in Europe the citizens considered to be financially literate represent only half of the population. People under 20 and over 70, women and people from low-income areas are the most affected.

Gimi, which has partnered with ABN Amro to launch a financial education app for kids aged 7 to 13, aims to improve the bottom end.

Financial education should start young

“It was in childhood that we established our relationships and habits around money,” Haglund said. “For most of the kids we spoke to, their first interactions with money were using their parents’ credit cards.”

Phillip Haglund, founder and CEO of Gimi.

“They saw their parents paying with them in the shops; they don’t really understand that there is a limited resource behind it. They don’t see the money being spent. So it’s hard for them to understand that.

“That continuous access to unlimited cash flow can sometimes last through childhood. Then suddenly when they turn 18, they have to manage all their personal finances. They have to learn how to make statements and taxes and all those things. I don’t think kids are prepared for that. 80% of kids think they’re not ready to manage their own money when they get out of school. The school system, in general, is falling behind right now. And I think it’s unfortunate that financial education is so neglected.

Low levels of financial literacy can affect relationships with money at all levels. From budgeting for day-to-day expenses to choosing loan providers, actions based on a poor understanding of financial processes can have lasting consequences. Recovering from low credit scores resulting from early decisions by young adults is difficult, and in times of economic crisis, saving can be essential.

With the rise of digital services and crypto investments, these risks are even more acute.

“A recent survey in Sweden showed that 50% of 10-year-olds have bought something from video games,” Haglund said. “Financial literacy has always been an essential skill, but it’s increasingly important now.”

“There are cryptocurrencies and you can do microtransactions. It’s just another world of money today, and it’s much harder to navigate. Maybe 15 years ago you didn’t need to be as financially savvy as you are today.

Gimi’s solution

“We aim to educate 10 million children by 2025,” Haglund said. “To date, we have educated 500,000 children in the Nordic countries.”

The app connects to the parent’s or child’s bank account, making it easy to periodically assign an allowance. This first step is included to encourage budgeting.

Gamification is then implemented, allowing children to track their spending and determine if spending choices are “right”. Parents can set chores that give kids a chance to earn more, and kids can set easy-to-follow savings goals.

Chores app screen
Chores can be added so kids can earn more.

“We have done studies with universities, especially on the savings function, and we see that it has a proven impact on their savings behavior. It actually increases the amount of money they save and their awareness about it,” Haglund continued.

In addition to spending and saving features, Gimi also includes educational videos. Topics covered include fraud awareness, understanding online spending, and money history.

“We also try to partner with banks,” he said. “We believe that by transforming the banking market and including educational features in children’s bank accounts, we can have a huge impact. So we try to create partnerships with leading banks all over Europe.

Gimi is also an advocate for increased financial education in schools.

They have been heavily involved in drafting motions for the Swedish government and growing research on youth financial literacy.

Effects on the wider economy and society

“There is a high monetary cost to society as a whole when people end up in personal bankruptcy,” Haglund said.

According to CEICEuropean Union household debt was 52.1% of nominal GDP in December 2021, and European Union domestic credit reached USD 24,949.8 billion in December 2021, an increase of 3.3% year-on-year.

In addition, loan losses are expected to reach a five-year high of 3.9% in 2023, although they will remain below the previous peak of 8.4% seen in 2013 during the Eurozone debt crisis.

However, the effects of low financial literacy could go beyond monetary issues.

Household debt ratio in the euro zone
Household debt ratio in the euro zone

“There is also another perspective, and I think that is much more crucial,” he continued. “It’s the fact that the way we manage the personal economy is just the way we manage the resources. Today, the whole world is just devouring the planet’s resources, and it has to do with consumption.

“There’s another lesson we teach with the app, just the simple understanding of the difference between needs and wants. We have to understand what we need. And I don’t think people need to. as many things as we buy today.

“There are high levels of overconsumption and we are at the highest level of global debt we have ever reached. And we continue to use credit quite unconsciously. So I think financial awareness has a lot to do with sustainability and how we think about consumption.

“It’s a super simple lesson. I think increased awareness of money and our spending habits will increase awareness of sustainability. »