Finance: Why Wealth Depends on Knowledge About Stocks and Retirement (guest post)

guest post

Ria Schroeder and Anja Schulz

This week is “Global Money Week”. A week in which the Organization for Economic Co-operation and Development (OECD) raises awareness of the importance of financial education for young people worldwide.

Did not get it? Never heard of it? That’s how it is for many. The GMW is celebrating its eleventh anniversary.

The low level of awareness of the OECD initiative is ultimately symptomatic of the importance of financial knowledge and economic education in Germany: both are still secondary. We think this has to change! Because economic education makes a major contribution to equal opportunities, securing our prosperity and gender equality.

Financial knowledge varies

In a Banking Association study 86 percent of those surveyed between the ages of 14 and 24 did not even come close to knowing how high the current inflation rate is in Germany. Loud I said 44 percent could not name the interest rate of their consumer credit and according to the foundation financial tip At the end of 2021, every second person did not know when overdraft interest would accrue. Across the country, people lack the most fundamental knowledge of business and finance.

Ria Schröder is spokeswoman for education policy in her parliamentary group.Bild: imago images/Hanno Bode

However, it quickly becomes apparent that financial knowledge varies greatly within the population: the greatest deficits are found among women, older people and people with low incomes.

Why is this topic so important? Scientific Studies show that people with more financial knowledge deal more thoroughly with their retirement provision, are more likely to participate in the capital market and build up greater wealth over the course of their lives.

In other words: economic education makes people financially independent. Gives them the opportunity to fulfill their material dreams and reduces the risk of poverty in old age. It thus makes a decisive contribution to the personal prosperity of the individual – in the present and in the future – and is therefore a guarantee for a stable social market economy.

Financial knowledge is too important to be based solely on knowledge from the family environment and one’s own everyday experiences. That is why Germany needs a national financial education strategy, a central financial education platform and strong institutional economic education.

At the federal level, we have seen the signs of the times. Finance Minister Lindner and Education Minister Stark-Watzinger will therefore address these central issues in the coming months.

Germany has some catching up to do

In an international comparison, we have some catching up to do: As one of the few OECD countries, Germany has not yet developed a national financial education strategy – although the European Commission and the OECD have been recommending this for a long time.

Anja Schulz sits on the Finance Committee and the Labor and Social Affairs Committee for the FDP.Bild: IMAGO/Christian Spicker

As a result, there is also a lack of meaningful studies on the current status quo. Where are we standing? Where are there gaps? What challenges and needs are emerging (today and in the future)? Based on these answers, measures should be taken to ensure the quality of financial education funding. All relevant stakeholders from education, finance and consumer protection must be involved in a meaningful way.

So while a financial strategy shows where there are gaps or what the current level of learning is in the country, we also have to ask ourselves where (i.e. at which learning location) and when (i.e. at what point in life) financial education is taught should.

Financial topics belong in the classroom

And that brings us back to school. By integrating the knowledge of our financial and economic system into school lessons, we make it accessible to everyone. Also for those children whose parents cannot help due to a lack of their own knowledge. Because everyone is entitled to this knowledge. To do this, we need trained teachers, support from non-profit organizations outside of school, and appropriate integration into everyday school life.

From the point of view of Schröder and Schulz, the topic of finances belongs in the classroom.Image: dpa / Jens Büttner

However, financial education is not limited to one phase of life. It’s a lifelong process. Because financially relevant decisions are often made at the beginning of working life or in the middle of life, for example when thinking about securing occupational disability, when planning to buy your own home or when a marriage contract is to be concluded.

One speaks here of so-called “teachable moments”. For this we can only with difficulty in school learn in advance. A central financial platform is therefore needed that bundles financial education offers and makes them available in formats suitable for the needs of different users.

Because quality assurance is essential in all future educational policies, we want to involve the Commission and the OECD in national planning and strengthen research on the subject. This is the only way we can improve the data basis. This is the only way we can ensure that the measures are evidence-based, correct in terms of content, transparent and balanced.

People often make financial decisions unconsciously

In addition to these conscious financial decisions, many people make decisions that have an unconscious but massive impact on their financial situation. This includes, for example, the choice of an apprenticeship or subject, as well as the birth of a child. In these situations, information about the financial implications, such as parental leave and childcare, must be institutionalized and an integral part of the education strategy. Information from the employer or when preparing for the birth would be conceivable, for example.

With these measures, we are finally creating an elementary basis for financial independence and responsible financial decisions. This is how we create individual freedom and increase the general prosperity of society. In addition, we are finally making “elite knowledge” what it should be: knowledge for everyone.

Who knows, maybe one or the other will be familiar with the aforementioned “Global Money Week” initiative in the future.