What do you think are the correct answers to the questions below?
1. You have $100 in a savings account with interest rate of 2 per cent a year. After five years, how much do you have in the account if you left the money to grow and the interest rate stayed the same?
a. more than $102
b. exactly $102
c. less than $102
d. do not know
2. The interest rate on your savings account is 1 per cent a year and inflation is 2 per cent a year. After one year, would you be able to buy:
a. more than
b. exactly the same as
c. less than today with the money in this account
d. do not know
3. Do you think that the following statement is true or false? "Buying a single company share usually provides a safer return than a managed fund that invests in multiple different company shares."
c. do not know.
These are three questions that academics use to measure financial literacy, and globally only about 30 per cent of respondents answer all three correctly. (The answers are a, c and b). As these questions probe for the understanding of the basic building blocks of financial literacy, economists worry about the capacity of individuals to make appropriate decisions with their money.
Worryingly, the financial acumen of Australia's young people is declining and as ASIC deputy chair Peter Kell said recently "there is more to be done in Australia to build financial literacy and capability at all levels of education".
The challenge for educators is the already burgeoning curriculum and having the time to add financial literacy to the existing teaching load.
The answer to this conundrum may be an innovative piece of technology being trialled by 3000 Australian primary school children called Banqer. The program simulates a real economy within the classroom, but rather than being an additional learning area, it weaves financial literacy into the fabric of the existing syllabus.
Banqer replaces traditional behavioural reward programs in the classroom, such as stickers, stars and lollies. Instead, kids are given a bank account that receives income for good behaviour and volunteering for classroom jobs, like cleaning the board or delivering lunch orders. Kids can "spend" or "invest" their Banqer dollars, either in cash or higher-risk, higher-return investments.
Here are some of the key lessons of Banqer, many of which are applicable to many of us adults too.
Behaviour, not maths, delivers the benefits of compounding: Most kids grasp the concept of compound interest, surprisingly quickly. However, Banqer highlights that, as in the real world, there is often a disconnect between understanding the concept and putting it into action. Many students will be able to correctly answer Banqer's online assessment about how compounding works, but will regularly spend all their income, forgoing the benefits of earning and reinvesting interest on their savings.
By comparing the financial outcomes of their choices with those of their peers, Banqer facilitates learning from outcomes, not just theory.
Risk matters: Banqer was developed by New Zealand born Kendall Flutey, and the business is based in Christchurch. Given the very real prospect of earthquakes for children growing up in that part of the world, Banqer has a strong focus on risk management, including insurance against earthquakes.
Kids can make their own risk/reward assessment and experience the financial consequences in a safe environment.
Everyone can be a business owner if they focus on solving a problem: In the future, it's unlikely that jobs will fit neatly into the well delineated categories that they did in the past. Being able to identify a problem that needs solving and delivering the desired outcome will be an increasingly valuable skill.
Banqer allows kids to devise their own money making opportunities and the level of creativity and ingenuity displayed by current pupils using the system is amazing.
Banqer is currently being subsidised by financial services company Netwealth and is available to a further 12,000 school children across Australia for free throughout 2017.
For the record, the correct answers to the questions above are: 1 (a), 2 (c) and 3 (b).