How to teach children financial literacy

“The important thing is to have money. We can always figure out how to spend it.” The vast majority of people adhere to this simple principle. But finances shouldn’t be taken lightly, judging by the increasing volumes of overdue loans, unpaid debts, deceived depositors, and personal dramas related to money.

The issue of financial literacy is being discussed at the state level. Moscow bankers were among the first people to start coming up with practical solutions to the problem. Author of a financial literacy workshop Svetlana Tolkacheva, who is also head of the Presidium of the Charitable Foundation of the Central Federal District and Deputy Chair of the Board at BM-Bank (VTB Group), talked to Capital Ideas about the program and its results.

First of all, it would be interesting to know how Russians compare to residents of other countries in terms of financial literacy. Is the problem really so serious that it needs outside interventions?

Russia took part in an international study assessing the level of financial literacy for 15 year olds from the world’s leading countries and economies, which account for 40% of the world’s GDP. The study was conducted within the scope of the OECD International Assessment of Educational Achievement (PISA). Students from Shanghai showed the highest literacy levels, with over 40% of students correctly answering the most difficult questions. The list of top-performing countries included Australia, Belgium, New Zealand, and other countries known for their long-term financial literacy programs.

I had the opportunity to learn about Belgium’s experience at the International Financial Congress, which took place in July 2017. They have a three-pronged system: financial portals and campaigns conducted by the government, a regional comprehensive education system, and work with shareholders at the regional and state level. In Russia, we are just establishing a financial literacy system at different levels, but this system is fairly disjointed right now.

Russia placed tenth on the list of 18 participating countries, ending up between the US and France, and leaving Italy far behind. But this isn’t enough to have a successful and effective life in the 21st century. Young people are living in a world that is becoming increasingly more complicated and need to be ready to make personal financial decisions.

When was your program launched?

The program was established two years ago as a joint social mission between VTB Group and the Charitable Foundation of the Federal Central District. The goal is to facilitate social integration for teenagers in difficult life circumstances. These are either orphans or children whose parents are unable to fulfill their parental duties. These children live and study at special schools. When they turn 18, they enter adulthood and are completely unprepared for it. Because they didn’t grow up with families, they lack elementary skills, including financial management skills. They don’t know what a family budget is, how to plan it, what kinds of expenses are necessary and which purchases can be put off until a bit later. Even something simple like going to the bank is a serious challenge for them.

The first part of our program entails setting up a bank visit. Here, the children can see what bank service is, how the registers work, how various operations are handled, and how to use an ATM. Moreover, they get the opportunity to learn what banks do. The second part of the program is a financial literacy workshop, which I came up with and am currently in charge of as a pilot project. the workshop is split up into four topics: budget, bank cards, deposits, and credit. The lessons are held in a question-answer format. The goal is to make teenagers start thinking about specific things on their own. First, they try to come up with answers independently. Then, all the questions are summarized and we have an interesting conversation. At the end of each section of the workshop, the kids solve a set of problems that help them remember the theory they learned in class.

What are the students most interested in? Which questions do they ask more often?

The most frequently-asked question is what happens when you take out a loan from a bank and don’t pay it back. It’s a really popular question. And it’s a good thing that it gets brought up. It gives us a chance to talk about liabilities for loans and credits, including surety liability. Adults and young people need to know about these things, especially since young people often fall victim to manipulations. For example, some time ago banks that weren’t entirely scrupulous decided to boost their credit portfolios by mailing out plastic cards to everybody who had just turned 18. The recipients thought that they simply had a bank account and convenient access to funds. Due to their lack of experience, they didn’t even suspect that the loans had very high interest rates and harsh terms.

There are also questions about keeping money in a bank. Here, it’s important to explain how interest rates on deposits are calculated and what a deposit insurance system is. The kids needs to be taught how to tell reliable banks apart from problem banks, how to spot financial pyramids, how to weigh risks and benefits properly, and to understand that the promise of high interest rates compared to standard rates should be cause for concern, not a selling point. Essentially, we explain basic things that everybody should know, including both children and adults.

You mentioned financial pyramids, but aren’t there also risks associated with using bank cards?

Security concerns are a special topic in the workshop, since people today use all kinds of payment solutions: cards, mobile banking, and internet banking. Because of this, it’s important to keep PIN and CVV codes completely confidential, and also know how to keep your data secure online when using Wi-Fi. Without a working knowledge of these basics, the risk of fraud goes up, especially considering that we live in an Industry 4.0 era.

It would be a good idea for adults to take this course…

They bring it up themselves. Since we have a special social mission, we invite administration representatives from regions where we hold our workshops to attend classes. Recently, the head of a major city visited our workshop and was very impressed by what she saw. She said she would gladly take the workshop herself. Other adults, like adults who come to supervise the kids and orphanage directors, often tell us that they would take these kinds of classes themselves if they had the opportunity.

At what age should children start learning financial literacy and talking about money in general?

It’s important to remember that a child’s legal capacity changes as they get older. For example, six-year-olds can carry out minor household transactions and certain decisions that impact a ten year old require their consent. Before the age of 14, only legal representatives of the child’s interests can manage their account. At age 14, the child receives a Russian passport and can manage their own funds, including opening accounts and spending their money however they see fit. Once they reach adulthood at age 18, they can perform any financial transaction, including taking out credit and loans. At this point, the bank decides what kind of terms to set for loans.