Why are we so bad with money and what can we do about it?

December 22, 2015
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In his innovation statement, Malcolm Turnbull said he wants to use millions of dollars to improve computer geekery in schools. But considering what research has found, maybe he should redirect some of that to our financial know-how, because it’s more than a little embarrassing. And it’s particularly bad among university students. What good are digital start-ups if young entrepreneurs lack good money skills?

A gap exists between what we know and what we do

QUT accounting lecturer Dr Chrisann Palm says many students are overconfident about their financial skills, and that baffles her. “More than ninety per cent of early uni students have had work experience, and so should’ve been exposed to basic money issues,” she says.

For 23-year-old Jonno Revanche, a recent graduate and nonfiction editor at Voiceworks Magazine, he founded the Adelaide-based Vaein Zine without thinking much about finances. At the start, he raised funds to print and pay contributors, but soon realised he was out of his depth. “When I received invoices I was like, ‘Oh shit, this is totally different to what I expected’,” he says.

He had to learn by using whatever resources he found relevant, including using other publications’ ways of handling money as examples. While Jonno may have missed out on official classes about being a money-handling pro, he’s kept Vaein Zine afloat by curating his own financial lessons. Still, when asked whether he would’ve liked to learn the basics before jumping headfirst into online publishing, he replies with a resounding, “Totally, totally.”

Scattered resources means lack of awareness

Other than student unions, a quick search for help is like asking for your brain to be fizzled from information overload. You’ve got the Commonwealth Bank, ANZ and the Salvation Army, among many others. Then there’s the big one: the National Financial Literacy Strategy (NFLS) by the Australian Securities and Investments Commission (ASIC), which Dr Palm says benefits only partnered schools.

She also says research was done before the first NFLS report in 2011, so wonders why strategies weren’t introduced earlier. Replying to this is ASIC communications advisor Karla Davies, who sent a statement that says ASIC was handed the responsibility only in 2008 and needed its own research before coming up with actions.

Jonno says he’s willing to invest time to learn more, but reckons the information is scarce. “Maybe you’d rather spend that time working for money,” he says.

Financial stress can cause mental-health problems

Having bad money habits isn’t just bad for your wallet - it can also damage your mind. The Australian Medical Students’ Association found that students who said they were experiencing financial stress, also said more often that they had mental illnesses. Stress from poor money skills can also mean not having shelter and food.

While there are financial counsellors at universities, Dr Palm argues that “the power of psychology” should be more proactive instead of dealing with students only after a personal financial crisis. “If we could be proactive and help equip students with some financial knowledge and skills beforehand, they won’t get to a stage that requires post-crisis counselling,” she says.

Working together the pathway to better financial skills

Research may be the foundation, but it’s useless if people don’t use it together to solve problems. In November this year, Dr Palm’s research was shown at an accounting conference as a call for better actions. “If we can broaden accounting education to incorporate financial life skills, then it could have broader implications for the rest of the higher education industry,” she says.

One of her solutions is teaching only the relevant stuff at the relevant time, and it must be part of formal education. “Teaching students about the generic skills like writing and teamwork is great, but those are about employability,” she says. “We also need to include financial skills so students can benefit financial freedom after graduation.”

Likewise, the ASIC 2014–15 report shows that it’s improving on making financial classes part of schooling. ASIC also highlights its effort in working with other parties that may influence young people, which is akin to Dr Palm’s solution of rallying government, student unions, counsellors, and academics to collaborate for young people’s financial sakes. Perhaps, though, as Dr Soyeon Shim and colleagues at the University of Arizona found, the most important teachers and influencers are our very own parents. Money skills really do need to be developed at home. 

Toby Vue

Toby is a Master of Arts (journalism) student at Charles Sturt University. He tweets at @tobyvue.

Image: Thomas Galvez, Flickr Creative Commons license