Guest article by Andrea Grabner and Christian Jung, published in BANKINGNEWS, No. 297, December 2023.
When it comes to financial education, Germany has been lagging behind for some time now. However, this topic is finally being given the recognition it deserves by a wider audience. What needs to happen to improve people’s financial literacy? How does the Association of German Banks intend to help solve the problems? Andrea Grabner and Christian Jung from the association discuss the issues.
We are still at the very beginning of making financial education more widely available. While the majority of other OECD countries have already implemented national financial education strategies, Germany still has a long way to go to catch up. This also applies to schools. A sufficient level of financial literacy in quantitative terms can only be achieved by anchoring financial education in schools and, in qualitative terms, by training teachers systematically. However, the first task must now be to robustly implement the promising plans for a National Financial Literacy Strategy and thus create the basis for an equally robust financial education. 2024 can and should be the year of financial literacy in Germany.
Anyone who has followed the debate on financial education in Germany in the past will have been more than surprised by the momentum the topic has gained over the past year. For decades now, financial education has been rather neglected by politicians. Progress has been made in most federal states on the teaching of finance and economics in schools, but it has only been marginal. And those in favour of offering basic financial and economic education were often suspected of wanting to indoctrinate students with “neoliberal” content.
However, thanks to the perseverance of many of society’s stakeholders, including the Association of German Banks, which has been committed to greater financial and economic education for more than three decades now, their efforts are now starting to pay off. In recent years, there has been a growing realisation of how important financial literacy is for the population as a whole: for the individual to be able to determine for themselves how they participate in economic life and for equal opportunities in society as a whole.
Politics steps up
The political turnaround finally came in early 2023. Although financial education is not explicitly mentioned in the German government’s coalition agreement, Federal Finance Minister Christian Lindner and Federal Minister of Education and Research Bettina Stark-Watzinger decided to take action and have their ministries launch the Financial Literacy Initiative. Their three main objectives were to develop a new National Financial Literacy Strategy, to set up a Financial Literacy Platform and to promote further research in the field of financial education. To kick off proceedings, they held an event in March to signal their intentions and then conducted a survey of project organisers and providers of learning and teaching materials for financial education. Then they held a stakeholder workshop in cooperation with the OECD in October and, at the beginning of December, a two-day conference to identify ideas and content for their Financial Literacy Strategy and to act as the starting point of a basic version of the planned Financial Literacy Platform. These activities have already generated a considerable spirit of optimism among the financial education stakeholders involved. But, despite these developments, the establishment of a National Financial Literacy Strategy has, so far, been rather sketchy.
We know from regular surveys of young people carried out by the Association of German Banks and from numerous surveys from other institutions that knowledge of financial topics in Germany is not good. This is particularly true of young people, but also applies to the population as a whole. Only four out of ten Germans regularly checked their finances. Only half of them knew what a sustainable investment was and nine out of ten 14 to 24-year-olds did not even know the current rate of inflation, when surveyed. There can be no doubt that a lack of knowledge of the level and effect of monetary devaluation can have dire consequences for almost all savings and investment decisions, including retirement provision.
There has been little to no economic and financial education in German schools for decades. In the majority of countries, economic and financial education appears at best as an inconsequential module integrated into other minor subjects. It is therefore hardly surprising that two thirds of teenagers and young adults in the Association of German Banks’ 2021 Youth Study said that they are learning or have learned “not so much” to “practically nothing” about business and finance at school. At the same time, however, students want to learn more about finance and economics. According to the study, 72 percent wanted to learn more about economic subjects at school.
Why is financial literacy so relevant?
According to the OECD, financial literacy is defined as “a combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and ultimately achieve financial well-being.” Necessary financial knowledge in this sense includes, among other things, the skills to control one’s own income and spending, to manage pocket money and understand foreign currencies, how to save, the opportunities from investments and (old age) retirement provision as well as avoiding excessively risky behaviour and over-indebtedness. This basic knowledge allows people to make independent, self-determined financial decisions. It helps in correctly assessing risks and possibly preventing poor decisions that may have serious consequences. As a general educational topic, it should be taught to the general population and the foundations for this should be laid early on at school. It gives young people the fundamentals that will allow them to acquire the required knowledge to be better equipped to make important decisions about their money in later life.
The financial education offers provided by the Association of German Banks are attuned to these needs. For example, the association supports teachers with analogue and digital materials in order for them to deal with financial topics and economics simply and factually in lessons. In addition, we also provide employees of our member banks with corresponding, didactically tested offers with pedagogical guidelines, which they can use to impart concrete and practical financial knowledge in schools.
The association also host competitions in schools, such as the SCHULBANKER banking simulation game, where young people get to simulate managing a bank and learn about the background to commercial financial decisions as well as the basic functions of our economy. These competitions reach around 3,000 students annually and, since the competitions began, a total of more than 95,000 young people from Germany and German-speaking schools in Europe.
The Association of German Banks is also present on social media channels. As well as a SCHULBANKER account, which follows the simulation games, it also has an Instagram account called Finanzfritzen (finance experts) which addresses a whole host of topics relating to basic financial knowledge, investing, family, loans and saving. The topics are aimed in particular at young adults aged 25 and over, and are easy to understand and authentic.
More financial literacy – also an opportunity for banks
It is in the interest of banks for the population to have as high a level of financial literacy as possible. Only by making people aware of the advantages and risk of all kinds of financial transactions and giving them the knowledge to safely manage the financial products they are interested in, can we strengthen the basic trust in our financial and economic system. This benefits all market participants.
Banks are interested in doing business with a confident clientele where both parties are treated as equals. No financial institution is interested in their clients feeling cheated due to a lack of financial competence or even getting into financial difficulty or becoming over-indebted. Banks that want to be successful over the long term, can only achieve this by having cooperative relationships with their clients.
Banks’ commitment to more financial education is also an opportunity to (re)build trust and understanding in the sector, by developing their “corporate citizenship”. In practice, this is already taking place to on a wide scale, with bank employees going into schools, for example, to teach basic financial knowledge to young people – of course objectively and not with the intent of pursuing any commercial aims. Because, one thing is clear: teaching financial education should not be seen as an opportunity for product marketing.
