From our archive. This article was published on 4 September 2020. Rules and amounts may have changed since.
Archive, 2020: this article appeared during the coronavirus crisis. The temporary measures it refers to no longer apply. The case for financial education remains as relevant as ever.
We cannot put forward figures straight away regarding new statistics and insights, but I think it is clear that (financial) inequality will increase further due to the outbreak of the worldwide coronavirus pandemic. People who are already struggling will find things even harder because of the pandemic, and certainly in its aftermath. Both economically and mentally, many people will end up (even further) worse off. That is a pity, and it also has consequences for the children of those affected.
This could well be the ideal moment to invest in your financial knowledge so that you can pass on financial principles and insights to your children in a playful way. To give them the knowledge and insights that you yourself did not have at that age. To be able to give your children a better future than you had yourself, financially and possibly in other areas too.
Reducing inequality is not something you do overnight. It is not something you can change on a large scale in the short term. But it always starts with the individual, and together we form society and build the world we leave to our children.
One of the main items on the agenda of the United Nations is reducing inequality in all its forms. The coronavirus brings the inequality between countries, but also between population groups within those countries, even more to the surface. On top of that comes the death of George Floyd, which tore open the wounds of centuries of racism in America and triggered a worldwide protest movement. Thanks to social media, the internet and a powerful call to action that is being heard and acted upon, we can see that inequality is everywhere and that it permeates different cultures.
“Where there is division through inequality, togetherness follows through connection.”
– Stijn Derynck –
The coronavirus pandemic takes a heavier toll on people in vulnerable situations than on people in good financial health. And these inequalities, which are now coming so clearly to the surface, are the result of situations that have been brewing for a long time. In previous years, a large part of the population – because of structural features of the labour market itself – has not taken, or has not been able to take, financial measures to protect themselves. These measures include building up a financial buffer to cope with unexpected situations, avoiding borrowing too much money on poor terms, drawing up a financial plan and taking out good hospitalisation insurance. The current health crisis is therefore leading, as in other countries, to a financial crisis for households and, with it, to an economic crisis.
Financial education to strengthen financial well-being today and in the future.
How do you lay a solid foundation for building your wealth? A good job or earned income from the activities you do is a very good start. But if you do not have the knowledge to manage that income well, you may earn a lot of money, but you will never become financially healthy. You will not be able to absorb certain financial shocks and build your wealth if you do not know how to manage it properly. That is why it is so important that children are given a good example. And if, because of circumstances in the past or the situation you find yourself in, you cannot set a good example in practice, then it is a good idea to give your children the chance to be educated in financial matters.
Financial education is an essential tool for people to learn how to develop resilient personal finances that can withstand crises such as the current one. Spreading knowledge effectively, however, is a challenging task. Many people save very little or no money at all, cannot plan for their retirement, borrow too much and spend too much, cannot buy or use insurance and work in the informal economy. The lack of financial education is a barrier that underlies this situation. The ultimate solution would be to include financial education in the school curriculum.
Until that happens, parents will have to be creative in helping their children get the education they need. Perhaps you can make use of friends who are also financially savvy. And failing that, there is always the option of encouraging them to teach themselves. There are certainly opportunities on the internet to pick up (free) financial education. Handy tools can be found there too. In the meantime, there are quite a few handy budgeting apps. You can also borrow finance books from the library. I am thinking, for example, of the book “Unf*ck Your Finances” by Melissa Browne. An extremely practical book for getting your finances in order, and keeping them that way, step by step.
Many people really (really) know nothing about money matters. Do they know the difference between a current account, a savings account and a fixed-term account? They often do know all the forms of credit and financing on the market, but have no idea what, for example, a share or a bond is.
“Investing and putting money to work, that’s only for rich people, that’s not for us.”
Statements like these are not the right message to pass on to your offspring. Your children are quite likely to adopt this very limited and limiting mindset. The same works with a growth mindset: if you are positive about saving (or economising) money, handling it sensibly and using it to achieve your goals, there is a good chance that your children will also take a positive attitude towards the economic process of saving, investing and putting money to work. If they then also combine this with financial education, you significantly increase their chances of a (financially) healthy future.
“The best way to arm yourself is to acquire financial knowledge.”
What is the role of the banks in all of this?
Banks play a fundamental role in promoting financial inclusion. Firstly, by developing financial products and services that match the needs of the population and its various groups, in particular the most vulnerable. Secondly, because compliance with codes of conduct and operating standards, prudential supervision and financial consumer protection help to build trust in the financial sector, which makes their role as financial intermediaries more effective. It is also important that financial institutions provide more technological solutions that make users’ lives easier. This can be done by developing platforms that promote financial capabilities, including robo-advisers, reminders and apps.
Do you want to arm yourself with (more) financial knowledge? We would be happy to help you. Do get in touch with Het Financieel Huis via this contact form or by email: info@financialwellbeingacademy.com or go to the page of one of our partners.