While career practitioners are not experts in finance, unless they have the relevant qualifications, there are good reasons for integrating some financial literacy into their services. The subject of financial literacy receives considerable attention from governments and financial authorities, interested in how to help people avoid mistakes and manage finances across the life span.
As has been pointed out in the Australian Financial Attitudes and Behaviour Tracker, released in early 2018 by ASIC, ‘Financial decisions are a part of everyday life − whether looking for ways to save, deciding which credit card represents the best value, choosing a home loan, comparing insurance policies or planning for retirement. Whatever the decision, being confident and informed can make a difference to your financial wellbeing and peace of mind.’
Financial literacy is rapidly being recognized as a core skill for consumers. The Australian Government has a financial capability strategy to help build financial literacy. Some areas of concern include:
- close to 1 in 5 struggle with credit card debt
- 3 in 5 don’t understand the investing concept of diversification
- 2 in 3 don’t know the exact value of their superannuation.
To explore the what, why and how of this topic, let’s look at three questions:
- What is financial literacy?
- How is financial literacy relevant to careers?
- How can financial literacy be applied in career development practice?
What is financial literacy?
Financial literacy is a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing.
Recent definitions of financial literacy include three components:
- Financial knowledge
- Financial behaviour
An OECD study has found relationships between these components. For example, there is a positive association between financial knowledge and behaviour. People with higher financial knowledge show more positive behaviours, and people with positive attitudes towards the longer term show more positive behaviours than those with a strong preference for the short term.
Canadian reports on financial literacy among millennials suggest the nature of the relationships between financial knowledge, financial habits and positive financial outcomes remains contested. The authors point to people who have argued that the attention to objective knowledge has failed to differentiate what knowledge is actually relevant to the decision-making of individuals in different financial circumstances and at different times. Furthermore, thanks to behavioural economics, there is ample evidence that individuals are not always rational agents acting to maximize their own self-interest. In addition to research on financial literacy, many authors are now calling for attention to broader measures of financial well-being or financial health.
How is financial literacy relevant to careers?
Financial literacy is relevant to a person’s career across the lifespan in multiple ways. Money is part of most major career decisions. To ignore money and finances in career decision-making is to do clients a disservice. There are multiple client groups that need some financial literacy.
Students working part-time who are unaware of their entitlements or potential money traps can find themselves in difficulty.
People entering the workforce.
Apprentices can face financial challenges, particularly in the early years when salaries are low.
People facing redundancy or retrenchment may need to consider their financial position when looking for other work.
People facing retirement also need to consider their financial position.
Women face specific challenges when it comes to managing their money. Many women take time out of the paid workforce to care for others, which reduces their retirement savings. With a longer life expectancy than men, this often puts women in a particularly vulnerable position when it comes to their finances.
People with disability need to know their consumer rights. Under the National Disability Insurance Scheme (NDIS), people with disability can now choose their own goods and services to support their needs.
Self-employed people need knowledge and skills to manage a business.
Student loan debt is now a permanent fixture in higher education financing not only in England and the US, but in dozens of countries around the globe
Already, more adults are delaying life events such as getting married, starting a family, and purchasing a home. High debt burdens relative to earnings threaten to further erode these trends and handicap a generation of young adults. These consequences extend to other life events as well, including physical and mental health, career choices, and the decision of whether to pursue postgraduate education.
Apart from being aware of our own attitudes to money, there is the question of how much should career practitioners explore money matters with clients, those starting work, in transition, facing retirement, and have referral options, such as to reputable financial advisors [if you can find one].
How important is it to build clients’ financial literacy skills as part of their preparation for work. There’s literature on what schools could or should be doing in this area. While people transitioning from education to work are less likely to want to consider the longer term for their finances, there’s plenty of good reasons for at least raising some aspects of financial literacy, particularly if clients place a high value on money as a condition of work.
How can financial literacy be applied in career development practice?
Depending on a practitioner’s context, there are several options available as to how financial literacy can be included in services.
- Build financial literacy and tap credible resources: Career practitioners need at least some rudimentary knowledge and understanding of finances and be aware of their own attitudes to money. Keeping current on available resources will also be part of a service and knowledge-base.
- Establish links with credible financial experts so reliable referrals can be made for in-depth services.
- Provide access to or create financial literacy programs in schools or as part of career services. This page provides a variety of international and Australian research that will inform the development of financial literacy education programs and support educators to implement innovative teaching practices in the classroom. More research can be found on the Financial Capability website.
- As part of career programs, both individual and group, ask questions about the role money plays in career decisions. For example, how important is salary compared with other job-choice factors?
Changing the finances narrative
In 2017, the Public Policy Forum (PPF) partnered with the Financial Consumer Agency of Canada (FCAC), the Canada Pension Plan Investment Board (CPPIB), and Vancity credit union to launch a project to better understand the personal finances of Canadian millennials.
Two 2018 Canadian reports on Financial independence and wellbeing for the next generation, i.e. millennials, provide useful ideas based on public discussions. The authors, Dr. Jennifer Robson and Andrée Loucks, suggest that there is a need to shift the narrative around discussions on finances. They write:
‘Far too often, discussions about finances are framed—explicitly or implicitly—in a “you’re in serious trouble” narrative. This simply doesn’t work – in fact, it repels millennials. As one roundtable participant said, “There is a major stigma to this [narrative]. Students are embarrassed to talk and they’re worried about being nagged or shamed.”’
Further, ‘Naming and shaming is not an effective approach, and there is movement to shift the language to “financial well-being”, which makes it clear that financial literacy is a skill that contributes to independence and security. This addresses the “why” instead of the “what”, which is an established best practice.’
‘Financial literacy also needs to be exciting and empowering, with central messages focused on independence, having control over finances, being able to achieve dreams, and understanding that planning and saving are required to achieve both short- and long-term financial goals. … The tone of the narrative and discussion is important; there cannot be too much emphasis on consumerism being inherently evil, nor can it unduly focus on a far-off retirement. It seems that there is too much time spent talking about hard work, rather than goals.’ [Page 4]
Such ideas open the door for career practitioners to be leaders in how these discussions are introduced and explored.