Financial Education

by Mikulas Splitek*

Rarely, someone sighs that scientists have not been able to develop economic theory for sustainable growth yet. Interestingly, for a cradle of democracy, I have not encountered a single article in which common people were attacked for their apathy and lack of competence in relation to the problem. Apart of greedy bankers and power longing politicians, it was public who has lived on debt, who has voted for irresponsible wasting of social benefits, who has not supported vital projects via its informed demand. It is evident, from the nature of structural changes Europe needs to undertake in order to remain competitive, that society as a whole is asked to play its part. Solution to mass challenges like European demographic impotence, not very flexible labour market, or overdebted households still lies ahead. Yet, it is merely intellectual elite whose skills are repeatedly put under scrutiny. Knowledge of majority is not questioned. This article seeks a slightly different course.

It comes out of various psychological theories that a main determinant of human behaviour is fear. People fear of losing emotional support; they are afraid of security vicissitudes; they are anxious of living standards sliding down, etc. A New Year’s survey in Czech Republic showed that 85 % of respondents frighten a loss of job. The high number is alarming.

Because, in words of the old proverb, a fear is not a good master. Under its influence, people make, in strictly economical jargon, irrational and damaging decisions. They get jealous, get over conscious of threats; they do not invest at all. Although often manifested in such behaviour, the fear is scarcely wittingly controlled. A task of psychologist is usually to rationalize a situation given, educate a client in managing and overcoming it. The power of formal education is alike. However, any form of financial education in primary and secondary schools is lacking. Where should people get competence for calculation of potential risk in taking a mortgage, for investing in corporate bonds, for selling their labour on adequate price level from? They do not have many options that is why they are often afraid, that is why they err too much.

It is, I believe, in a witty state interest to educate its population in financial issues. People need to understand economical situation as a cyclical process through its vicissitudes in order to retain calm mind in turbulent times. They need to appraise the situation and feel confident to act for themselves, not just follow trends. In this sense, citizens would know something is wrong long before foreign investors make state bond yield soar. Yet, I understand how ambitious plan I advocate; I do not want to plainly ripple the water without giving much advice on how to do it.

The process of education must be gradual, none understands markets quickly. Further, real assets have to be in stake, people learn much better in presence of tentative incentives. Let’s make a collective investment fund in every single high school, and let the students accompanied with their tutors play investor role. They would make investment decisions on the real market. Less mature students would operate less money, higher grade ones will get more responsibility. One hour a week shall be sufficient for a meeting to discuss financial strategy of the school fund and to review market situation. Experience gained would be priceless.

In my opinion, it is time to stop defending people against their own lack of knowledge and experience by further state regulations. More effective would be to give them power and confidence for leading their lives actively. Educated, experienced and critical citizens, then, would provide the state with more efficient feedback about its functioning. In short, they would hardly be satisfied with tattles. They would contribute to solving current problems much better. Is European Union prepared to take such a bold step in withholding some powers, delegating them through education on its citizens, and so foster its position?

* Mikulas Splitek is a PhD student from Charles University in the Czech Republic. He was also an assistant of the Pilsen Region Office to the EU in Brussels and is currently a member of the Writing Team at ThinkYoung.