WHILE the saying ‘ignorance of the law is not a defence’ applies to legal matters, poor knowledge about financial matters can be very harmful and painful too, resulting either in financial loss or unfulfilled expectations. Slovaks, like their peers in other post-communist countries, tend to suffer from less-than-excellent financial literacy. Following a period when the range of financial products was limited there are now plenty of them to choose from. However, Slovaks have problems doing this as they often do not know the meaning of basic terms, or how financial mechanisms work. The financial sector has itself identified this lack of financial literacy and is running its own educational activities for the general public.
Surveys conducted by the Slovak Banking Association (SBA) and by individual banks have revealed low financial literacy among Slovaks. Back in 2007, the SBA organised the biggest survey of financial literacy and financial education to date. Its results showed widespread shortcomings in citizens’ financial literacy and the results inspired the launch of several educational activities for the general public.
The experience of the Slovak Insurance Association (SLASPO) also indicates very weak financial literacy among Slovaks, but a similar situation exists in neighbouring post-communist countries.
“For more than two decades all those responsible [have made] efforts to educate the public to be responsible towards themselves and their families in the form of insurance, saving and investing and [have encouraged caution regarding] unfair loan and investment schemes,” Jozefína Žáková, SLASPO director general, told The Slovak Spectator. “Despite this, we find out every day within the insurance sector that this education may not be effective because people may still not understand insurance policies.”
Žáková pointed out that clients, when choosing an insurance policy, continually focus on the price and do not pay enough attention to its content and the coverage it provides. Thus, paradoxically, various accidents and natural disasters actually increase financial literacy because they prompt the media to provide more information about the damage caused and people become more interested in protecting themselves via insurance products.
According to her, the financial literacy of politicians is a special area, as “they are prone to ‘take money where it is’ and it seems to them that money in insurance companies stand idle”. Thus insurance experts have to remind politicians in almost all governments that insurance companies are regulated by legal norms, based on which they have to be able to meet their obligations towards policyholders. To meet this purpose, they create so-called technical reserves allocated exclusively for the coverage of obligations towards policyholders. This means that these are not the assets of insurance companies, and should not be taxed or further limited in other ways.
The experience of insurance companies is that those born earlier and with insurance experience from the communist regime are not used to the wide range of insurance products on offer, since the market for them was previously subject to a monopoly.
“In order for ordinary people be able to choose, from the extensive range of insurers, the product which suits them best, i.e. covers the risks to which they are exposed, it is necessary to prepare them for this,” said Žáková. “Crucially, it is necessary to start with the young as early as possible at basic schools. Economics is taught at most secondary schools, but everyday management of money, ways to eliminate risk and others skills are not being taught as part of this. Thus the younger generation is mentally better prepared for ‘capitalism’ when choosing a product, but in order to make a really good choice they have neither enough education nor experience.”
Žáková added that schools have not been very helpful in this respect so far, despite the development and implementation of a National Financial Literacy Standard, on which SLASPO cooperated with the Education Ministry.
“Alas, it seems that this initiative has missed its target by a wide margin,” said Žáková.
The Education Ministry, which says it welcomes any supporting activities that develop financial literacy, is now preparing a report about the situation in the education system focused on support for financial literacy development. According to ministry spokesperson Michal Kaliňák, the report should be submitted to the cabinet in June. Simultaneously, a revision of the National Financial Literacy Standard and ways for it to be implemented are being prepared.
Peter Kalčevský, programme manager at the non-profit organisation Junior Achievement Slovensko (JASR), specified that while the standard says what financial knowledge children should have when graduating from basic and secondary schools, no comprehensive educational material was created for teachers to base their teaching on. JASR, in cooperation with the SBA, has now created such material within the More than Money programme. Educational texts now cover almost 90 percent of the National Financial Literacy Standard, and include a methodological guidebook for teachers along with many activities. The More than Money programme is running in Slovak schools across Slovakia as a pilot programme in the 2012/2013 school year.
“The programme focuses on students of basic and secondary schools as the target group,” SBA spokesperson Monika Klobušická told The Slovak Spectator. “This is because they discuss their school projects and assignments with parents, grandparents and other relatives. This provides a chance that adults will learn about finances together with children.”
Prior to the launch of the project More than Money, the SBA run an online financial literacy test which showed no previous improvement. It tested 4,000 students joining the project, but was open to all who were interested.
Out of the students who participated in the project, only 4 percent passed the entry test successfully. Three-quarters of students did not achieve even 50 percent. The level of financial literacy of all tested Slovaks was around 68 percent.
“The results of the entry test for students confirmed that it is necessary to intensify financial education at schools,” Ladislav Unčovský, the SBA’s executive director, said in late January, as quoted in an SBA press release. Students will be tested again after they complete the education programme.
The project is open to basic and secondary schools, leisure centres, school clubs and to orphanages. So far, over 4,000 students from the last two years of basic school and all four years of secondary school, and over 200 teachers from 150 schools have joined the project. The aim of the programme is to teach students to plan their financial future and to draw them into the world of finance in an interactive way. This experience-based project is divided into 10 thematic circles which cover the history of money, banks and banking products, with the latter covered extensively, to teach students how to choose the most suitable product and which characteristics to use to decide. The programme is flexible and can be conducted as an individual subject or as part of an existing subject. Its organisers hope that it will pass the accreditation process; the education module for teachers using the process has already won accreditation.
“Financial literacy and education linked to it requires systematic work by the teacher with students, but also the parent with children,” said Kalčevský. “But it is not just children that have problems with financial literacy, which is not so peculiar since children themselves do not earn money yet – but also many adults, who often, probably in desperate situations, reach for solutions which are not very responsible from the viewpoint of their finances.”
Kalčevský believes that one does not need to be a mathematician or a banker to understand basic principles.
“But one should realise that our money, money which we have or earn, with which we pay for goods and services, is the focus,” Kalčevský said. “Thus we should be interested in how it works.”
25. Mar 2013 at 0:00 | Jana Liptáková