Financial literacy – much more than just arithmetic
authors: Monika Tröster and Beate Bowien-Jansen
Financial literacy – much more than just arithmetic
The skilful handling of money forms part of the necessary everyday actions in our society. In addition to a minimum level of (reading and writing) literacy, the definition of literacy and basic skills includes “skills in the basic dimensions of cultural and social participation”. These skills include numeracy, computer literacy, health literacy, social literacy and financial literacy, which is explicitly listed as a subsection of literacy and basic skills. In recent years, literacy and basic skills have become increasingly relevant to society and education policy, which is particularly evidenced by the declaration of a national decade of literacy in September 2015. The definition of literacy and basic skills emphasises the everyday application of reading and writing, and covers the different areas of literacy and basic skills mentioned above (The Federal Ministry of Education and Research (2012): Agreement governing the joint national strategy for literacy and basic skills in Germany 2012-2016. (link is external)[In German: Vereinbarung über eine gemeinsame nationale Strategie für Alphabetisierung und Grundbildung Erwachsener in Deutschland 2012-2016]).
What do we mean by financial literacy?
There are a variety of terms, both nationally and internationally, which are different depending on their disciplinary origin and/or ideological standpoint and categorisation, and which are used either synonymously or with some slight variation. For the most part, “financial literacy” is understood as, and integrated into, a subsection of economic (basic) education (Mania, E. & Tröster, M. (2015): Competence model financial literacy. Handling money as a topic of basic education (link is external) [in German: Kompetenzmodell Finanzielle Grundbildung. Umgang mit Geld als Thema der Basisbildung]. In the project “Debt counselling as a starting point for literacy – curricular networking and transitions” [in German: Schuldnerberatung als Ausgangspunkt für Grundbildung – Curriculare Vernetzung und Übergänge] (CurVe) (link is external) and the follow-up project “Curriculum and the professionalisation of financial literacy” [in German: Curriculum und Professionalisierung der Finanziellen Grundbildung], CurVe II (link is external), the term financial literacy refers to the “existential, fundamental and immediate needs of everyday living and actions in managing money matters” (Mania, E. & Tröster, M. (2014): Financial literacy – establishing a competence model [in German: Finanzielle Grundbildung – Ein Kompetenzmodell entsteht; Hessische Blätter für Volksbildung, 64 (2), 136-145)])
What literacy skills are required when dealing with money to enable people to be able to handle money and their finances effectively?
This question was crucial to Project CurVe. The theoretically grounded and empirically based competence model “financial literacy” was established. The model describes and structures the demands of handling money on a daily basis. It focuses on cash flow and comprises the six domains of income, money and transactions, expenditure and purchasing, budgeting, money lending and debt, financial security and insurance (Mania, E. & Tröster, M. (2015): Financial literacy: planning programmes and learning courses (link is external) [in German: Finanzielle Grundbildung: Programme und Angebote planen]. The cognitive requirements for action are classified as can-do descriptions under the four dimensions of knowledge (declarative and procedural), reading, writing and numeracy. The category of knowledge refers to knowledge and circumstances (declarative), but also application and process knowledge (procedural) in this area, and, indeed, bank account management, benefit entitlements and applying for them, or even the rights and obligations as a consumer. Reading requirements include the reading comprehension of texts and documents such as bank statements, product descriptions, contracts and invoices. The writing dimension covers the generation of different texts, as well as filling out forms and applications. The area of numeracy considers arithmetic operations, which occur in the everyday handling of money. Often, mental accounting is sufficient to compare offers or estimate the purchase amount (cf. ibid., p. 17ff).
The model is available for download here (link is external) in the form of a cross-classified table (language: German)
What can the “financial literacy” competence model be used for?
The model can be used as an analytical instrument, as further education content, as a didactic foundation or as an instrument for reflection in programme planning.
In the field of counselling the model provides professionals with opportunities for support within diagnostics. It can facilitate a closer look for the purpose of identifying the complex requirements of handling money in everyday life. The model highlights that financial literacy is not only focused on arithmetic skill, but rather much more on the composition of the most diverse competences taken from the areas of “knowledge”, “reading”, “writing” and “numeracy” (Schwarz, S., Christiani, H., & Tröster, M. (2015): Financial literacy: identifying and acting on needs. A workshop concept for the awareness raising of professionals working in education and counselling [in German: Finanzielle Grundbildung: Bedarfe erkennen und handeln. Ein Workshop-Konzept zur Sensibilisierung von Fachkräften in Bildung, Beratung und Betreuung]).
Financial literacy is therefore more than arithmetic, and more than reading and writing – financial literacy encompasses everyday competences which are necessary and essential for individual personality development as well as participation in society and the working world.
Monika Tröster is a research assistant at the German Institute for Adult Education (Deutsches Institut für Erwachsenenbildung) and a project coordinator for CurVe II . This project entitled “Curriculum and the professionalisation of financial literacy” [Curriculum und Professionalisierung der Finanziellen Grundbildung] started in January 2016 as a follow-up project to CurVe “Debt counselling as a starting point for literacy – curricular networking and transitions” [Schuldnerberatung als Ausgangspunkt für Grundbildung. Curriculare Vernetzung und Übergänge].
Beate Bowien-Jansen is a specialist project assistant for CurVe II at the German Institute for Adult Education (Deutsches Institut für Erwachsenenbildung).
The following EPALE resources are also of interest here Financial Literacy in Ireland, England and Scotland.