Talk – Financial education of the Swiss (youth)
Our guest is Michael Kendzia, economist and head of the BSc International Management program at the ZHAW. Today we are talking about a fascinating topic – financial education, especially for young people.
Financial expertise in Switzerland and worldwide
Felix: Before we go into detail: How does financial literacy in Switzerland compare to other countries?
Michael: Financial literacy in Switzerland and worldwide is modest. The FLAT study (Financial Literacy around the World) has shown that the world is flat, at least when it comes to financial education. However, the results for Germany and Switzerland were still comparatively good with 50 percent correct answers.
Felix: You were also involved in a study on the financial literacy of young people in Switzerland («Financial Literacy Among the Youth in Switzerland»). Why is this such an exciting topic?
Michael: Yes, it is indeed an exciting topic, especially when you consider that 70 percent of Generation Z have never owned a share.
In the survey, we asked the following questions:
- If you have 100 dollars today that earns interest at 2 percent: will you have more, less or the same amount in a year's time?
- If you now have these 100 dollars again and you leave them in your savings account with 2 percent interest, but at the same time there is inflation of 3 percent: will you have more, less or the same amount next year?
- Is it safer to invest in one share or in a fund with several shares?
Three very simple questions, and yet many people find it difficult to answer them correctly. Why is that actually the case? Why is financial literacy so low, with only 50 percent of answers correct, especially in developed countries?
Gender differences in financial literacy
Felix: Your study also looked at gender differences in financial literacy. What did you find out about this?
Michael: Interestingly, men tend to overestimate their abilities, while women are more realistic. This is also reflected in their investment strategy. Men trade more often and tend to overestimate themselves, which leads to higher costs. Women, on the other hand, often have a steadier hand and therefore often achieve better results.
This was also demonstrated in a study by Brad M. Barber and Terrance Odean («Boys will be Boys»). Overconfidence is a strong psychological element that can cause great damage in investments. A steady hand is important, especially when it comes to money.
Benefits of financial education for young people
Felix: Why is early financial education so important for young people?
Michael: Young people have the advantage that they have a lot of time to invest. Early financial education allows them to understand the basics of money management. It's interesting to see that many young people have no exposure to equities yet, but that changes over time. A study carried out in the USA in 2015 showed that financial literacy only peaks at 60 or early 70s. After that, it declines again. This also has to do with the fact that people at this age often have the most money. Wealth is concentrated among older people, at least in Switzerland. Younger people have less, but it still makes sense to address the issue. It is also important for young people to know what investing means. They have the advantage that they still have plenty of time to invest.
Felix: As head of the International Management course, how do you integrate financial education into your curriculum?
Michael: Our students are taught subjects such as accounting, finance and statistics. Financial management is crucial for businesses, so we want to make sure that our students are well prepared for it.
The danger of overestimation in trading
Felix: Overestimation can be problematic in trading. How can you counteract this?
Michael: Overestimation, especially among men, is a psychological phenomenon. Passive investment strategies such as the use of ETFs can help to reduce this overestimation. ETFs offer broad diversification at low cost. They also enable less experienced investors to participate in global economic growth. Passive investment strategies with ETFs are often more successful in the long term than active trading.
Humility on the financial market
Felix: Michael, you mentioned the keyword «humility». Can you explain why humility is an important quality in the financial market?
Michael: Humility plays a crucial role, especially when dealing with finances and investments. It's about recognizing that even professionals have difficulty predicting the market. The illusion of finding the best stock or identifying the perfect entry and exit point may sound tempting, but it is extremely difficult. Humility helps to have realistic expectations and to recognize the complexity of the financial markets.
The market is volatile and is influenced by many factors that are often difficult to predict. It is important to understand that timing is often a matter of luck and cannot be reproduced permanently.
Financial literacy among young people
Felix: What is the state of financial literacy among young people?
Michael: The financial literacy of young people is mixed, because money and investments are still a taboo subject in our society. But there is hope, because this changes in the course of life. With growing financial responsibilities such as rent, car and family, young people are making increasingly complex investment decisions. It is important that parents and schools support this development and promote financial education.
Children and young people as investors
Felix: In your opinion, should a young person be allowed to invest at the age of 15? How would you deal with this question?
Michael: Young people's ability to invest depends on various factors. For students, who are often in a period of transition, it may make more sense to invest in their own education. Studies show that the average holding period for shares has fallen sharply in recent years and young people want/need to remain flexible. It is important to consider the individual situation and invest not only in shares, but also in your own development.
Promote financial literacy in children: Books as trailblazers
Felix: You mentioned books as one way of promoting financial literacy. Are there any books that you would particularly recommend?
Michael: Books are an excellent source of financial education for children. The book «Money for Sale» by Juventute is particularly suitable for children aged 4 to 8. It teaches how to handle money in a playful way. Such books can sensitize children to financial topics in an entertaining way and are a good supplement to school lessons.
Felix: Thank you very much, Michael, for this insightful conversation about financial education.