Early financial education for children adds up to a better future

Lack of financial education still plagues many young people, as does the failure to instil a lifelong savings habit from an early age.

Few schools in the Gulf region offer dedicated lessons in personal finance, a topic that is often squeezed into other subjects. Any financial education is better than none, but teaching it as part of another subject risks downplaying its importance. The reason is simple: Financial decisions are some of the most significant that people take in their lives. Financial education needs dedicated, regular classroom time, with clearer guidance for teachers on what to cover and more support for schools.

Most adults use financial services such as bank accounts, mortgages, credit cards, loans, savings and pensions. Consumers need to be able to choose well between the numerous products on offer, but many learn how to do that only from hard experience, with responses such as: “I wish I’d learned that at school. It would have stopped me from making some very expensive mistakes.”

Managing debt is a particular pain point. Access to credit has huge value to society. Mortgages, for example, allow people to build up assets that would otherwise be out of reach. But problems with debt can range from stressful to catastrophic, as in cases where someone borrows too much or at too high a rate and faces financial hardship. Getting into unsustainable debt is a serious issue that affects physical well-being and mental health — one the next generation must be equipped to avoid.

Many young people probably say that most of their financial understanding comes from their parents. That is definitely to be encouraged — unless parents with patchy financial knowledge are passing on bad habits to the next generation. That, unfortunately, will often be the case because parents have “learned by doing.”

This is where nurturing a disciplined approach to saving from a young age at home is critical, starting off from a low but sustainable monthly figure of, say, SR50 ($13) or SR100 per month as gifts from parents or grandparents, and building this up as one grows and has a regular income.

However, the key is that monthly savings must not decrease irrespective of temptations — “save and forget” is the slogan — to instil an understanding of personal budgeting as one grows up. Today’s young generation are, indeed, tempted in an age of “spend and dispose” consumerism. Some of our parents or grandparents might not have had formal finance education, but many still remember the wise advice to put aside a penny for a rainy day.

A new appreciation of how the financial world operates and their stake in it might ignite a spark in some of the younger generation interested in learning about what a career in the finance sector could offer

Dr. Mohamed Ramady

But saving money on a regular basis is only half the equation, and this is where the role of Saudi banks comes in, attracting savings by providing a range of accounts for all age groups, and offering children more attractive accounts with added features as they grow up. The accounts can be branded for each age group with appropriate anniversary gifts and also meet the local preference for Shariah-compliant savings accounts.

Analysis of the Saudi Central Bank’s latest data shows that a substantial amount of money is still outside the formal banking system. As of July 2021, this amounted to SR210 billion, a staggering 57 percent of the total Saudi monetary base, while most bank savings are in current accounts amounting to SR1.316 trillion and saving accounts at SR450 billion. The short-term nature of these liabilities has led to a mismatch between Saudi commercial bank assets and liabilities, with 53 percent of the assets mostly in the form of loans under three years.

A vigorous children’s saving accounts campaign, starting from secondary school visits to explain the benefits of holding such accounts, would help to pull in some of the currency held outside the banking system, and also convert some current accounts to longer-term saving and investment accounts.

Human capital is the real wealth of the Kingdom, which has the potential to cash in a big demographic dividend. Almost two-thirds of its nationals are 34 or younger. Saudi Arabia intends to have a workforce that can run a globally competitive, innovative digital economy fit for a low-carbon, high-tech world.

Some Gulf countries have taken up the challenge and set up specialized financial training institutions, such as Abu Dhabi Global Markets, which aims to be the hub for financial services in the Middle East and Africa.

ADGM has set up an academy in collaboration both with key educational partners and with banks on the ground.

Saudi banks are some of the largest in the region and have a pedigree of joint venture partnerships with global banks on which to draw. It is not out of their reach to sponsor and underwrite a similar Saudi finance academy — open to academically qualified entrants, and run by professional bankers and specialist academics — to add to the Financial Academy, which took over the functions of SAMA’s Institute of Banking and, in 2020, became an independent legal entity, as well as various individual Saudi banks’ in-house training centers, which are open only to employees.

To end on a more positive note, a new appreciation of how the financial world operates and their stake in it might ignite a spark in some of the younger generation interested in learning about what a career in the finance sector could offer. It is no coincidence that many of the students who took my money and banking course loved it and went on to become Saudi financiers.

• Dr. Mohamed Ramady is a former senior banker and professor of finance and economics, King Fahd University of Petroleum and Minerals, Dhahran.