Project description: Economics as Financial Literacy



Economics Network - Announcement for Newsletter, February 2011

Economics As Financial Literacy

Doctoral Research at Bristol University to Explore the Economic Significance of Financial Education for Young People.

Arthur Edwards

Arthur.edwards@bristol.ac.uk

Introduction

The following project description[1] is shared with a view to inviting comments, collaboration and anecdotal reports from the classroom. The author would also be interested to learn about research already completed in this area and studies currently underway. While the focus is on ‘young people’ the approach is conceived as general in scope, whether in schools, colleges or other contexts. As the title implies, a more thorough-going financial literacy which comprehends the economic world as a realm of interconnected balance sheets, might go some way to grounding economics, as a discipline, in accounting. Such a development would certainly chime with the views of Sir John Hicks, who was happy to be remembered as ‘the accountant of the economics profession’[2], seeing, as he did, much of the mathematical modelling, by which the subject is characterised today, as ‘in the air’.

Summary

What is financial literacy; how should it be taught; and what are its macro-economic consequences? The aim of this project is to further the development of financial literacy that is robust enough to engender societal as well as individual economic outcomes. The three questions above constitute the core of a research project that aims to establish a link between the crisis in finance and the kind of economic education that has informed our society in its financial behaviour to date. It compares the everyday understanding of financial literacy, normally premised on personal finance, with an approach which uses accounting to illustrate how, through trade and capitalisation, individuals can learn to ‘read’ their relationships to the economy at large and then through appropriate financial management ‘write’ their contribution directly into today’s circumstances. The acid test of true financial literacy is whether the behaviour of financially literate individuals gives rise to a socially functional economic life.

The Situation Today – Our Economic Blindness

The world we live in today could be characterised as one in which, on an individual level, financial illiteracy is widespread, while at a societal level we experience ongoing economic dislocation, with little prospect of long-term stability or improvement. The problem appears to be endemic. Could this be a consequence of how we are taught to look at the economy, both in formal terms through our schooling and therefore as a culture also? The market-state consensus endorses an individual free-for-all while giving government the task of introducing corrective measures through its regulatory agencies. These are often retrospective and result in ‘public’ liabilities. But surely good financial education would be able to bridge this chasm by instilling a more comprehensive picture of economic cause and effect? Profitable behaviour[3] is surely social in a wider sense, when the overall accounting is done. But how can one see this?

Conventional Thinking

The conventional approach to financial education, based on ‘personal finance’, does not go deep enough and may indeed, by telling a half-truth about ‘money’, be leading to a compounding of the problems exemplified by the recent banking crisis. By placing its emphasis only in the personal realm, it does not allow students to see that there must always be a ‘real’ counterpart to economic value. Its monetary view is one-sided and the emphasis on savings (etc) relies on the solidity and rightness of current arrangements, though from another point of view these look increasingly fragile. Moreover it has little to say about the universal logic of accounting upon which business relies. Nor indeed is there much emphasis on enterprise or anything experiential. Indeed based on most curricula it would appear that financial literacy boils down to the ability to give the ‘right’ answers in a multiple choice test.

A Proposed New Approach

Fundamental research on the nature of financial literacy (meaning effective understanding) is lacking. Societal finance encompasses both personal finance and enterprise education. Its understanding is premised upon the fact that we live in a world of interconnected balance sheets and it is this language therefore that we need to learn to read. To do this young people need to learn the theory of double-entry bookkeeping through the experience of drawing up the accounts of their own circumstances. This guided experience is instructive. Not only does it call on their initiative in giving shape to their future undertaking (for example by financial planning) but it leads them into a wider awareness of how exchange relationships actually work than they could ever have in the abstract. Accounting can serve as an instrument of perception, making invisible monetary-economic phenomena visible, so that through perceiving his circumstances an individual can better orient himself in regard to them and therefore base his actions on an informed view, rather than ephemeral notions of finance. This allows one to see the world in balance sheets terms and thereby acts as a safeguard against the illusion of a nominalistic view of money. It also enables one to discern the reciprocal economic relationships that give rise to a societal picture.

Arthur Edwards, Research Partners and Auspices

Arthur Edwards is based at the University of Bristol having completed a research MPhil at Buckingham University and BA at Oxford University. He is a director of the Centre for Associative Economics and has experience as a self-employed person giving financial literacy courses in schools, among other things. He has written and given workshops on the subject around the world and is involved in various collaborations to promote a wider understanding of financial literacy.

Anticipated Outcomes

Publication of a dossier of conclusions outlining best practice and inviting responses from various stakeholders to assess possible take-up

Contributing to a change of emphasis in how financial literacy is understood and establishing a benchmark for what should be included in financial literacy teaching

Development of financial literacy research as an established area of academic interest and using the project to leverage the formation of a research community looking at the underlying principles and practices upon which financial literacy is based and giving rise to appropriate materials.

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[1] A full overview is available at .

[2] Klamer, A. (1989), ‘An Accountant Among Economists: Conversations with Sir John R. Hicks’, Journal of Economic Perspectives, Vol. 3, N. 4, Fall 1989, 167-180.

[3] Professor Michael Porter of Harvard has coined the term ‘shared value’ to contrast with bolt-on ‘corporate social responsibility’ which is just the reaction to a perception that business and society are opposed.

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