Large Gaps in Financial Literacy Between Rich and Poor

There is a large gap between advantaged and disadvantaged students in financial literacy according to a report published by the Australian Council for Educational Research last week. It shows that student performance in financial literacy is strongly associated with a student’s socio-economic background.

Students in the lowest socio-economic quartile scored 87 points below the average for students in the highest quartile. This gap is similar to the OECD average of 91 points but is much larger than in several other countries or economies including Estonia (53 points), Italy (61 points), Croatia (65 points), Latvia (68 points), Poland (69 points) and Shanghai (75 points).

While the report does not indicate the practical effect of these gaps, they are similar to the gaps reported for reading, mathematics and science in the OECD’s 2012 PISA study which amount to about two and a half years of learning.

The average score for Indigenous students at 477 points is similar to students in the lowest socio-economic quartile (482 points), but is 92 points behind students in the highest socio-economic quartile. However, this gap is substantially below that reported for reading, mathematics and science (about 130 points).

Remote area students are even further behind in financial literacy. The average score for remote area students (466 points) is 103 points behind that of students in the highest socio-economic quartile. This gap is similar to that for reading, mathematics and science.

More than one-quarter (27%) of students in the highest socio-economic quartile were top performers compared to eight per cent of students in the lowest socio-economic quartile, ten per cent of Indigenous students and two per cent of remote area students. Only four per cent of students in the highest socio-economic quartile were low performers compared to one-fifth (21%) of students in the lowest socio-economic quartile, 23 per cent of Indigenous students and 22 per cent of remote area students.

These results come from a supplementary study to the 2012 PISA study which earlier reported results for reading, mathematics and science. PISA 2012 is the first large-scale international study to assess the financial literacy of 15-year-olds. It assesses the extent to which students in 18 participating countries and economies have the knowledge and skills that are essential to make financial decisions and plans for their future. Financial literacy is defined as a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being.

The results show that Australian achieved an average score of 526 points, significantly above the OECD average of 500. This was equal third amongst the 18 participating countries and economies, behind Shanghai-China, with an average score of 603 points, and the Flemish community of Belgium, with an average score of 541 points. Estonia and New Zealand performed at a similar level to Australia, with average scores of 529 and 520 points respectively.

Almost 90 per cent of Australian students met or exceeded the baseline proficiency (level 2), the level of performance that will enable students to actively participate in life situations.

The report also shows very large gaps between the lowest and highest performing students. In Australia, the average score for students at the 5th percentile is a massive 333 points below that of students at the 95th percentile. This gap was significantly larger than the average for the OECD (317 points). Australia’s gap was the sixth largest of the 18 participating countries and economies.

The new results add to the large weight of evidence about inequity in Australian education. They contradict the claim by the Federal Minister of Education, Christopher Pyne, that Australia does not have an equity problem. They show that Australia has a huge equity problem.

The refusal of the Federal Government to implement the Gonski funding increases planned for 2018 and 2019 means that low socio-economic, Indigenous and remote area students across the country will continue to be disadvantaged in their life opportunities as adults.

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