What’s the best way to deal with unsophisticated individual investors? You can always adjust this or that rate to try to make the market more robust to the volatility they introduce. Or, you can cultivate more sophisticated investors. Starting in elementary school.
This is Guangdong province’s long-term solution to the problem of witless investors, or “dumb money”—adding finance and investing to the basic curriculum.
Guangdong is often at the vanguard of trends in China. It is home to many of the oldest Special Economic Zones—areas of coastal China that saw sweeping economic liberalization throughout the 1980s—that served as laboratories for economic reform.
Financial literacy class is a similar kind of experiment, complete with government support. It will be rolled out in 36 schools across Guangzhou, the province’s capital and largest city, affecting about 10,000 students, according to local paper XinKuaiBao (link in Chinese). Eighty instructors have begun training for the program, and the curriculum will be compiled by local, university-level finance and economics experts. There will be three levels of instruction—one each for elementary, middle, and high school.
The curriculum actually seems pretty sensible. XinKuaiBao says students will learn the fundamentals of financial markets, financial terminology, personal finance and investing, and financial management. There will also be a section on the rise of finance in Guangzhou and Guangdong. One activity teachers might use to test student’s knowledge, according to an instructor who works with third-graders, is to present them with a map showing financial institutions in the neighborhood, and ask them to explain what each one does.
If all goes well, the Guangzhou experiment is expected to be expanded throughout the rest of the province—and maybe, eventually, the rest of the country.
Teaching finance to kids might seem silly, but other countries should pay attention. A good foundation in financial literacy is arguably more important than one in math. And they are not one in the same—a 2012 OECD report (pdf, p. 14) on the financial smarts of 15-year-olds across 13 countries found that some countries “score higher in financial literacy, on average, than their performance in mathematics and reading would predict.”
Oh, also: Though it only measured students in Shanghai, the top-performing 15-year-old financial minds in the OECD’s study were in… China.