From Allowance to Investment – Why Financial Literacy Is Important in One’s Early Years

Julian is in fifth grade, and receives an allowance of 30 francs a month. His mother promises him an additional 60 francs at the end of the year if he manages to save 5 francs per month. In a playful way, Julian learns the concept of interest and investment: Savers get rewarded. This principle of financial literacy doesn’t just apply to individuals, but it can also influence an entire economy.

As highlighted in a study by Standard & Poor's in 2015, there’s a clear connection between the prosperity of a nation and the financial competency of its citizens. Numerous studies also indicate that those countries with highly developed financial markets often reflect a high degree of financial literacy, and Switzerland is no exception. Moreover, different studies show that people with higher levels of education do better with financial affairs. Education policy plays a critical role here as it’s proven that the teaching of financial fundamentals at a young age contributes to preventing future debt.

Financial literacy significantly influences how children and young adults handle their money. A study by the German Institute for Economic Research points out that parents play a key role in imparting financial competency. Children who learn financial basics early on often make better financial decisions as an adult. The scholastic environment is also vital. A study by Springer revealed that economic education had a big influence on how students handle their money – youth with more economic competence are more responsible with money. Yet, according to one Master's thesis at the University of Graz, many young adults are lacking when it comes to financial knowledge.

This underscores how important it is to strengthen financial education both at home and in the classroom. A comprehensive education in financial matters helps young people to handle money responsibly, avoid debt, and to establish long-term financial security. That’s why parents should talk with their kids early about money, and why schools should integrate financial skills into their lesson plans. Studies prove that these measures lead to better financial behavior and a higher degree of financial independence over the long term. 

A 2024 study by the University of Zurich on financial literacy, led by Prof. Uschi Backes-Gellner and Dr. Maddalena Davoli, found that Switzerland rated very well in comparison with other countries. The questions in the study were formulated in such a way that the answers are comparable in terms of the “Big Three” (see box). Some 54% of all respondents answered every question correctly. Norway and Sweden, with 70% of respondents posting a perfect score, placed higher than Switzerland. Neighboring countries Italy, France, and Germany scored worse than Switzerland. 

At 84%, the question on inflation garnered the highest share of correct answers. The weakest performance came with the answers to the question about interest, where only 66% answered correctly. But not every generation performed equally well – there were clear differences here.

With regard to the topic of interest, the 45 to 59 age group did the best with just over 69% answering correctly. The generation over 60 scored the worst, at 63%. It’s fascinating to note that, despite their lack of experience, the younger generation (15–29 years old) performed better than the oldest generation, with almost 65% correct. Interestingly, the youngest generation answered “Don’t know” more often than the other age groups.

The answers to the question about risk diversification were middle of the pack. The 45–59 age group did the best, with 86% answering correctly. The youngest generation, with 70% answering correctly, were clearly in last place. This isn’t surprising, as younger people have little experience with investing, and therefore don’t understand the concept that well. Interestingly, more than 20% of young respondents replied that they didn’t know the answer – preferring to answer “Don’t know” instead of possibly choosing the wrong answer.

The question on inflation got the greatest number of correct answers overall. The oldest generation did the best here, with over 88% answering correctly, while the youngest generation brought up the rear, with 80% choosing the right answer. This could indicate that older generations have learned from past economic crises. They grew up with the fallout of both World War II and the Cold War.

A country’s history also plays a role in financial education. People often learn from economic crises. In countries – like Argentina – with high inflation, people know more about its effects. In Greece, many have a good understanding of what government debt entails. In more stable countries like Switzerland, people more firmly grasp the concept of risk diversification. 

Financial skills promote economic success – both at an individual level and a national one. Early learning can help develop healthy financial habits. In comparison internationally, Switzerland is in good shape, but here, too, there’s room for improvement. Integrating financial literacy into the schools could help prepare future generations with better skills for managing money.

In addition, targeted educational programs for young people and those lacking financial skills might reduce rates of financial inequality.