Interview with Christoph M. Schmidt on the “children’s start-up allowance”


interview

As of: October 9, 2024 7:01 a.m

The economists have proposed a state-financed “child start-up allowance” for children. The financial resources could be used more sensibly in the education system, says RWI President Schmidt.

ARD financial editorial team: Is financial education a problem in Germany? How do you rate the Germans’ financial competence?

Christoph M. Schmidt: With their initiative to develop a national strategy for financial education, the ministries (BMF and BMBF) are addressing an important deficit in the education system: Although empirical studies attribute Germans to a fairly high level of competence in abstract questions about financial education, there is still a willingness in this country to Achieving an attractive return with manageable risk by investing in the stock market is underdeveloped in international comparison.

It is therefore important to look for ways to explain the advantages of investing in the capital market, particularly to students from less educated backgrounds, and to make clear the importance of smart investment decisions for their own financial security over the course of their lives.

Economist Christoph M. Schmidt

To person

Christoph M. Schmidt is President of the RWI – Leibniz Institute for Economic Research and professor at the Ruhr University Bochum. From 2009 to 2020 he was a member of the Advisory Council for the Assessment of Overall Economic Development, and from March 2013 to February 2020 he was its chairman. Since May 2024 he has been a member of the Research and Innovation Expert Commission (EFI) appointed by the federal government.

ARD financial editorial team: And what are the reasons?

Smith: The reasons for this deficit are certainly complex, but should not least be due to teachers’ ability to understand economic relationships and a generally very high level of trust in the power of state mechanisms to protect against life risks.

I also have the impression that we as a society do not have a positive attitude towards our market economy and that many people view the capital market in particular with skepticism. It is very questionable whether a monthly payment from the state could change this fundamental problem.

“I think that’s extremely questionable”

ARD financial editorial team: As you mentioned, the Federal Ministry of Finance and the Federal Ministry of Education and Research want to develop a national financial education strategy for Germany this year based on a proposal from the OECD. Would a child start-up allowance like that proposed by the SVR be helpful in improving this and establishing a share culture in the long term?

Schmidt: In his Policy brief The Council of Experts apparently assumes that regular information about the increasing balance in the account – which is only available at the beginning of adulthood – will promote practical experience with financial investments. I think that is extremely questionable. If the main aim is to illustrate the effects of portfolio decisions on the course of the saved capital, then this would undoubtedly be possible without using any financial resources in mathematics lessons.

In addition, any success is likely to come at a very high price. The financial resources of more than one billion euros per year spent on this could certainly be used more sensibly in the education system. The Council of Experts should perhaps take another look and ask the question about the opportunity costs.

Ultimately, a key to taking responsibility for your own financial resilience is the understanding that foregoing a reward today opens up the prospect of even greater rewards in the future. How can this rewarding experience of sacrifice, which is the root of all savings efforts, be made tangible by receiving a monthly gift? It seems to me that this hasn’t been thought through all the way through.

Finally, the Council of Experts seems to have overlooked an important aspect in its empirical overview of international models: the economies discussed here all provide for the charging of tuition fees; Strengthening the financial situation of young people is likely to be particularly important here. However, the Council proposal hardly provides for counter-financing through the collection of tuition fees in this country.

I’d rather have more Knowledge transfer at school

ARD financial editorial team: Could details improve the idea of ​​economics?

Smith: The technical aspects of the concept are not the problem with the proposal, but rather its lack of connection to real life. It is well known that public budgets are currently unable to draw on an overflowing reservoir of financial resources.

ARD financial editorial team: How do you think politics could advance financial education in Germany?

Smith: There are a variety of options, for example compulsory learning units in mathematics and statistics, compulsory further training for teachers in the basics of economics or the use of learning materials with a practical connection to economic life. It should also be about making children and young people more familiar with the basics of the capital market than they have already done in school.

The interview was conducted by Till Bücker, ARD finance editor.

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