Brazil is a country with mild winter, which means that for a Brazilian to hit the slopes and learn how to ski, he or she needs to be able to travel, and therefore gets to experience other cultures.
I had the opportunity to ski in St Moritz in January and, because I am a beginner in the sport, I was always surrounded by teachers and very young kids. One morning by hot chocolate time (kids and beginner adults always pause their ski lessons for hot chocolate!), I realized that the teacher was collecting money from the five-year-olds to pay for their chocolate. Back in the house, I mentioned the episode to a Swiss friend and she replied ‘Kids can handle their pocket money all right!’. But I was not satisfied. The problem was not her answer, but how surprised I was to see little European ones managing their Swiss francs. So I asked an Italian friend who lives in Brazil what was his first recollection of using money back in Milan. ‘I was still in kindergarten, so about 5 or 6 years old,’ he said.
It was then that I realized that it’s not just the experience of snow that Europeans (and probably other developed market (DM) citizens) have different to Brazilians. Their financial education starts earlier. Brazil is facing unprecedented times – there is no doubt the changes that we faced in the latest decades boosted the profile of the country, which is competing with the UK to keep its sixth place in the GDP rankings in 2012. But the country still ranks poorly for social inequality. Within Latin America – the continent with the most inequality in the world – Brazil ranks third worst after Bolivia and Haiti (GINI Index by United Nations Development Program). Most of the kids study in public schools that lack the ability to compete with private schools in terms of quality. Going to public schools means they will eat meals that are also provided by the government, meaning no need to carry pocket money (assuming a poor family would have enough to fill the pockets of four kids on average – and we know that is not the case).
When these kids arrive in their teenage years, it is part of the culture to desire consumer goods like branded (or fake) jeans, mobile phones and sneakers. As soon as they start to have access to some money, it goes straight to consumer retail. Levels of indebtedness in the country skyrocketed in the last decade. The Central Bank expects the Loans/GDP ratio to reach 55.6% in 2013, compared to 25.7% in 2004, thanks to credit lines. The debt level of the population is now at 44.6%, while income commitment (including mortgage) is 21.3%. While the middle class (known as Class C, with family monthly income of US$650-2700) grew to 57.7% of the population in 2012 from 38.8% in 2004, the lower class (with family monthly income up to US$400) shrank to 12.2% from 35.4% in 2004. But all these new consuming habits (such as cellphones and cars) are increasing monthly bills (car maintenance and insurance, broadband, phone bills, private college…).
With the population coming out of poverty but also consuming hard, it seems financial literacy should become a new trend for innovation in social investing. A new NGO named AEF-Brasil (Associação de Educacação Financeira do Brasil) is being created with the support of both civil society organizations (associations of commercial and investment banks, the local exchange, insurance association) and market regulators (Central Banks and the CVM – equivalent to the SEC in US), along with educators. Elementary school materials will be tested, similar to the testing that already occurred with high school materials in 2010-2012, which was evaluated by the World Bank. Retirees and women on the welfare program will have new social technologies tested in the next two years.
It is hard to compare the economy growth in Brazil with the economy shrinking in DM countries. There are a number of items to study and consumer habits is only one. But education, be it traditional or financial, is something one carries in the backpack all the time. With that in mind, I guess I still see a lot of developing to happen in my country.
Elaine Smith is development manager at Instituto Geração.