BLOG: The financial education gap
‘Finance’ is something that happens to people when they grow up. At primary and secondary school, we are taught maths – how to draw graphs and multiply fractions – but we rarely consider that we will need these skills outside of the classroom. We graduate from child to adult without any sense of how to invest our money or pick a pension plan.
In moments of crisis, we frantically teach ourselves about taxation, credit and debt. And even once we have done this, most of us lack confidence. Ultimately this lack of basic financial literacy has allowed the UK to amass massive personal debt and put nothing back for the future.
A recent PwC report stated that the average UK household owed nearly £9000 of unsecured debt at the end of 2014. A renewed love of credit cards and other forms of borrowing, like peer-to-peer lending, combined with £9.1bn of student borrowing, has allowed the level of unsecured debt to reach the all-time high of £239bn. The vast majority of us consider living off an overdraft to be socially acceptable and rarely consider the long-term implications of inducing overdraft fees; this is particularly true of students. We trust, without thinking, the ‘good reputation’ of high-street banks. When they increase our credit limit, despite us being barely able to make the minimum payments, we thank them, go shopping, and spend more.
But this is not surprising. 90 per cent of the UK population has never received any kind of money management lessons. Consequently, although we owe more than ever, we are increasingly confident in (or deluded about) our own ability to repay. In reality, we are clueless about the cost of financial products: only a fifth of us can estimate the cost of a mortgage and only 3 per cent can correctly estimate the cost of a payday loan.
Young people are susceptible to debt, often as a legacy of their student days. However, most lack the skills necessary to get themselves out of this situation. It’s important for young people to park their student loans and ensure they don’t live beyond their means, allowing them to concentrate on reducing all other debts. In this way, young people can then start to look towards investing as a way of saving towards their long-term future.
Most people are cautious about investing, this is a shame as saving small amounts often can have huge benefits. Nearly a third of investors feel worried when they make an investment, while only 3 per cent are confident. This cautiousness is particularly prevalent among younger people: nearly 22 per cent of people under the age of 40 are wary of making bad investments, compared to just 11 per cent of people over 40. There is a general apathy towards investment. Perhaps this is in part due to a sense of not having enough money – an awareness of rising costs or student loan repayments. Certainly, widespread ignorance concerning money management has led to a fear of taking financial ‘risks’.
The answer is, of course, education. As of September 2014, financial education has been included in the national curriculum for maths and citizenship for secondary school pupils. However, according to the Money Charity, ‘financial education’ has not been properly defined, resulting in a disjointed curriculum taught by teachers that lack confidence and the appropriate training.
But thanks to the internet, educational resources suitable for primary and secondary pupils are freely available. The Guardian’s teaching resources include “The Financial Fairy Tales” – simple maths and literary exercises combined with literary and enterprise themes explained through the medium of fairy tales.
In addition, there are several charities which offer workshops or programmes designed to teach children, across a variety of age-groups, about finance and money management. For example, award-winning finance charity MyBnk has developed the Money Marathon game for secondary school pupils. The game includes interactive quizzes and activities set within the framework of a board game. Similarly, the Money Charity offers hour long workshops for 11-19 year olds, which cover the essentials of financial planning, saving, credit and financial products.
Technology has made investment platforms both accessible and affordable yet it is still viewed as an activity done by those selected few with access to the mysterious world of finance. This is a great shame. Informed investment can be a great way to build up medium-to-long term savings. With a little education, most would be able to confidently make informed judgements about where to invest, and understand the risks of doing so.
Moreover, young people are in a fantastic position to make investments. They have the advantage of time and commonly have no financial dependants, enabling them to be flexible and learn from their mistakes and capitalise on their successes. Plus, a little money invested regularly has a lot of time to grow when it’s been invested in one’s 20s. Finally, young people tend to be comfortable with technology and so can exploit online investment portals with ease.
A lack of financial knowledge has led many people to end up in considerable debt without the financial nous to claw themselves out. That same lack of knowledge has led today’s young people to avoid investment, preferring to keep spending and borrowing more. No child or young person should be sent off into the world without any preparation for one of the fundamentals of adulthood. It is time this palpable gap in children’s education is corrected.