Why we need better financial education, and what we should be learning
It never fails to shock me how little most people know about finance, and specifically investing. Most of us understand the basics of a bank account, own a credit card and have an idea of how it works, and are aware of the importance of saving for the future. Many are even fully aware than inflation and low interest rates erode the savings sitting in their bank accounts.
But when it comes to actually putting money into a form if investment that would make sure the amount we save grows over time, the vast majority of people my age don’t have a clue! For example, it seems many people don’t know what a fund supermarket is, or that this is the easiest way to invest money into funds in the UK (through a Stocks & Shares ISA).
Having worked in financial journalism for almost a decade, sometimes I forget than when I started, this was me. I didn’t even know what the FTSE 100 index was when I finished university and applied for my first financial journalism job. I knew nothing about pension funds and the fact that they invest money, which was what I started writing about. So is it any wonder that my peers don’t know much about any of this, unless their education was specifically in the area of finance?
Lack of financial education
In my humble opinion, the education system in the UK is largely at fault (I can’t speak for other countries, but imagine many others are facing this problem too). When I was at school, I learned nothing practical about investing money.
Even now that financial education has been included in the national curriculum, not all young people have access to it and the information they receive is limited. According to the 2019 Young Persons’ Money Index, which examines the delivery of financial education in schools and the financial capability of young people in the UK, 82% of students want more financial education in school. Some 60% want this to be a separate subject, and a worrying 69% have concerns about money.
This lack of education carries on in the workplace, too. Most workplaces are obliged to provide us with some support for investing our pension money, because by law they have to put a percentage of our salaries into a pension for us every month (unless we specifically ask them not to). This is called auto-enrolment. But beyond this, very little is done in the workplace to ensure people have a good grasp of their finances and no advice is given on investing savings in the shorter term.
Help in the workplace
Nigel Green, founder and CEO of financial advice firm deVere Group, has called for companies across the UK to incorporate financial advice into their benefits packages.
“Incorporating a financial adviser into an employee’s benefits program doesn’t need to be an extra cost or a difficult undertaking for an employer,” he says.
“These advice sessions are typically offered completely free of charge, both for the company and for the employee.”
This is especially pertinent right now, when interest rates in the UK are extremely low. Some bank accounts are paying just 0.01% interest, while inflation in the UK, though it has dropped as a result of the crisis, is still sitting at 1.5%. Incidentally, this is not the case in the UK alone. In some European countries, for example, interest rates are negative. That means you’re literally paying the bank to look after your money.
What we should be learning
To tackle these issues, we need a nationwide programme to teach the population more about investing and financial services. People need to know where to go to start investing, how to pick something to invest in, how much to invest and how much to keep in cash for a rainy day, how to deal with crisis situations like the one we’re in now. Everyone should understand what a fund is the way we all understand what a bank account is.
We should be learning all this at school, but for those of us that didn’t, it’s never too late, and it’s not as complicated as it seems. The earlier you start investing your money, the longer it will be invested until you need it, so the more you will get out at the end.
In fact, those with money to invest now are in a good position. The coronavirus crisis has created a crash in stock markets, so investors have the opportunity to invest at a lower price and see their money increase in value more rapidly than during more normal market conditions. Think of it as a sale, if you like.
We may still see markets going up and down in the coming months as uncertainty prevails, but once we beat the coronavirus pandemic markets are almost certainly going to react in a positive way. So why not start learning about investing while you are in lockdown?