It’s no secret that personal debt and a lack of financial literacy are a serious problem in our society.
Today’s report on the surge in ‘buy now, pay later’ services for online shopping is a case in point. For the savvy consumer, deferring payments might be a decent option, but the dangers for those who don’t know what they are getting into are all too clear.
Surveys bear out just how severe an issue this is. In the UK, 39% of adults do not feel confident managing their money, 11.5 million have less than £100 in savings and almost 9 million are in serious debt.
In 2014, in response to a clear lack of financial literacy amongst the general public, the government introduced financial literacy to the National Curriculum. At the time, the government said its aim was “to enable students to manage their money on a day-to-day basis, and plan for future financial needs”.
Whilst this was a significant step forward, the reality is that too many young people are still struggling with basic financial concepts. These classes may be on the curriculum, but only for local authority maintained schools, and the classes often fall under citizenship education, as financial education is not yet its own distinct discipine.
Meanwhile, academies and independent schools have no obligation to teach this area at all, meaning a whole cohort of students have no guarantee of an education in the basics of finance. And even when it is on the curriculum, the teachers themselves are often not specialists in financial literacy – only 17% of teachers polled said they had received such training.
A study by the APPG on Financial Education found that 87% of young people want to know more about how specific financial products work — including credit cards, savings accounts, mortgages and pensions. Just under 80% said they had not had any information about how the tax system worked and of the two thirds of students polled intended to take out a student loan for university, over half of them did not know how the loans or repayments actually worked.
A 2018 London Institute of Banking and Finance (LIBF) study found that 69% of students worried about money and only 8% of young people said they had learned the most about money skills from school. Over 60% of young people said they learned the most from their family, and 17% said they were self taught.
The potential risks of not knowing this stuff are obvious: missing out on important information in a crucial area of people’s lives, and getting dodgy advice from the internet among them. Likewise, the benefits of a more financially literate population are clear. Financially literate students will turn into financially literate adults, much more capable of making smart financial decisions for themselves.
That much is clear from research, which shows that young people who have financial education at school are more likely to save, have a bank account, and be confident managing their money. Not only does this mean being able to manage a budget, pay their bills and plan for retirement, but it makes them more confident as consumers and better able to seek out the best options. Knowledgeable consumers are also far less likely to be victims of fraud, are less likely to end up in unmanageable debt, and are much more likely to make decisions that enable them to retire in comfort.
Given the demographics of the UK, and the fact average lifespan is now around 80, it’s crucial that younger people know now about planning for their retirement, however distant it may seem. Many of our young people simply do not recognise how much they need to save, nor how early they need to start saving in order to ensure a decent quality of life in their latter years.
It’s not just about the future though: for many young adults, navigating the transition from education to independent living is made more challenging by not really knowing how to manage their money. Unwise decisions like overspending or taking out multiple credit cards can have severe consequences. Though it might seem obvious to most adults, a lot of younger people don’t know the difference between a credit and a debit card, don’t know what a credit score is and don’t realise that getting into debt early in life can affect their ability to get a mortgage later on.
This lack of knowledge translates to a lack of financial resilience, as well as increasing the risk of being a victim of fraud. In 2018, personal insolvencies in the UK reached a seven-year high. Over 115,000 people were declared personally insolvent in 2018, and a record number of county court judgments were issued last year against individuals who fell into debt – double the level of eight years ago.
Research carried out by ComRes found that 20% of British adults would struggle to pay an unexpected bill of only £20, while nearly half would be unable to pay an unexpected bill of £100 without help.
Clearly there are a whole number of issues affecting people’s finances, not least the high cost of housing in many areas, but a lack of financial literacy is only exacerbating those problems. The stress of money worries can also have a serious effect on people;s wellbeing. More than half of those accessing advice by the Money Advice Service have mental health issues, so supporting people to be able to manage their finances, would likely have a positive impact in this area too.
If the Government is to bolster this important area, how early should we be starting? Perhaps surprisingly, studies show that many of our habits and attitudes to money are formed as early as age seven. That suggests that though offering more resources and training to secondary school students will undoubtedly be helpful, basic lessons should be starting in primary schools.
It might cost a bit more money in the short term, but with such clear benefits to having a more self-confident, resilient and financially literate population, this will be an investment that more than pays for itself.
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