Is enough being done to educate young people about finances

Financial education is not part of the national curriculum in British schools so there are few widespread efforts in this space to teach young people about how money works. And unfortunately studies have shown that financial literacy among British adults is lacking in comparison to other major developed economies.

Sitting down with a panel of financial advisers, we wanted to find out, from their daily dealings with clients, what their perspective was on this matter.

Jessica McGuigan, a financial planner at Oxford-based Critchleys, has made a career in finance but said even she came to it late: ‘It took me until probably becoming an adviser myself to actually learn what the profession was. If you don’t have financially savvy parents, you are just completely a fish out of water.

‘I have friends my age who’d like to start saving for a house and become financially independent and they just have had no financial education whatsoever,’ she said. ‘They might ask me simply what compound interest is, or even how to apply for and get a credit card at 25 years old. That just shows there’s been no educational help
whatsoever in schools regarding this area.’

Importantly, this lack of education early on has ramifications throughout life and it is not limited to young people, as London-based Dart Capital investment manager Kirsty Stone explained.

‘I certainly see with clients that are coming on board that are slightly older, there’s still that education issue for many of them who are very successful in their industry, but they’ve maybe just stayed away from their finances,’ said Stone. ‘Education in our industry in general can be quite daunting for a lot of people that don’t know what we do or the fundamentals of what we do, but it is definitely exaggerated in younger people.’

Invesco Asset Management Limited regional sales manager Michael Filgate concurred and pointed to the fact that a lot of what is taught in schools has little practical application: ‘I did algebra at school, as I’m sure we all did.

I’ve never used cosine – and radius very, very infrequently. Whereas, if I’d known about pensions and tax, I think I would have been in a really good position!’

However, some progress is happening in terms of introducing children to financial education. In particular, the Personal Finance Society’s Discover Fortunes and Discover Risk programmes have involved financial advisers going into schools and holding workshops on the basics of money and how it works. Chris Daems, managing director at Essex-based Cervello Financial Planning, is one of these advisers.

He still thinks more needs to be done for such an important topic though: ‘It’s not given enough time or focus as a subject individually. It’s lumped in with sexual education, with social education and there’s no budget for it. So schools have always got that challenge of both time and money to educate financially in a good way.’

FINANCE AS A FOREIGN LANGUAGE

The challenge of financial education for young people isn’t just finding time and resources for it in the school agenda. Even though the principles of saving and investing are simple enough and haven’t changed, the panel all agree that
needless complexity have made finance a very difficult topic for young people to engage with.

‘I don’t think we necessarily make it easy for people to engage with financial services,’ said Phil Patient, group chief operating officer and private client wealth specialist at London-based HFMC Wealth. ‘We use a lot of jargon in the industry and things that actually could be simple are instead made complicated. We have a history in this industry of doing just that.’

Boiling things down to the basics, some of the panellists argued there was a case for starting even simpler and explaining the concepts of risk, volatility and saving. With these building blocks, a conversation about finance and, more importantly, financial planning can begin.

‘The most important thing an adviser can do to help a young client have a successful investment journey is to teach them the difference between volatility and risk,’ said Amyr Rocha-Lima, chartered financial planner at Kingston-upon-Thames-based Holland Hahn & Wills. He said misconceptions can be harmful from the outset.

‘Volatility is the normal state of things in an investment portfolio, as capitalism develops and the risk is you – the client – doing something silly with your portfolio when you shouldn’t. If people fundamentally understand that from day one, they will be on the pathway to a successful investment journey.’

Stone agreed and added part of this education can simply be managing expectation: ‘If you don’t explain to someone that they’re not going to get 50% return each year, then their plan’s never going to work. With cash doing nothing, people are being forced to invest in a way they haven’t had to before.

‘It’s just trying to get people to understand there’s a safety net there you need to have in place and the rest. If you’ve got playing money, have fun with that, but just get the basic plan right.’

It is not just the subject of finance itself that is mired in complexity and jargon. The financial services profession itself is arguably difficult for a layperson to connect to. As the financial advice sector has embraced professionalism and customer service, some of the panel said education also needs to be about the role of the adviser and what they do.

‘What we suffer from as a financial planning profession is a credibility gap first and foremost and, actually, a fundamental lack of understand of what we actually do,’ reflected Nathan Mead-Wellings, director and senior financial planner at London based Finura Partners. ‘We spend a huge time educating our clients in what we do.

It’s not just the investment anddo. It’s not just the investment andasset management, it’s the wholefinancial plan.’

INHERENT DIFFICULTIES

Across the population, wealthaccumulation is typically a slowand steady process with manypeople’s first experience of incomebeing from a modestly payingentry-level role or a part-time job.However, many young people mayhave to contend with significantly sized inheritances at a time when they are still getting to grips with finance in general.

Are young people ready to receive an inheritance though? Leaving financial planning aside, some of the panel acknowledged at this point education becomes a two-way street as advisers realise different generations may have differing ambitions for wealth.

‘We still apply our own values on to them and, when you talk to them, many are actually more concerned about their own children, or about care for their parents, more than necessarily thinking: “I’m going to spend all this money now”,’ said Patient.

Expanding on this, Daems added the receipt of an inheritance can lead to something more advanced than simple financial education – instead an in-depth conversation about what a client wants to achieve and how financial planning can help them achieve that.

‘Education isn’t only about knowledge because you can get knowledge from Google now,’ he said. ‘It’s about behaviours, habits and attitudes and we need to focus on helping people generate the right behaviours to do that. Therefore, cashflow [modelling] is an amazing tool to visualise somebody’s financial future.’