Whoever you are and whatever you do, financial literacy is a critical life skill. All of us need to know the money management basics such as how debt works, why it’s a bad idea to go on a spending spree with a credit card, how to budget within our means each month, the importance of saving and how to get the best out of your savings. Yet very little of this stuff is taught at school.
Here are three reasons why we think financial planning should be an integral part of the school curriculum the world over:
1. Money management is a skill like any other
Just as we are not born knowing how to add up, read or identify oceans and continents on a map, we don’t automatically know how to manage money either. Yet all of us will be called upon to do this in life. Lessons in the basic concepts of personal money management such as how to read a bank statement, how personal loans and credit cards work and what an overdraft is would be of benefit to all students. Subjects such as understanding debt and the concepts of interest, compounding, budgeting and taxation would help practice maths skills and give a relatable context to what can, let’s face it, be a very dry subject for some students (myself included!).
2. Financial habits start young
It has been said that children’s financial habits are formed by the time they are seven which means that we need to start teaching them good habits from bad early on. Obviously lessons need to be age-appropriate but if we can help children to get their heads around basics such as the importance of saving or the implications of getting a loan with excessive repayments it would help prevent many young people from getting stuck into a cycle of debt later down the line.
3. Fostering an understanding of the value of money
Every time we spend money we make a choice to buy one thing which inevitably means sacrificing others. While for a child that might mean selecting the Transformer robot over the remote-controlled car or, for a teenager, choosing between a new pair of trainers or a Switch game, when we become adults the stakes are higher. As soon as we become financially independent we need to prioritise life’s basics such as rent, food and bills over luxuries such as new gadgets or holidays. Understanding the value of money and how it inevitably involves choice and sacrifice will encourage young people to think carefully before they spend and guide them towards making good choices when they start to manage their own money.
The failure to teach financial skills in school has resulted in a generation of financially illiterate individuals whose lack of knowledge often sets the scene for a lifetime of financial difficulty. And the level of illiteracy is seriously concerning. A recent report in The Independent newspaper in the UK revealed that a third of adults questioned in England and Northern Ireland were unable to work out the correct change due following a purchase and 40% were unable to apply a simple discount to an everyday household product they might buy. What hope do they have of understanding how the interest on a debt works or how rising interest rates might affect their mortgage?
Until money management lessons are taught in schools it’s over to us as parents, grandparents, uncles and aunts to teach young people the basic principles of saving, debt management and budgeting in order to secure their financial wellbeing throughout their lives. And if you feel you own skills are lacking, it’s never too late to learn. There are plenty of excellent books and websites where you can gen up on the basics. And if you’d like to put in place a clear plan which clarifies your financial goals and provides you with the best ways to achieve them, it may be time to seek the help of a financial adviser.