One of life’s biggest tragedies for me is that we are not taught financial literacy in schools. It is quite puzzling. Look at the maths curriculum of a 15-year-old and you’ll find them involved in complex calculations including Pythagoras theorem and intricate algebraic equations. All very clever.
But what is the point of being able to measure the distance between two points on a quadrilateral if you have no idea what the words ‘subject to status’ mean? Finding x in a bewildering equation full of numbers, letters, fractions and brackets can be immensely satisfying but what’s the use of such a skill of you have no idea what represents a decent interest rate on a loan versus a complete rip-off?
Children who are lucky enough to have parents who include them in discussions relating to the financial affairs of the family have a clear head start. But this is all too uncommon. Most children grow up in the dark, especially where money is a bit of a taboo subject. They leave home clueless.
Most youngsters will start to learn about money if they pay for their tuition or accommodation with a student loan. Even then, it’s not that straightforward. For a start, not many students bother checking their student loan statement. Because there is no immediate need to repay the loan why bother checking the balance? There is so much other stuff to do. The student loan system is cumbersome. Statements aren’t sent automatically so to check your balance, you’d need to log in and use the balance calculator. Long. Especially when there are lectures and parties to think about. These five topics would be on my shortlist.
Budgeting: This is where every financial novice should begin. By managing what’s coming in vs what’s going out, by controlling your spending, you can keep a tight rein on your finances and ensure you don’t get into financial trouble. What’s more, if there was a recognisable surplus, you could start saving.
The impact of interest: Understanding debit and credit interest is next. I heard of a student who considered borrowing money for a car from payday loan company simply because he knew no better. The interest rate was over 1,000%! The shrewd would seek high credit interest on their savings and look for low interest rates when they needed to borrow.
The time value of money: Little lessons like packing your own lunch instead of buying it from M&S could make a massive difference to your finances. An M&S lunch could cost £6.00 a day for example, whereas making your own could cost as little as £1.50. A saving of £4.50 per day. Nothing when it’s put like that. But that’s a saving of £90 per month or £4,320 over a 4-year university stint.
Maintaining a decent credit record: Your credit history starts as soon as you open a bank account and doesn’t finish until you die. Lenders, bankers and employers will all judge you on your credit rating and one mistake could take 6 years or more to repair. Getting into good habits early on will save you a lot of heartache.
Risk and reward: Understanding the differences between investing in cash assets such as bank accounts and investing in risk assets such as shares would be a valuable lesson and would prepare youngsters when they had to make decisions in the real world. Decisions like how to invest in their workplace pension, or how to save for a deposit for a property.
There is no doubt that complex mathematical exercises have their place and are good for the brain. But not at the expense of simple common sense everyday knowledge to prevent you from being a sitting duck in the harsh real world of money. Has the time come to include financial literacy in the curriculum? I think so.