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NEXT GENERATION
E
ven though personal financial
management is as important
as ever, all the evidence says
that many youngsters are not
at all good at it – and their
elders fare no better when it
comes to teaching them.
‘People struggle with the
simplest financial questions,’
says Rob Gardner, co-founder of investment
consultancy Redington and financial education
charity RedStart, and author of children’s book
Save Your Acorns
.Worryingly, financial illiteracy is
the norm across all age brackets. But in a society
that is heavily geared towards consumption rather
than thrift, the problems faced by young people
are doubly acute: those in the 15 to 24 age bracket
represent more than 20% of the over-indebted
population.Their average debt-to-income ratio
stands at nearly 70%.
1
One reason for this lack of understanding is
an absence of education.Three years ago, the
government made financial education statutory at
secondary school level; but the foundations for being
wise with money are set much earlier than that.
Experts say the bedrock of financial education
doesn’t relate specifically to money at all. It is
about learning to take responsibility for yourself
and a wider sense that what you do today has
ramifications for the future.And it’s about grasping
the value of delaying gratification.‘This period is
all about habit formation. By the age of seven most
people’s attitudes towards money are fixed for life,’
says Gardner.
Children first learn that saving today – by making
small sacrifices such as forgoing sweets – could add
up to something more worthwhile tomorrow, such
as being able to afford a new bike.
In later years we hope there might come an
understanding of how savings earn interest, the
bountiful rewards of compound returns, the tax
bands on income and, lastly, knowledge of financial
products such as personal pensions or ISAs.
Yet in reality we find that, even as young adults,
many are at a loss to understand simple interest
rates, let alone a pension or something such as a
Help to Buy ISA.
Entrepreneur SarahWillingham, who appears
on the BBC’s
Dragons’Den
, says:‘It’s clear that kids’
attitudes towards money are shaped at a much
younger age than we think, so we need to start the
process of talking about money as early as possible.’
The failure to put the basics in place for children
in primary schools has rebounded on government
attempts to kick-start the process, according to
the All Party Parliamentary Group on Financial
Education forYoung People. It cites Martin Lewis,
founder of MoneySavingExpert.com, who believes
that getting financial education onto the national
secondary curriculum was ‘damaging because many
people saw it as a job done’.
With no financial tuition in primary schools,
parents and grandparents should step in.Young
children are receptive to advice and they also
appreciate it. Perhaps surprisingly, they are
sometimes more receptive to their grandparents
than they are to their parents.
Gardner sets out his tips. First, focus on building
responsibility.This needs to happen between the
ages of four and six. Simple stories can help: in
his book
Save Your Acorns
, the characters include
monkeys who eat all their bananas, bears who keep
back some of their berries, and squirrels who save
some acorns and then go on to plant them, thereby
reaping the rewards later.
As children get older, explain how the ‘miracle’
of compound returns (coupled with tax relief on
pensions) can make for dramatic gains over time.
Another trick is to frame explanations in terms of
concrete and desirable purchases. No one likes to be
told not to buy a coffee each day. So instead, explain
how much they would save from the age of 18 to 40
if they didn’t indulge in such a regular treat.
The next 30 years will see the largest
intergenerational transfer of wealth, with billions
flowing to this generation of children from parents
and grandparents.
2
Gardner’s two-year-old
daughter will not find herself left out – she already
has an ISA and a pension pot, thanks to her dad.
Again, the message is that it is vital to start early.
Teaching our children to be financially responsible will add up to positive gains
for their future.But it needs to start earlier than you might think…
Those in the
15 to 24 age
bracket represent
more than
20%of the
over-indebted
population
Mitch Payne. Sources: 1 pfeg.org, February 2017; 2 accenture.com, February 2017