It is commonly accepted that the earlier you start saving, the better. The same ethos should be applied to financial education.
We invest in an education system designed to help children become young adults with a skills set ready to take them into society and a working environment. So where do the basics of financial education currently fit in?
Far too often they do not feature at all, and if they do they are usually found in the form of voluntary sessions. With rapidly changing demographics such as increasing longevity, an ageing society and more complex multicultural communities, financial education deserves (and needs) to have a more prominent place in our education system.
Extra-curricular activity
Modern schooling should include the basics of financial education so that young people can understand the key issues that will affect them when they leave and either join the workplace or continue into higher education. It should cover managing debt, budgeting, understanding allowances and discounts, and a basic understanding of short, medium and longer-term goals.
Many people will soon employ some of these skills in their job, but will fail to see how they could be applied to themselves. Surely it would not be too difficult to integrate some core financial education into the curriculum?
Another key place of learning and building life skills is the workplace. Employers can make a difference by ensuring that their staff have access to tools which can increase their basic financial knowledge.
There will be many natural touch points when individuals will be thinking about changes to their lifestyles, such as new jobs, promotion, marriage, divorce, buying or selling homes, building families and the long list of associated commitments.
Most pension and employee benefit providers have adapted their propositions in recent times and have disseminated more information online, including education areas for individuals to self-service.
Longer-term planning
It is clear that with changing patterns, the concept of retirement will mean very different things for people over time. It is a life stage choice, quite personal and pension freedom simply feeds into this.
Our communications should help people start to face the question of what their retirement will look like. Longer-term planning is part of a bigger picture – not something we will necessarily know or dream up in a blink of an eye.
Statistics say the prime age to make financial decisions is 53 years old, although interestingly, as we live longer, more people will suffer cognitive impairment, so having a complex financial arrangement in one’s 80s may not be ideal.
Throughout the cycle of financial education and advice, there should be a thread of saving for the longer term, helping people understand the relationship between building assets (ISAs, property, other savings as well as pension funds) which can be used to provide an income later in life when we don’t want to be working flat out.
Although there is much merit in nudging people along, we need to avoid the trap of creating generations of people who have been spoonfed key financial decisions or made no effort to understand what has happened to them.
Individual approach
As advisers, we can help people contextualise at an individual level what sort of income they will need in the future by relating to their current lifestyle and how they will need to adjust it when they are not working.
Most people significantly underestimate their life expectancy. Knowing when you will die is often thrown out there as a question: “Would you like to know?” It would certainly help with planning, although it would take away some of the charm of life.
Putting this big question to one side, understanding what we have and how we can best use it to work for us in the future is surely worth it. Let us address the big issue and improve our financial literacy. It is better for all of us in the long run.
Brett Smith is corporate benefits director at Broadstone
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