We’ve all made financial mistakes in this past. Many of these would have been prevented if we had learnt more about personal finance at school or college.
Last week I was lucky enough to speak with the London Institute of Banking and Finance – specifically their arm which focuses on financial education. The conversation was really engaging and got me thinking about how we’re doing young people a disservice with the lack of financial education on offer.
Financial education is seriously lacking. Improving this will help stop the next generation from making the same financial mistakes as we did.
In this post I’ll cover:
- Financial habits form early
- Wealth inequality is on the rise
- There’s a debt crisis
- Misinformation and scams are rife
- Financial mistakes stay with you for life
Financial habits form early
Personal finance habits can be formed as young as 7 years old.
Most people have barely mentioned money to their children at this stage.
Will Rainey is hoping to change this. Aside from a successful blog, he has written a book full of fun stories to help teach children about money.
While discussing the intricacies of mortgages or stock market variations may not go down well – particularly with younger children, the basics about money can be taken on board.
Explaining spending and saving and how you know if you can afford items is a good starting point. It also makes maths lessons more practical!
If you establish these foundations at a young age, you can move onto more complicated financial concepts as children get older and (hopefully!) become more interested.
Wealth inequality is on the rise
Today’s young people need better financial education more than ever. Wealth inequality is on the rise and the generational wealth gap is increasing too.
While the rich continue to get richer, more and more fall below the poverty line.
Forbes’ annual ranking of the 400 richest Americans found the US’ three richest individuals (Bill Gates, Warren Buffett and Jeff Bezos) collectively hold more wealth than the bottom 50 percent, which equates to 63 million American households.
Hopefully, this will change –with some much needed government intervention. But, for now, young people need help to take control of their finances early to avoid getting left behind.
With young people being left behind financially, it is even more unfair that we are leaving them to fend for themselves when it comes to money education.
How do we expect them to avoid financial mistakes if we don’t give them the tools to do so?
There’s a debt crisis
Wealth inequality isn’t the only financial problem around. There’s a growing debt crisis.
According to money.co.uk, 78% of UK adults started 2021 in debt. This figure does not include mortgages, meaning just 22 percent don’t have some form of personal debt.
The most concerning thing is that 35 percent attribute their debt to ‘normal living expenses’. People simply can’t afford to live the life their leading.
This could be due to a range of factors, such as lifestyle inflation or simply spending too much money. But, for many, their income just doesn’t meet basic living requirements.
For some, financial mistakes lead them into debt. Having more robust financial education could help stop others falling into the same traps.
Misinformation and scams are rife
Misinformation is everywhere. You only have to scroll through Twitter, Instagram or TikTok to see the dubious financial “advice” on offer.
Given the prevalence of social media in our lives, it makes sense that young people take this information as a given and base their financial decisions on their favourite influencer’s posts.
Young people need to be given the tools to make decisions that will be right for their own personal circumstances, rather than doing something because they saw it on TikTok.
On top of this, there are more scams around than ever before.
In the past year, more than £2.3 billion was lost to scams. Which? says 413,553 instances of fraud were reported to Action Fraud in year to April, up 33% on previous year.
Teaching young people to be savvy and aware of scams will help protect them from handing over personal details and money to the wrong people.
Financial mistakes stay with you for life
Sadly, financial mistakes can take a long time to rectify. It’s not as easy as flipping a switch and erasing the mistakes.
Even something as simple as opting out of your workplace pension in your early 20s can have a big knock on affect later in your life. Compound interest works wonders. Getting started early can save a panic later in life.
Other habits, like spending more than you earn and getting into debt, can be harder to resolve. It also has a knock-on effect on your future spending plans. The money you spend paying off debt is money you can’t put towards other financial goals or saving for your future.
Learning about and creating healthy financial habits from a young age can remove the pain and struggles financial mistakes can cause.
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