In the not-so-distant-past, you would be handed your pay every week in cash, which you could separate into tangible piles – rent, food, pub etc.
You couldn’t overspend in any area without physically breaking into one of your other allocated piles – and even if you did, it was only six days at most before your funds were replenished.
Nowadays, it’s not so simple, writes Debbie Jukes, partner and head of client care at Equilibrium.
Paper or plastic?
While bank accounts and debit cards have made life much simpler in many ways, they have also made it worryingly easy to overspend in certain areas and not leave enough for others.
In fact, studies suggest that we actually find paying in cash a more painful experience compared to paying by debit or credit card.
Credit cards are even more problematic, allowing people to spend significant sums that they don’t actually have without needing to prove that they understand the interest rates involved.
The average credit card debt per household in March 2019 was over £2,600 ($3,160, €2,819), and the average total household debt was £59,000.
The root of this problem is the lack of financial education in the UK, and the situation is not improving.
Consumer protection
The Money Advice Service reported that one-in-five adults cannot correctly read a bank statement and four-in-10 have less than £500 in savings.
A cashless society is an increasingly likely future, and not one that’s a million miles away. It’s vital that financial understanding is improved, as a whole.
Financial confidence is key to quality of life, with a 2018 study showing that 77% Brits are stressed about money.
While there are regulations in place to protect consumers, not many understand them or are even aware of them.
So, we’re faced with a situation where people are armed with rights but have no idea how to use them, which isn’t much use to anybody.
Cannot start too soon
The issue must be tackled early on.
The digital age is not the problem – any grandparent who has had to ask their 10-year-old grandchild for help using their phone is painfully aware that growing up with technology makes it second nature in a way that is difficult to learn at an older age.
The same has been demonstrated with learning a second language and many other skills.
Therefore, it would make sense to instil financial understanding and how it will manifest in the digital era at the youngest age possible.
But, currently, children generally have zero interaction with finance other than possibly pocket money, so there aren’t many opportunities provided for them to expand their understanding.
Two-in-three teachers say that they feel financial education in the UK is somewhat or entirely ineffective, and a similar number also say that their school lacks the skills needed to teach financial education effectively.
As easy as 1, 2, 3
Equilibrium introduced the initiative ‘Libby’s Big Aeroplane Adventure’ in September 2017, which was specially designed by financial and primary education experts and is completely free to schools.
The booklet aims to improve children’s financial literacy and skills; such as budgeting and currency conversion.
It has reached nearly 2,500 children so far and feedback from both teachers and pupils alike has been brilliant, with one teacher stating: “I found it very beneficial and it has really got me thinking about how to expand the children’s understanding of finance.”
It’s effectiveness in getting children to think about budgeting can be seen in this piece of feedback from a year five pupil: “My favourite part had to be when we did budget work. I think it was a good idea, if it was me I would have spent loads. I think it was a very good experience.”
The financial services industry should not turn a blind eye to the matter. It is our responsibility to ensure that the public (ultimately, our clients) are properly financially educated so that they can make well-informed choices and decisions rather than being forced into a situation where they are unable to evaluate their options due to lack of knowledge.
This article was written for International Adviser by Debbie Jukes, partner and head of client care at Equilibrium.
