This week’s blog has been brought to you by national debt advice and education charity, Debt Advice Foundation.
A recent report by the Bank of England revealed that consumers are even more reliant on credit than ever, as the rate of consumer borrowing has risen to its highest level since 2006.
This is a clear sign that financial education needs to become a national priority. Many people have never been taught even the basics of money management and so find themselves in serious debt.
Financial education is rare in schools. How many parents ever sit down and talk to their children about how much life actually costs? Families don’t discuss finances – they try to ’protect’ their children from money worries, but they are really making them hugely vulnerable to financial problems when they leave home. Young people should be given the chance to learn money skills at the earliest opportunity before damaging financial habits are formed. This can be achieved on a large scale by taking financial education into the hearts of primary schools.
Even as we grow older, no one is explicitly taught how to manage their money. When you open an account at the bank, or apply for a mortgage, not all banks offer advice or tools to run a budget. Often, banks put advice on their website that it is not all that easy to find, and then get on with the business of selling customers services and loans.
Money management lessons in primary schools show that younger children really can understand budgeting, which bills are priority and the difference between things we need and things we simply want.
Research by the Money Advice Service showed that more than four-in-five teachers believe that financial education should begin at primary school, not secondary school, to be most effective. In fact, the findings revealed that many of the behaviours that are crucial to the formation of financial habits in adulthood are established by the age of seven.
Furthermore, charity figures show that people aged 18-24 are significantly more likely to have high cost, short-term loans in comparison to their older counterparts (9.4 percent compared to 0.43 percent of 45- to 50-year-olds), suggesting that the need for financial education has never been greater.
Today’s consumers are far more likely to take a ‘buy now, pay later’ approach to what they need or want. Being able to afford something is now more likely to be linked to how much we are able to borrow rather than how much money we actually have.
Children are exposed to financial responsibility much earlier, with children often having mobile phones, games consoles or tablets at a young age. This is often the first time a child has responsibility for spending through an account in the same way as an adult, and things like in-app purchases can run up astronomical bills.
As children become young adults, the financial pressure only increases. A concern is that rising tuition fees may be having a detrimental long-term effect on the financial wellbeing of young people.
The size of tuition fees and the nature of the repayment mechanism isn’t in itself a worry, as post-graduates only have to repay the loans when they have sufficient income.
However, involving inexperienced young people in high levels of nominal borrowing may desensitise them to debt more generally. Putting £2,000 onto a credit card may not seem like such a big deal when they know they will be leaving university with over £20,000 worth of Student Loans Company debt. Young people must be educated about different types of credit and debt and given the skills to budget long before they go to university.
In conclusion, there has been a lot of discussion in the media about how today’s children face a potentially bleak future with regards to student loans, debt, housing struggles and reduced pensions. Learning to plan and budget for the future is an essential component in stopping this from becoming a reality.
The Debt Advice Foundation offers free, confidential support and advice to anyone worried about loans, credit and debt. The Debt Advice Foundation is also the provider of the Debt Aware Money Management Programme – a free educational programme for primary schools that teaches young people essential money management life skills.