Many schools and colleges would like to increase their financial and career education efforts but they are hindered by a busy timetable, curriculum and a lack of skills and knowledge. That’s according to the Money and Pension Service’s Financial Capability Strategy. The Freelance Informer is proposing that freelancers could be at the heart of a “real life” solution.
With the onset of the pandemic and popularity of buy now pay later (BNPL) services in recent years, people in the UK are getting into debt younger and faster than ever before. This is unsettling for those young people that have let debt spiral out of control. But should we be that surprised? Only 4 in 10 children and young people say they’ve had some form of financial education at school.
Consumer finance organisations in the UK, such as Which? and the Centre for Social Justice are calling out to the government for greater financial education, not just in our schools, but nationwide.
Compared to the EU, the UK scores poorly for financial literacy. Half the population has low confidence in making decisions to do with money, according to research by the Financial Conduct Authority. That is why The Financial Times Financial Literacy and Inclusion Campaign, an FT-backed charity, has been set up to educate and lobby for policy improvements. Where possible, it will involve FT readers and the wider financial industry in addressing the shortcomings, first in the UK, and later, around the world.
In its report announcing the charity launch, the FT stated:
“Numerous studies link high levels of economic deprivation with low levels of financial understanding. Groups with the least knowhow include those on low incomes, young people, women and ethnic minorities. For those whose budgets leave little margin for error, a good financial decision could be transformative, a bad one catastrophic.”
The UK is not alone in its sparse integration of financial education in its schools or concerns over the growing number of retailers welcoming BNPL services. The US Consumer Financial Protection Bureau, for example, recently announced an inquiry into the operations of buy now/pay later fintechs raises many questions about how the rapidly growing industry’s policies affect overall consumer debt.
But, according to a report by American Banker, the CFPB’s probe could also end up spotlighting the very reasons consumers have flocked to simpler BNPL loans in the first place, putting pressure on credit card issuers to modernise their own products. Such modernisation of the financial services industry could make credit more accessible, through concepts, such as instalments in a safe and relatively quick way. Potentially with lower interest on certain, targeted products.
Given the growth of the nascent payment and fintech sector that has replaced layaway, it has been reported that credit bureau Equifax will begin recording BNPL activity on credit reports in early 2022. This could be a double-edged sword. It’s great to build a credit history, but not if you have too much debt and a history of late payments.
Inviting the financial services industry into developing the British financial education curriculum could pose some potential conflicts of interest. Let’s face it, the personal banking and credit card industry “small print” is the size that it is for a reason, Some may say, it is to divert from the potential risks and the imposed complexities of some financial products. It is this complexity that needs to be eradicated. We are increasingly experiencing confusing calculations methods on our bill statements. For example, even on our energy bills this could take the form of credits and debits, fixed and variable rates and estimated versus actual annual energy use.
Admittedly, more banks are looking to better educate their customers through informative articles on their websites. Yet, that is because they want customers to feel more comfortable buying more of their products. That said, if young people are armed with independent, unbiased information before they start making big financial decisions, they will have more confidence in their selections. They could know which questions to ask before signing anything.
That is why freelancers, who by the nature of their fluctuating incomes and flexibility, could be best placed to not only teach modules as part of a national math and well-being curriculum but also provide invaluable insights into how personal finance and money managing is used in everyday life.
In the end, students could be taught smart money habits that could save them hundreds if not thousands of pounds in adulthood. They may also get a better understanding of how opposing views on money can wreak havoc on personal and professional relationships.
Emotions and money decisions are highly linked. That’s why it wouldn’t hurt if elements of business psychology were integrated into the financial education curriculum so that young people could better understand why people save and spend as they do.
More than half of people under 35 identified in a Kleinwort Hambros survey said that their financial decisions are guided by their emotions. “Indeed, the difference between age groups is striking”, said the report: 55% of under-35s admit that emotions affect their choices, compared to 31% of people aged 35 to 54, 12% of 55-64-year-olds and six per cent of those aged 65 plus.
In the report, business psychologist Natalia Ramsden said that the difference may be due to an increase in self-control as we age – but noted that other studies showed our decision-making continued to be guided by our emotions, no matter how old we were.
Freelancers come from different industries, cultures and walks of life, which means they could bring unique personal experiences on budgeting, saving, investing and how to generate additional income in university or beyond. They could also highlight the challenges in applying for a credit card or mortgage based on one’s education, salary, credit history or type of work (e.g., freelancer, fixed-term contractor, gig worker, small business owner or salaried worker).
Such life experiences could be backed up by a curriculum that puts financial jargon into plain words. Keeping things “real” will also provide many examples of how math equations are used in financial decisions and when calculations are not understood or overlooked, you could become seriously out of pocket. Classroom discussions on the latest financial products (their pros and cons) could also help a young person step out into the real world with more clarity on their choices when it comes to spending, signing rental agreements or taking on debt. For some, that’s as young as 16.
Solopreneurs, freelancers and small business owners could bring to life more than just personal finance lessons. They could offer a fresh outlook on education options, careers, industries and what it’s really like to set up a business.
As previously reported by FI, the comparison site NerdWallet found that almost half of former university students would advise against pursuing a degree. Instead, for those with a great idea, they suggest launching their own business or at the very least, getting out into the workplace and gaining practical experience.
If a young person is armed with financial education and a wider view on career paths, they are more likely to consider more carefully those financial decisions that could have a lasting impact on their life and livelihood. And you can’t put a price on that.