PENSIONS. TAXES. FINANCING. Have I lost you already? These words do not often have you at ‘hello’.
Everyone has to encounter these things at some point in their lives. Despite this, many people often do not know where to begin. A survey conducted by Red C Research last year found that just 30 per cent of Irish consumers understand basic financial concepts.
Everybody has a relationship with money. Knowing more about earning it, holding on to it and making it stretch further is usually an essential part of achieving many of the ambitions and dreams we harbour for ourselves and our families.
Education in basic financial and money management skills needs to start young, in homes and in schools. Of course, parents are the first and most important teachers, but it’s an important role of government to help the provision of the necessary education in schools.
In today’s financially complex world, young people should be fully equipped to handle money matters as soon as they need to deal independently with their finances, so that they can make the best decisions right from the start. People work very hard for the money they earn. They may have even invested time and resources in further education to develop their career and boost their earning potential – indeed this kind of investment is something that we are encouraged to make.
If we put so much effort into earning money, it is clearly worthwhile investing in financial education to ensure we make the most of it. However, although money can be a gateway to many positive things, it also brings pressures. Mental health issues, depression and suicide are prevalent in our society, with financial matters of one kind or another very often a serious contributing factor.
One feature of the post Celtic Tiger era has been a period of reflection by many on their relationship with money and the relevant importance of it compared to what brings a true happiness – our relationships with our family, friends and with ourselves. By promoting financial awareness and money management to children from a young age, we need to be sure that we are not inadvertently encouraging children to equate the accumulation of money with happiness or their own sense of self-worth.
Young people should leave school financially literate. Whatever they go on to do, they will always need to deal with financial issues. We must ensure that we provide them with a solid base for being able to deal with the financial complexities of the modern world. By this I don’t mean that they should be well-versed with complex derivatives and other esoteric financial instruments. But they should understand the fundamentals; how pensions work, how to read a payslip and deal with personal taxes, how to choose and take out a loan – and the sometimes overlooked aspect of how to pay it back!
Getting to grips with the fundamentals also provides a solid platform for handling more advanced information in adulthood. Teaching the basics of financial literacy should also help them to determine later in life when it is a good idea to take average financial risk with money – effective money management and financial planning is not just about matching your expenditure against your income and setting funds aside in a deposit account to cover you for a rainy day, as important as these of course are.
Internationally there has been increasing awareness of a need for developing financial education across all society. The European Commission supports and encourages work within Member States for the provision of financial education amongst its citizens and a National Steering Group on Financial Education was established in Ireland at the end of 2006.
In England financial education is to be put on the school curriculum from September 2014. This has become all the more important in the current economic climate where money matters dominate. Although it would be simplistic to suggest that financial education as a compulsory part of the school curriculum would have helped to avert Ireland’s financial crisis, it is arguable that a better grounding in money matters may have helped at an individual level, equipping people to better protect themselves against some of the worst effects of the downturn.
Often people first learn about financial products when they are already at the point of purchase, where the person or company providing the information is generally also trying to sell something. For example, many people are first introduced to mortgage products when they are in their local bank trying to purchase their first home. Or their introduction to pensions begins when they contact a pension company to start setting aside funds for retirement.
Worse, people may learn more about these financial products only after they find themselves in financial difficulty and come to realise the true implications of not having been fully educated about the product they purchased – such as when mortgage repayments become unaffordable, or when a pension has not provided the expected level of retirement income. It is crucial to have some ability in distinguishing a true advisor from a mere salesperson – this distinction is not always obvious.
Enhanced understanding only leads to better decision making. I want my daughter to be fully equipped to understand the impact that money will have on her life and to ensure that she has the best possible relationship with money that she can. We owe it to all young people to arm them with knowledge for the better management of financial affairs – both for the benefit of themselves and society as a whole.
Sinead Doherty is founder and Managing Partner of Tax Consultancy and Accounting firm, Fenero.
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