Utopia State...it'll never happen here

In the last couple of weeks I have picked up on a couple of things which you may think is odd for someone so keen to promote financial planning. When I first started this certainly my aim was to promote financial planning and this remains my overriding theme. However, it is clear that without understanding financial management you can never get to the next step.

The problem we have is that so many people are struggling to manage their day to day finances that the concept of planning long term is far from their mind. My problem with pay day lenders is that I see them as predators who exploit the most venerable, effectively if you have a short term need then normally people would turn to an overdraft or the credit card first, but if these are maxed out then they turn to pay day loans. Recent research showed that people were turning to these to pay the mortgage.

I recently received a tweet that said “Utopia State...it'll never happen here” – and I was thinking about this and what I (and others) want to achieve. I believe that actually as a body we can make a difference, I agree it may not be perfect but it can make a big difference.

I wanted to share something I picked up from the US and have tweaked for the UK, and certainly if we are looking for a utopia state this would be a good starting point (and remember this doesn’t have to be done by teachers):

• Ages 3-5 A child should come to understand that you need money to buy things; you earn money by working; you may have to wait before you can buy what you want; there’s a difference between what you want and what you need.
• Ages 6-10 A child should come to understand that you must make choices about how to spend your money; you should shop around for the best deal; it is dangerous and costly to share too much information online; putting your money in a bank account will protect it and earn interest (not much!).
• Ages 11-13 A child should come to understand that it is smart to save 10% of what you earn; entering credit card or Social Security numbers online puts you at risk of identity theft; the earlier you save the more you’ll have in the long run; a credit card is a loan and you will owe more than you spent if you do not pay your bill in full each month.
• Ages 14-18 A teen should come to understand that university is expensive and you should choose a university and student loans based in part on your career expectations; you should avoid using credit cards for things you cannot afford in cash; you pay taxes on your income and should budget for take-home pay, not gross pay. Expanding on this a little university is not the only option, remember you can learn a trade while you work like plumbing, accountancy, financial planning etc
• Ages 18 and up A young adult should understand that you should use a credit card only if you can pay off the balance every month; you should have appropriate insurance; you should always diversify your investments and pay attention to the costs associated with various investment products.

These milestones are broad and simple by design. They are meant to promote awareness of basic personal finance issues that, perhaps, we take for granted but which generally are found lacking across the population both in the UK and US.

 

Kids who are raised with even cursory knowledge of things like interest expense and fees on financial products will, as adult consumers, know enough to investigate further when necessary. That’s a minimum goal of financial education—and it is the right approach. We can reach higher, too. But loftier financial education goals should not be at the expense of building a solid base. For now, what’s needed is a set of widely accepted guideposts that all interested parties can teach to. Maybe we’ll have it soon.

The next step for me - I mentioned I recently met someone who is in the House of Lords who is interested in this and so I want to follow this up, I am also going to contact some schools and see where this leads. I would also be interested in what others have done and where they have been successful.

Could we build a successful financial education system, I think we can but I think it will not happen overnight. Many of us grew up with financial education but this has been eroded over the past twenty years, it is now time to change that erosion into something positive.  

I keep saying to make a difference its like building a wall, each brick gets us closer to the goal. Please spread the message and follow me on twitter.