It’s difficult to walk 50 yards without spotting a Fitbit these days, reflecting a growing desire amongst the population to stay fit and healthy.
However, when it comes to our financial health and wellbeing, we clearly have a long way to go. This is underscored by a recent study carried out by MoneySuperMarket which found that only 40% of Brits feel in control of their finances. This piece of research revealed that debt worries outstripped anxiety about job security amongst 78% of Brits. Meanwhile, 61% worried more about their debts than they did the health of family members or friends.
So why are people failing to take control of their finances? In my opinion, a lack of financial education lies at the heart of the issue. It means that when young people become start to take responsibility for their finances during their A-levels, university life or the early stages of their career they have little awareness of budgeting. What’s more, they have little to no inclination to think about saving or investing for their future. This isn’t the best path to start out on.
At this point, I should highlight that saving at this stage of life isn’t always easy due to the high living costs that many young workers face, particularly those renting flats in cities who start off on lower salaries. Nevertheless, it’s fair to say that many young people begin their working life, unwittingly or not, with little awareness of how they can actively manage their finances – and the potential long-term advantages of doing so.
Due to a lack of financial education at school, university and the workplace, some people struggle to understand how saving and investing works – let alone the long-term benefits of compounding and putting money aside for retirement.
We recently hosted a Fintech dinner which brought this topic to the fore. One of our guests pointed to a tweet that belonged to a customer of the Plum app, which is an artificial intelligence assistant that analyses your finances and squirrels money away without you realising. The customer tweeted: “I’ve received 6% on my Plum account” – and was subsequently retweeted by Plum.
However, a financial adviser noted that this tweet shows that the customer does not understand the product, which generates a return rather than interest.
This underscores how important it is to educate consumers so they understand the basics of investing and the associated risks – not least the fact that investing carries more risk in comparison to opening a savings account.
Another example is a client of Moneybox, an app that invests your spare cash in the market, who took to social media to announce that their savings had increased. In light of this, they decided to take the money out to meet a short term goal – failing to realise that the purpose of the app is to encourage long-term investment.
What can the industry do?
I am sure most our readers achieve success on a daily basis helping their clients to stay on top of their finances. However, the challenge lies with those who are not able to access this vital advice.
If the population applied their minds to improving or managing their finances in the same way they are trying to enhance their health by working out and eating healthy, the benefits could be immense. Personal debts could be lowered; you might see a greater inclination to save and invest from an earlier age – helping individuals to achieve their goals and fund retirement; more people could find they are able to get onto the property ladder from an earlier age; and individuals could face less of a shortfall when they retire.
What seems clear is that the pressure to improve financial education in schools, universities and the workplace needs to come from the industry rather than the government; the industry has the clout, knowledge and expertise to achieve this positive outcome.
One idea is to introduce a levy on financial services firms to fund financial education in schools, with a view to improving financial wellbeing amongst the population.
This is a view that has been put forward by Embark Group’s chief executive Phil Smith. Speaking at the BlackRock Wealth 2025 event in January 2018, he explained: “If there was a levy which was about financial education in schools, and if a fund manager from a bank, platform provider, relative to size, contributed money to a central pot, whether government or industry-led, to educate in schools, then we might get the right change behaviour and make it work.’
Another factor to consider is the ongoing development of technology: from artificial intelligence to robo-advice, we are just at the start of this journey. The growth of websites and apps, such as Nutmeg, Chip, Plum and Moneybox (to name a few) continue to help people to get out of debt and save for the future. In time, technology will go some way towards plugging the advice gap. However, we aren’t there yet.
It’s also worth noting that there are potential drawbacks associated with arming people with technology when they lack the know-how.
The good news is that there are a number of things we can do as a profession. Firstly, consider how we can help the population to stay on top of their finances by improving financial education. Secondly, encourage people to think and talk about their finances more. And finally, we can raise awareness of the benefits associated with proactively managing our money: from lowering debts to funding retirement pots.
It’s time to come together as an industry to address
this important issue.