Having bills to pay is one of the realities of adult life. Whether paying your rent or mortgage or keeping on top of your monthly phone bill or car insurance, we all have outgoings that need to be maintained. However, it’s easy to forget that at one point, this experience was a very new one, especially when transitioning into adulthood. You may have been paying bills for many years, to the point that it has become second nature, or you may have only just started on your financial journey. What’s clear is, not everyone will be as knowledgeable about money as others.
It’s reported just 8% of young people say they learned the most about money in school,highlighting that the vast majority rely on the potentially unstructured advice of their family and friends or are self-taught [1]. This raises questions about financial literacy for young adults; are they prepared for arguably one of the most critical factors in adult life? Here, we’re taking a closer look at the importance of understanding finances from an early age.
The Impact of Poor Financial Literacy in the UK
There are some parallels between poor financial education and growing consumer debt levels. Poor financial literacy could also impact individuals’ financial decisions when it comes to borrowing and savings. For example, there may be a lack of understanding around the implications of high-cost short term loans and interest rates or the right savings account, which can be of most benefit in the future. With some financial products available such as payday loans, which should only be used in a financial emergency, borrowers need to understand their loan terms fully. Without basic financial literacy, there may be a higher risk of poor financial decisions.
The Role Schools Have In Teaching Financial Literacy
Financial education in schools can help pupils make informed decisions about money and their finances while they are young and in the future. In England, financial education is included within the national curriculum, but only in secondary schools and part of other subjects such as citizenship and maths. Despite this, just 1 in 4 children and young people say that they have had some financial education [2]. In addition, 35% of schools in the UK are academies and free schools, which means they do not abide by the national curriculum [3]. While these types of schools may draw from this educational timetable, this could highlight a large proportion of individuals missing out on this important financial education.
Many organisations are looking to promote and improve the importance of increasing financial literacy for young adults. The National Financial Educators Council is one such organisation focusing on tackling the challenges of teaching kids’ financial literacy. Tasks such as moving out of the family home to purchasing a first car are important topics that will help raise awareness of the potential financial issues these decisions can have. Some educators have even called for compulsory financial education to assist with fighting poverty. There are many ways that the subject can be discussed, but it’s clear that education is one of the most effective ways to help young adults have a happier financial future.
The Role Of FinTech In Financial Literacy
As well as formal education, there are many other avenues to be explored on the path to improving financial literacy for young adults. Many fintech (or financial technology) companies have identified that a critical priority for their service offerings is to assist with teaching financial literacy and helping individuals strive for better spending habits. Smartphone apps designed to help with savings, staying on top of your credit score, and assisting with budgeting are just some examples of how fintech plays a role in financial literacy.
Further, some banking companies focus on supporting children and young adults to become smarter financially and more independent. This helps parents teach children about money management, savings and also to motivate and incentivise children to do chores. The concern with fintech playing a more vital role in modern society is that increasing technology and information makes finding impartial financial information more difficult.
Consumer Protection In The Financial Industry
As a result of this lack of financial literacy, consumer protection in the financial industry is more critical. A key objective of the Financial Conduct Authority (FCA) is to ensure that financial services companies offer an appropriate degree of protection for all consumers, especially lenders. By encouraging and facilitating best practices, alongside ensuring consumers remain well-informed at all times, financial institutions across the market can help protect consumers better and assist with better decision making.
