Financial Education – Why we all need it

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My introduction to Financial Education came during university with a recommendation to read Robert Kiyosaki’s Rich Dad, Poor Dad by a fellow student. Despite the criticism that the brand may have faced over the years, this book really opened my eyes to the different approaches to money by the rich, poor and middle classes. If you haven’t read it, I definitely recommend. For my fellow UK folk although some of the items discussed may be specific to the US the principle of using your money as investment capital to generate income is universal.

So what’s currently the norm when it comes to how we use our money?

We exchange our time for money, in other words we go to a 9-5 (other shift patterns also available J) in exchange for a salary/wage. This earned money is then spent on things (rent/mortgage, bills, leisure); some of us will then save what’s left (if there is anything left). As we progress in our working lives we may get a raise/a promotion (or several if we’ve had a really good run). What do we do with our new surplus money? Do we invest it in building income streams that will make money for us whether we go to the office/factory/store/hospital (*select work location as appropriate) or not? No! The reality for most people is that these additional earnings are absorbed by the new house/car/designer clothes/holiday they couldn’t afford previously. In short, most people end up returning to having just enough. The lifestyle is upgraded to match the pay packet, often with extra dose of debt to match.

If everyone’s doing the above, why shouldn’t we?

Resisting the urge here to quote the often used phrase … “if everybody else walked into the fire”…. I will stop right there but I think you get the point. Living this way keeps us in a state of dependency on our jobs – a state of Just Over Broke (J.O.B) to borrow from Robert Kiyosaki or even worse in a cycle of debt (if our spending habits are particularly bad).

So why do we need Financial Education?

To equip us with financial skills/knowledge. This will allow us to make better financial decisions that line up with our circumstances and are not simply the product of conformity.

To help us plan for the future. The money game has changed compared to prior generations – pensions being a prime example. Company pensions don’t come with the same guaranteed retirement salary that our grandparents were used to. We will need to be more creative in order to achieve our desired retirement sum.

To provide clarity around what debt is…a burden! With personal debt at an all-time high and job security not what it once was, we need to start looking at debt as a burden rather than just something everyone has. Instead of turning to the credit card to purchase something we “deserve” we should be thinking about how we could afford it without debt (e.g. through monthly savings, dedicated side hustle, etc). If you lost your job but did the latter you won’t be left thinking “how am I going to make these repayments”.

To provide clarity around assets versus liabilities. Consider a car bought with finance or your primary residency purchased with a mortgage – are they assets or liabilities? Think of how most people describe them, then consider whether they are adding to or taking away from your pocket.

Because the majority of adults have received limited education in this area. Most of us learn through error (often costly error). Prevention would be better than cure surely.

Thankfully financial education is now being taught in UK Schools. There is still a way to go given that this has started fairly recently. Nonetheless for those of us past school age, all is not lost, we have an abundance of information available to us via personal finance blogs and the internet.

What are your thoughts on Financial Education? Did you receive much growing up? Who do you think is responsible for providing Financial Education? Is there anything you would do differently with regards to your finances if you knew what you know now? Please comment and let me know, would be great to hear from you.

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  1. John of Hampton
    September 13, 2016 / 12:20 pm

    I agree that we all need financial education, but I have reservations about who is going to give it. I am not sure that the lenders and credit card companies would like a really financially aware population and I do not think that any syllabus could ignore their interests/input. Financial education ought to reduce the shocking figure for the average amount of credit card debt per household, and the banks would then make far less (no?) money from interest payments on outstanding balances. They won’t be happy about that…
    I was fortunate to receive my financial education from my father, both from what he taught me and what he did with his money. My biggest purchase was my house, which was not (and never has been) the largest I could afford. I paid off my mortgage early, and I saved money. I drive an old but acceptable car, and I have run some sort of side-hussle since I was 25 years old. I admit I am new to investing, as opposed to saving, but there is plenty in the bank, and I now work for myself more or less when I want to. I honestly do not think that my bank or my credit card company likes me very much – they have made so little out of me. Hence my comments at the beginning of this post.

    • September 16, 2016 / 7:27 pm

      Hi John. Definitely agree, it isn’t clear cut on who should deliver the financial education. Can’t see the banks, credit card companies, lenders etc doing it – not in their interest as you mentioned. My understanding is that the school syllabus is focus around breaking the cycle of debt. Knowing the lobbying power of certain industries I don’t believe this will provide enough education to pursue financial independence or push the message of reducing reliance on a job.

      I really believe finance/money discussions should start at at an early age at home, but appreciate that not everyone’s parents are comfortable/confident talking about money.

      Sounds like you’ve definitely got your head screwed on when it comes to finances – investing is daunting when you start. I have a prior post on some of the things I learned when I started, made some errors in the beginning, but definitely learned a lot.

  2. September 16, 2016 / 3:17 pm

    Hey MsMM,

    It’s funny that Mr Kiyosaki is such a divisive figure.

    I too got a massive amount from RDPD and The Cashflow Quadrant but it took a lot of concentration to cut through the marketing and, to be honest, the awful writing.

    On the other hand, I can think of no better book to recommend to a beginner to explain why it’s in their interests to use their money to make more money, I use Your Money Or Your Life in a similar way when people ask ‘why the hell would I want to spend less?’ or The Millionaire Next Door when people say things like ‘he must be rich because he has a BMW’.

    Obviously, I’m a member of the choir to whom you’re preaching. We can but do our best to help guide people towards the education that you’ve quite rightly pointed out is so important. Unfortunately, as John of Hampton pointed out above, we’re competing with much more powerful interests who are happy with the world at large thinking that ‘more is always better’.

    One thing I’m really passionate about is teaching my kids how to be free. I get flak for being ‘stingy dad’ (2 year olds don’t need iPads though really do they?) but I’m hoping that they won’t feel deprived when they’re in good financial shape as young adults (if they listen of course).

    Nice post. I completely agree.

    • September 16, 2016 / 7:50 pm

      Hi Liberate.Life,
      Your comment on 2 year olds needing iPads had me shouting at the screen!! I thought it was just me who didn’t get this “need”.

      Once my eyes were open to Financial Education I thought everyone needed to know this. Maybe it was the rebel in me but I’d always thought there has to be a smarter way of doing life than working in a job until 65 and hoping to have enough in the pension pot. Also,I have never bought into the view that people need more and more stuff as they go through life (obviously that’s what marketers want us to think, from the huge house to the unaffordable holidays, it all makes businesses big bucks).

      There definitely are more powerful interests out there who wouldn’t push the financial education agenda, so my aim to impact change one person at a time starting with family, friends and readers of this blog.

      Thanks for the alternative book recommendations and glad you enjoyed.

      Let’s keep preaching!

  3. September 19, 2016 / 1:51 am

    I’m quite jealous that you have such a thing in the UK. I can’t even remember a class on how to manage a checkbook here in the US. My only finance exposure pre college was elective pre college classes we have here, which I know are not the norm for the US population. I’m just now starting to consider how to lay the groundwork on this area with my sons. It’s still way early, but I agree with msmoneymaximiser, it’s our job as parents to get a jump on this.

    • September 20, 2016 / 1:13 pm

      It wasn’t there during my school days but glad that current pupils will benefit – the earlier the better I say!

  4. September 23, 2016 / 8:14 pm

    I read Rich Dad maybe 15 years ago and it changed my perspective, but it didn’t change my behavior with spending. That occurred later when I stumbled upon mr. Money mustache – who else?)

    Great post! So important too with the opposing forces of mass marketing and ever cheaper goods.

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