11th May 2015
Darius McDermott, Managing Director
The surprise majority win of the conservatives last week has resulted in a number of key roles changing hands. Some have yet to be decided, whilst others are already known. One of which is the appointment of Ros Altmann, a familiar commentator in our industry, and a champion for pensioners, who has been appointed pensions minister.
This is a grander role than anticipated. David Cameron had already announced that she would be appointed a minister, with responsibility for financial consumer protection and financial education, but the majority win and subsequent empty roles left by the outgoing Lib Dem MPs, has given her this more senior appointment.
Her predecessor, Steve Webb, is someone we can thank for the new pensions freedoms we now all enjoy, as well as auto-enrolment. My personal hope is that the bigger role she now possesses won't result in Ms Altmann sidelining the vital work that needs to be done in financial education.
Whilst the pensions and savings landscape has been revolutionised, there is still much work to be done in order to educate people about financial services. In my view, this education should start in primary school. Financial education was added to the English national curriculum last year, and will include learning about public spending, interest rates and financial products, but only in secondary schools and, in reality, only for a few hours each term. By that stage children have already been receiving pocket money for a few years, have mobile phones, and are using the concepts of saving and spending as part of everyday life. Good and bad habits have already been formed.
I have two children, aged six and seven. Both receive pocket money each week. One is showing signs of being a saver, while the other would spend his pocket money as soon as he got it if allowed. Both of them would benefit enormously from some early financial education at school. As Dicken’s Mr Micawber said: "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery."
By the time they get to secondary school, instead of teaching them maths such as algebra, why not more useful maths such as how APRs work? Then there’s my favourite: the eighth wonder of the world, compounding. Let’s show them that borrowing £400 for a month from a payday loan company will result in them paying back £500. Whereas if they saved £25 pocket money each month for the seven years of their secondary school education, they’d have £2,700 at the end of it (assuming 7% returns per annum) to fund a gap year adventure. We could teach them about foreign exchange rates then too. All this would be much more practical, as well as increasing awareness about finances.
The gap in knowledge when it comes to retirement planning is worrying. We should not just be educating the young – older people also need to know more about personal finance. More could be done to educate in the workplace, for example.
More than ever, those approaching retirement will need education, help and guidance from a wide range of sources including the adviser community. People need to understand and be able to articulate what their objectives are and to find a way, if possible, of achieving those objectives in retirement.
The earlier we start with this education process the better, so future generations have the best possible chance of being in a position to provide for themselves and their loved ones throughout their lifetimes and into retirement. Hopefully our new pensions minister can set us on the right course.
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Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius' views are his own and do not constitute financial advice.