By: Paul E. L. T. Borrow-Longain
In a previous article I highlighted the importance of education. One aspect of education certainly deserves further discussion, which is that of financial literacy. This is an area where today’s youth, and, sadly, many of their elders, lag behind.
While at school, I consistently believed that my ‘report card’ not only acted as a record of success but also pinpointed areas that needed extra attention. The “report card” also measured my ability to progress from GCSEs to A-Levels, and then from A-Levels to university, as the continuation of formal education requires completing the previous set of examinations successfully. I was formally diagnosed with severe dyslexia shortly before my GCSEs, which was no impediment to successfully passing. I then progressed to studying for three A-Levels in mathematics, further mathematics, and physics. For anyone unfamiliar with A-Level mathematics, studying for two A-Levels in the subject allowed me to develop a firm foundation in pure, advanced pure, statistical, and mechanical mathematics. This, combined with physics, ensured I had the knowledge base to study a mathematical subject at university, assuming I passed the examinations. Hard work and dedication ensured I did pass, and I was admitted to university to read for a degree of Master of Physics, with honours in Astrophysics. My formal academic learning continued when I was admitted to a second university in 2002 to undertake postgraduate research (PhD). While I was incredibly proud of my academic achievement, it was not the most crucial aspect of my acquired knowledge – that honour goes to an education in the fundamentals of finance.
Alas, this learning was not provided by my formal schooling. It was achieved via a form of ‘osmosis’ from my grandparents, and from independent reading. I was privileged to spend much time at the business headquarters of my paternal grandfather as well as continually learning from my paternal grandmother and my maternal grandparents.
Not everyone is born with the same degree of ‘privilege’, and that is why I feel so passionately that an education that provides people with the understanding to build financial foundations for their lives should be included in pre-GCSE and GCSE periods. What do I mean when I say a ‘financial foundation’?
While our report cards are a record and roadmap for better academic awareness, the same could be said of one’s credit report once one achieves adulthood. The former is used by teachers, parents and admission tutors, while the latter is used by banks, mortgage providers, rental agencies, and even for minor things like mobile phones. Put plainly, your credit report can be your greatest strength or your greatest weakness.
Throughout their school education, students are not made aware of the importance of their future credit report and how to use it. Most have no knowledge of how to build a strong credit history and how to use one’s credit score to increase opportunities, reduce costs, and enhance the quality of life. A fundamental financial education must include this and more. It should also consist of such things as budgeting, an understanding of the money markets, an understanding of investments and their terminology, a knowledge of debt and leveraging, a fundamental comprehension of what constitutes an asset versus a liability, an understanding of the fundamentals of our tax system, and proactive retirement planning from the beginning of adulthood. None of these critically important subjects are routinely covered in our state schools. In my opinion, allowing young adults to leave school without this knowledge sets them up for future failure, or, at best, makes their lives far more complicated than they need to be.
We have seen in recent news reports that consideration is being given to making the study of mathematics compulsory for all students until the end of high school. This has enraged many people, who passionately believe mathematics is no more important than other subjects, such as drama. One famous actor went as far as to publicly state that he “doesn’t use mathematics, though needs acting every day”, or words to that effect. I believe that this is a fundamentally flawed viewpoint.
We live in an increasingly technological world, and a strong foundation in mathematics and also in science is as vital as learning how to communicate effectively verbally and in writing. I believe a fundamental financial education is just as important as mathematics, science, and the English language for the future of our youth, the country, and the world.
Approximately 5 million students sit their GCSEs each year, of which about 107,000 take economics and/or business studies – the two closest academic subjects to the financial foundations I am referring to. The same subjects are studied by approximately 75,000 students at A-Level, out of a total of roughly 850,000 students.
The fundamental financial education I have outlined above would be of benefit to every single GCSE student, and by extension be of benefit to every other person in the United Kingdom. Why is fundamental financial education of paramount importance? To answer this, let us take a closer look at the list presented earlier.
- Financial budgeting: One of the most significant causes of stress (and associated mental health concerns) is caused by debt. Debt is a valuable tool when used wisely however, it can also be dangerous if not controlled. A fundamental comprehension of routine budgets has the potential to reduce debt-related stress.
- An understanding of the money markets: Whether for good or ill, the money markets will play a critical role in everyone’s future. The workings of the market affect inflation (cost of living), saving rates, interest rates, pensions, and many other factors that affect everyone’s life. It is paramount that people know what is going on, so they can make informed decisions.
- An understanding of investments: We all hear bankers and others talking about ISAs, pensions, and a multitude of other investment vehicles. You may not be aware that your life and financial future are affected by such investments, but they are.
- Knowledge of debt and leveraging: As mentioned above, debt is a powerful tool when used wisely, whether to acquire a home, a car, or for many other reasons. A sound grounding in financial fundamentals would ensure people understand what they are asking for and receiving.
- A fundamental comprehension of what constitutes assets versus liabilities: I cannot even begin to remember how many people I have spoken to who, when asked to present a list of assets and liabilities, have listed such things as cars as an asset. Unless you bought them with cash, they are a liability. Having them generally makes you poorer and uses your income. If you are lucky enough to purchase a car in cash, it is still a depreciating asset, losing money constantly, unless it is vintage, in which case it could appreciate in value.
- The importance of understanding the fundamentals of our tax system: Income tax was first introduced to pay for Britain’s war with Napoleon over two centuries ago, is still here with us today, and it will be with us for the foreseeable future.. It is the cost we pay to live in a civilised society. Its existence will touch everyone, so it makes perfect sense for people to understand the structure of the tax system and the obligations and benefits it can impose on individuals and companies even before they begin paying tax.
- Proactive retirement planning: We all hope to live to a ripe old age, and if we do, it needs to be paid for. The earlier planning for this starts, the easier it is, and the more money you will have in retirement allowing you to enjoy more experiences and not just “get by”.
It appears self-evident that providing a foundation in all of the above areas is in everyone’s best interests.
To return to credit reports, they provide indicators as to whether an individual can be financially trusted. To have a credit report and to secure credit, a person has to have credit in the first place. That is why people must learn as early as possible in life how to correctly manage debt in order to build a strong credit profile without falling into financial trouble. Building and maintaining a solid credit report has the potential to open a significant number of doors and save a substantial amount of money over length of an individual’s life. Your credit report is so critically important it deserves its own article – something I will turn my attention to next.
In conclusion, I believe it is self-evident that providing a strong fundamental financial education at the secondary school level is of the utmost importance to the financial stability and security of everyone in the United Kingdom and the nation as a whole.
