The saying goes ‘Rome was not built in a day’ … With regards to saving for tomorrow, it is a common acceptance that the earlier you can start then the better it is.
The same ethos should be applied to financial education. We invest in an education system designed to develop children so they can transition in to young adults with a skills set ready to take them into society and typically a working environment. So where do the basics of financial education currently fit in?
Regrettably, far too often they do not feature at all… and if they do they are usually found in the form of voluntary sessions. With rapidly changing demographics such as increasing longevity, an ageing society and more complex multi-cultural communities, financial education deserves and in our view needs to have a more prominent place in our education system.… Modern schooling should include the basics of financial education so young people can understand key issues that will affect them when they leave and either join the workplace or continue into higher education – such as managing debt, budgeting, understanding allowances or discounts available –moreover, a basic understanding of the concept of short, medium and longer-term goals. Many people will soon go on and employ some of these skills in their job but will fail to see how they could be applied to themselves. Surely it would not be too difficult to integrate some core financial education into the actual curriculum?
Another key place of learning and building life-skills is the workplace, employers can make a difference by ensuring that their staff have access to tools which can increase their basic financial knowledge. There will be many natural touch points when individuals will be thinking about changes to their lifestyles such as new jobs, promotion, marriage, divorce, buying/selling homes, building families and the long list of associated commitments.
Most pension and employee benefit providers have adapted their propositions in recent times and have disseminated more information online, including education areas for individuals to self-service. There are also add-ons to some of the products (often at no extra cost) which employers and providers want to inform the workforce about. This often has benefits for all – e.g. Employee Assistance Programmes may come as an added benefit to an Income Protection policy which can help employers provide a service for individuals who may be going through troubling issues which could impact on their ability to perform at work, which ultimately could lead to stress and time off and claims under the insurance policy. From the insurance provider’s perspective by making resources available it may be possible to treat the problem before it becomes a claim.
Over and above the ever-expanding online library there are various means such as webinars, lunch and learns that employers can help build their employees’ knowledge about pensions, insurances to protect them from pitfalls such as illness, incapacity etc… In our experience, employees really value these sessions as it adds value and meaning to the plans they are members of.
For paternalistic employers who help their employees around the pre-retirement stage, there is the added benefit that if they work together the proposed pension advice allowance and employer financial advice payments could be put towards this and for the employer it would help with succession planning in the business.
It is clear that with changing patterns the concept of ‘retirement’ will mean very different things for people over time. It is a lifestage choice, quite personal and our new pension freedoms simply feed into this.
Our communications, should help people start to face the question of what does it looks like? Longer-term planning is part of a bigger picture, not something we will necessarily know or dream up in a blink of an eye. Statistics say the prime age to make financial decisions is 53 years old, although interestingly, as we live longer, more people will suffer cognitive impairment, so having a complex financial arrangement in one’s 80s may not be ideal.
Throughout the cycle of financial education/advice there should be a thread of saving for the longer-term, helping people understand the relationship between building assets (ISAs, property, other savings as well as pension funds) which can be used to provide an income later in life when we don’t want to be working flat out.
Whilst there is much merit in nudging people along, we need to avoid the trap of creating generations of people who have been spoon fed key financial decisions or made no effort to understand what has happened to them.
As advisers, we can help people contextualise at an individual level what sort of income they will need in the future by relating to their current lifestyle and how they will need to adjust it when they are not working. Most people significantly underestimate their life expectancy. Where appropriate using sophisticated tools such as cash-flow modelling which can cater for multiple events and scenarios in their future years, such as what they might want to do to prepare against long-term care.
Knowing when you will die is often thrown out there as a question – would you like to know? It would certainly help planning, although it would take away some of the charm of life.
However, putting this ‘big question’ to one side, understanding what we have and how we can best utilise it to work for us in the future is surely worth it? Let us address the big issue and improve our financial literacy. It is better for all of us in the long run.
Corporate Benefits Director
020 3869 6807