When my daughter was 10 she asked me if I was a ‘saver or a spender’; I asked her to guess, and she said “a saver”. I asked her the same question back; she replied that she was a spender, but that her sister was a saver.
Research by the University of Michigan recently showed that children as young as five may have already formed distinct emotional reactions to spending and saving money, so why is it that we are still not preparing primary and secondary school children adequately in financial matters?
While ignorance may be bliss through adolescence, financial strain — in part the result of widespread financial illiteracy — is a cruel reality for vast swathes of the UK’s population. Research by the Financial Conduct Authority last year deemed half of the UK’s adult population to be ‘financially vulnerable’, while 4.1m Brits were found to be in serious financial difficulty.
Perhaps unsurprisingly, 25-34-year olds are the most indebted cohort, highlighting an issue firmly embedded in today’s cultural zeitgeist. Worse off than the previous generation, millennials are suffering the ‘triple hit’ of subdued real wage growth, a housing crisis and the withdrawal of defined benefit pension provision.
The erosion of financial security in retirement — perhaps the most ominous of these risks — has placed a generation of investment risk firmly at the feet of a group that is arguably ill-equipped to tackle it.
While financial literacy has been part of the English national curriculum since 2014, a 2016 report by the All Party Parliamentary Group found financial education in British schools to be “patchy, inconsistent and varying in effectiveness”.
The APPG recommended a shift in focus to real-life contexts in secondary level mathematics and personal, social, health and economic education, and a similar extension in the primary curriculum, to improve delivery. But schools surveyed invariably cited inadequate resourcing and lack of clear leadership as the limiting factors behind current practice.
For policymakers seeking to address low levels of financial literacy, there is a distinct absence of a successful global precedent. But is it education — or merely risk awareness — that informs an individual’s approach to financial matters?
An awareness of basic budgeting, that income should exceed outgoings, that spending too much on credit cards is best avoided and that financial advice, where offered, should be taken, is forged through experience, rather than learnt in a classroom. An education model which embeds financial experience into more tangible, real world scenarios is therefore more likely to gain traction and drive the adoption of crucial behavioural traits.
Such an approach requires private sector expertise and technological innovation, nowhere more so than from financial services. Beyond any broader social motive, commercial imperatives should be driving a response from the sector, particularly the wealth and asset management industry.
The Resolution Foundation reports that just 4% of millennials have an investment portfolio, while two-thirds think investing is just for the wealthy – stats that could threaten an industry currently blossoming on baby-boomer inflows.
The insurance sector has successfully harnessed gamification – the application of game elements and techniques (such as point scoring and competition with others) in non-game situations – to enrich digital experiences and deliver new customer-centric business models.
Gamification has proven an effective method for reaching younger generations of consumers, helping businesses to develop stronger relationships with this key cohort while improving levels of consumer understanding and engagement.
The banking world has already delivered a string of impressive education programmes, leveraging resources to provide a broader set of educational tools. Goldman Sachs’ 10,000 Women global initiative aims to foster economic growth by providing female entrepreneurs around the world with a business and management education, mentoring and networking, alongside access to capital.
In 2008, Credit Suisse launched the first phase of its Global Education Initiative, targeting school-aged children in selected countries across Europe, the Middle East, Africa, Latin America and the Asia-Pacific region. Between 2008-2014, the initiative developed strong partnerships and reached more than 100,000 students in over 400 schools in 38 countries.
More locally, Barclays and Santander have powerfully reinforced the importance of savings through a series of national television campaigns. At EY we have launched a financial wellness hub for our people in the UK, to help them to manage their personal finances and improve their financial wellbeing. While this is all positive, there is still a real need for specific financial education in UK schools.
My sense is that the wealth and asset management industry has some catching up to do. Beyond consultancy Redington’s highly successful RedStart programme and a few others that go beyond small scale, tactical commitments, our sector is currently falling behind other industries in finding its broader, shared purpose in financial literacy.
This is an age of responsible capitalism, where the demand for companies to demonstrate their social, environmental and economic contribution has never been greater. While it is no longer enough to simply exist as a money-making entity, we are yet to see entire industries adopting an impactful shared purpose.
If financial literacy is to reach the point where the future wellbeing of our economy is not only protected, but enhanced, big players and trade bodies in our industry need to step up to the mark and take up this shared purpose.
Gill Lofts is the UK head of wealth and asset management at EY