OK, maybe it’s not that everything you know is wrong, more like everything you know about personal finance is wrong.
Ummm, maybe that’s a bit too strong, more like a lot of what you think you know about personal finance is not accurate.
Some research that was done, showed that on average many people in Britain did not have a good understanding of various aspects of personal finance.
This does not surprise me.
Over the years of assisting people with debt and personal finance issues, and also helping people in making investments, the majority are not in tune with some of the facets and aspects of their own money and personal finances. One reason being, they were not taught about these matters, and the second is, they are too busy with their jobs, careers, and families to be bothered with it all.
They know their jobs and careers well, and if not in the finance industry, they may not be aware of different terms or how some money matters operate.
A few years back I was helping someone review their finances as they were facing a divorce. They were very concerned about the distribution of assets such as property, retirements, cash in the bank, etc. This person was sure they were going to wind up bankrupt once the division of assets had taken place.
Divorce can be a financial disaster, and their getting advice was a smart move.
It turned out both parties were going to be fine. I drew up a proposed settlement of all assets, and each of them got to keep what they wanted, and both were financially OK.
My point of this is that the person I counselled was a bright, educated, clever person. They were successful in their career and did well financially. However, with all this going for them, they did not know how much in assets they had, how to divide it so both parties got what they wanted, and they felt they would not qualify to re-mortgage one of the properties, and that if they did, they could not afford to keep it.
They were wrong on all counts.
As this study showed that many people have a poor understanding of personal finance, getting proper financial advice before making any major decisions is critical.
Back in the day when I was doing hard core financial counselling, we offered a service for people to speak to a financial advisor prior to buying a home, having children, sending a child to university, even buying a car.
We would sit down with the client and go over their financial situation, and look at the numbers, and discuss what it is they wanted to do, show them the average costs of what it is they wanted to do, and then if they could afford to meet their goal or purchase. It can be an eye opening experience.
I have always recommended to people to get advice prior to making any large purchases, such as a property, or a car. Research what is out there, and have someone who knows the industry guide you.
If we take this “poor” understanding of personal finances to its core, it comes down to education.
While some schools have been teaching students about managing money, and some basic financial tools, the courses need to be expanded.
The Chief Executive of Personal Finance Education Group, Tracey Bleakley said, “It is especially welcome to see the link between personal finance and public finances restored to the final programmes of study for Citizenship education.”
“Tax, public spending and how these relate to personal finances are all crucial areas that young people will now learn in addition to money management.”
The Founder of Moneysavingexpert.com, Martin Lewis said, “However, as the national curriculum is only compulsory for around half of schools; the rest due to being free schools or academies don’t need to follow it – the campaign doesn’t stop here.”
“The next step is to ensure parents, teachers and head teachers of the other schools realise its importance and teach it as well, even though they don’t have to.”
Some schools are using games to introduce children to learning about money. There are also videos, quizzes and worksheets.
While everyone can agree that having this additional component to our education system is needed and a good thing, it needs to be expanded.
We all know how to earn money and spend it, but saving for retirement, to buy a property, how to use credit, the cost of raising children, many of these financial aspects escape us, or we think we know, and we are off-base.
Retirement: Many of us know when we will retire, that is if the government doesn’t keep moving the age for the state pension further away, but do we know how much we will need to live off of when we retire, and how much we need to save. There are various pension calculators online which can hep you see for yourself how much you will need to save. It may come as a shock to see how much you will really need to save.
Sending a Child to University: With uni tuition fees now at £9,000 a year, and this not including any living expenses, sending a child off to university can be expensive. Many parents think that the average student graduates with around £20K of debt. The reality is more like £44K.
The Cost of Having a Child: I doubt that many parents sat down and thought out how much is junior going to cost to have. Many people think that £50K is the amount. They get a sticker shock when they are told it is more like £230K! Seeing that amount itself could be a contraceptive.
You Need Credit/You Need Credit To Buy a House: Technically you could go through your entire life without getting credit, of any kind, not even a credit card. Of course in our society today, having some means of credit is helpful, but technically you don’t need it.
Even purchasing a property. There is more than credit being considered when you apply for a mortgage. Getting a mortgage can depend on your deposit, how long you have been on your job, what type of job you have, and the ratio of mortgage payment to your income.
Going Bankrupt Will Ruin Your Finances For Life: While going bankrupt is a serious financial matter, and it does allow you a way out of your debts, and it does stay on your credit history for six years, it also gives you a new beginning. It gives you a personal financial fresh start. Initially after bankruptcy seeking finance and credit will prove difficult. However, you will learn to live on what you earn, and gain experience from your past financial ways.
So just a few of the personal financial aspects of our lives we may not be aware of, or totally accurate about.
,OK, maybe it’s not that everything you know is wrong, more like everything you know about personal finance is wrong. Ummm, maybe that’s a bit too strong, more like a lot of what you think you know
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