Money studiesPosted on: 28 October 2014 by Steve Wanless
However complicated your financial life seems today, it is only going to get worse.
The almost daily e-mail routine of giving an electricity or gas reading, paying a phone bill, reviewing on-line quotes for car, house or travel insurance or upgrading your banking security functions demonstrates how technical our everyday “money” life has become.
When did you last write a cheque? Do you actually have a cheque-book?
There is the frustration of standing in a shop queue wondering if “cash” – simple coins and notes – has suddenly been abolished while someone using a debit card to pay for a newspaper and bag of crisps.
At least the hunt for pounds coins to feed a greedy parking meter is not as essential as it once was. Most meters allow you to pay by debit or credit card; just as well as the cost of parking in town centres has soared.
The above are the everyday things of life – as are pensions, mortgages, ISAS (Individual Savings Accounts) and wills. Yet the rules and regulations relating to each are ever-growing and ever-changing.
In years past, the role of the financial adviser was part of your bank manager’s job. They knew you – and you knew them. This relationship meant you could rely on the bank to help out in times of difficulty; they would take an overview of your financial position, with which they were familiar.
Not any more. Every transaction, every financial move is inspected and analysed in its own right. Despite being financially secure and asset rich, many struggle to borrow from a bank despite being a loyal and trusted customer for many years, increasing the feeling that the person across the desk is not always on your side.
Hence the growing importance and value of the Independent Financial Adviser (IFA) – the person to find a way through the maze of regulation on your behalf, a specialist in their field whose credentials are constantly checked and examined by the Financial Conduct Authority (FCA).
Not that we are such financial novices. Few blame Jo Public for the banking collapse and financial chaos of 2008 and subsequent recession; the politicians and banks and other financial institutions are in the dock for that one. Despite on-going mind-boggling fines for a variety of scandals, very few bankers have actually ended up in court, let alone jail.
That the majority of us have survived relatively unscathed – and there are sadly many exceptions through no fault of their own – is down to prudent personal planning over the years, a preference for owning your own home and, generally, a natural rather risk-averse approach where money is concerned.
Remarkably, this was achieved without any formal financial education during our school years, other than those who studied economics or planned to go on to life in the financial world. That changed last month. Finally, England joined Wales, Scotland and Northern Ireland by including personal finance in the national curriculum. This financial education will also become part of the new mathematics and citizenship courses in secondary school.
Moneysaving Expert Martin Lewis is just one of those who has long campaigned for financial education for young people. The Personal Finance Education Group (PFEG) states that ten is the average age when children start purchasing items on the web. The new curriculum is starting financial education at primary school, with two key stages (ages 5-7 and 7-11).
In years one and two, the children will be expected to i) recognize and know the value of different denominations of coins and notes; ii) find different combinations of coins that equal the same amounts of money; iii) solve simple problems in a practical context involving addition and subtraction of money of the same unit, including giving change.
Year three – add and subtract amounts of money to give change, using both pounds and pence in practical contexts. Year four – i) solve simple measurement and money problems involving fractions and decimals to two decimal places; ii) estimate, compare and calculate different measures, including money in pounds and pence.
Years five and six – use addition, multiplication and division to solve problems involving measurement (for example length, mass, volume, money).
At least this should be homework that mum and dad can help with, unlike many other subjects, such as mathematics, that have changed all out of recognition to the way it was taught a couple of decades ago!
A greater financial awareness and knowledge has to be a bonus growing up, especially when that will be coupled to the natural affinity to computers and technology that youngsters have.
As well an individual’s finances, being financially savvy will also assist when listening to the promises of politicians about the best ways of solving the country’s financial woes - whether to increase income tax for everyone, or raise the top rate of tax, or to fund the National Health Service (NHS) by introducing the “mansion tax”.
It’s not so much that the facts and figures change depending on the politician; it’s just that one side uses some of the data, and the other some of the rest.
According to HM Revenue and Customs (HMRC), the top 10% of earners will pay 58.7% of all income tax this year – and the top 1% will pay 28.3% (or £47billion). The top 25% of earners will contribute 75% of income tax (£167b).
Yet the think-tank Equality Trust argues that we underestimate what the poorest pay in tax and are wrong to think the richest face the biggest tax burden. The poorest 10% of house-holds pay 8% more of their income in all taxes than the richest – 43% compared to 35%, according to its recent report.
While income tax and national insurance are broadly progressive, the bottom 10% of households pay roughly 23% of their gross household income in indirect taxes on consumption and more than four times as much of their income in council tax as the top 10%.
The Equality Trust is urging the next government to radically reform council tax by re-evaluating properties and creating new bands with higher rates for high-value properties. That recommendation, at least, is seen by many as a more sensible way of raising revenue than the “mansion tax”.
There are still tough decisions to make, even when the revenue is in the Treasury. Where to spend the money? Sustaining the NHS has been identified as one priority – yet there is also the cost of state pensions, which is set to soar.
The Department of Work and Pension has just predicted that the state pension bill will double in 20 years – and will quadruple to £420b by 2063-64!
While that may not be a great personal concern for those of us who don’t expect to be around then, we do have a duty of care to the next generation and the one beyond.
While it is good news that children are now learning about finance at primary school, looking at these staggering figures, it might be better if they made a start even earlier - perhaps playgroup!
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