Six to fix: how better financial literacy can help solve society’s money woes

By Mohammad Uz-Zaman, ADL Estate Planning –

The term ‘personal finance’ is necessarily narrow: most of us care more about our own money than other people’s. That’s only natural, since we all want to live comfortable – even exciting – existences.

But it’s also reductionist. It reinforces the feeling that we live in a culture where the wealth of one individual seems disconnected from wider society. In fact, nothing could be further from the truth.

Rewind to the early part of this century and you’ll understand what I mean. In the US – a country that has an economy, society and culture with which the UK shares many parallels – a growing debt mountain inevitably collapsed, causing the so-called Credit Crunch. Its shockwaves shook countries globally, including the UK where major banks came close to collapse.

You might think that too many people not taking their personal finances seriously enough, living lifestyles beyond their means, led the world to fall into that parlous state. But it’s an example of a time when better financial literacy would have offered collective protection to many who were ruined by the economic disaster that few saw coming. Today is no different.

According to a PwC study, 57% of consumers claim personal finance is their biggest stressor. Perhaps unsurprisingly, 87% of employed people are crying out for help to manage their money. As the cost-of-living crisis continues, I’d wager that might get even higher.

But why is a wealth manager making these points? Well, you’d be surprised: while we have mainly high-net worth individuals on our books they wouldn’t come to us if they knew how to handle their own finances effectively. This is truly an issue that’s affecting all sections of society – to the detriment of the entire nation.

It starts in school. Only around half (52%) of children aged between seven and 17 claim to have had any meaningful financial lessons – and plenty of them pick advice up from family rather than in the state or private school system.

If society isn’t set up to make us all better at wealth planning that’s driven by a greater level of financial literacy, for everyone’s benefit, then someone needs to take matters by the scruff of the neck.

So, what can we do about it? Here are six aspects of personal finance that affect us all, but which we can remedy relatively easily given the right advice and support that will also improve financial literacy:

Protection – All too often, we make the mistake of believing we’re invincible. But if the worst happens – a serious illness, a life-changing injury – and we haven’t investigated how to protect ourselves, then our financial hardship may claim other unintended victims: close and distant relatives, even friends or colleagues. Zurich says someone is five times more likely to claim on a critical illness policy compared to life insurance; but which of these do most people have in place?

Promises – Even those individuals who have a financial plan in mind, rather than leaving everything to chance, can pay a heavy price by taking the wrong advice. Get-rich-quick schemes are ten-a-penny; they can also be convincing. I know high-flying professionals who’ve been duped and lost thousands. Raising awareness of these potential pitfalls when seeking financial advice, through better education, could save a lot of heartache.

Priorities – Most people benefit from considering the founding principles of good personal finance. That means writing an appropriate will and – where relevant – investigating inheritance laws; having an emergency cash fund; understanding and using tax wrappers; and more. These are basics, but so many individuals overlook or ignore them due to complexity or a carefree approach to finances. Better advice and support matter. We recently ran a three-day course with law graduates: an aspirational audience, but one grateful to receive help to fill gaps in their financial knowledge.

Patience – There’s no doubt that the sheer amount of personal finance advice available is diverse and difficult to understand. The inertia this instills is the root cause of 63% of people feeling they lack control over their financial affairs. Collectively, though, we need to take a breath and seriously consider the starting point of putting a financial plan in place – as just 37% do at present. This would make a huge difference to many people’s situations.

Property – If there’s one thing that seems to stress us out as a nation more than any other, it’s the process of buying property and managing a mortgage. Too many people – whether they’re wealthy or of more modest means – are eager to invest without understanding the risks that can ruin them: be that financial commitment, tax problems or inheritance issues. Accessing the right advice long before making a big decision can prevent buyers running into a brick wall later on.

Pressure – There’s a common misconception about wealth managers that we’ll demand a hefty retainer from all of our clients. It isn’t the case, and is unnecessary in any event. There really is an image problem, though: PwC found 5.3 million people would pay for advice if it were perceived to cost less. Unless someone has highly complex finances, I’d recommend an advisor putting a plan in place but only touching base every one or two years. After all, many of us own a vehicle, but don’t fork out monthly fees to a mechanic for its upkeep.

In the mission to improve the UK’s financial literacy, provision of free tools, educational courses and webinars, content to suit all needs, and other collateral that allows people to begin building their knowledge of personal finance, is a good starting point.

And, if we can build an ecosystem of more accessible financial advisors – experts across a range of issues, spanning mortgages and pensions, to accountancy and commercial finance – we’ll sow the seeds of a lasting culture of financial literacy.

Ultimately, by nurturing knowledge and better handling our financial affairs, everyone will benefit – ourselves, our families and even people unknown to us in our communities. That’s a prize worth pursuing.