Let’s begin with what are, quite frankly, some startling facts. 19% of 22 to 24 year olds have short term debts of more than 5,000, while more than 60% of young people would not know where to go for help to overcome money troubles. About 94% of 16 year olds believe it is important to know how to manage money, and yet only 53% have been taught how. Ignorance begets debt, but this is not usually a case of willful ignorance.
It is easy to talk about how much personal debt the nation carries and how it might be affected should there be a significant decline in the economic environment. However, the numbers carry no real meaning. The challenge is to make individuals realise the role they play and ensure the debt is managed effectively and does not cripple the families in the future. For this to happen, greater financial education is imperative and the markets must play a central role.
Many advisers will throw up their hands at the prospect of being asked to shoulder another burden. Smaller firms have their work cut out meeting commercial commitments, dealing with clients and getting into position for the future. Bigger firms may have the resources, but often there is no one to take command of such initiatives.
Securing financial advisers’ help to raise financial capability is a bit like charity work – while most agree there is a need for it, not so many will volunteer their time.
However, the picture is not black and white. There are reasons why a better financially-educated public would be welcome from the Independent Financial Advisor’s point of view. If people understand what products are on offer, how they work and where they can get them, the market immediately becomes bigger. If more people understand what financial advice can do for them, there are more potential clients for advisers to work with.
And, when individuals get into trouble, financial education will see them better placed to deal with problems. This will help them fly through turbulence rather than spinning out and ending up being financially excluded.
Many advisers claim raising the bar on financial literacy will happen at a snail’s pace and make a difference at the lowest end of the market where there is little in the way of business to be won. This is the case, however, few would argue against the merits of a more financially-literate community and there comes a point when action has to be taken.
Understanding that getting involved in improving financial capability is not a sales process, but will deliver benefits to the public and the intermediary community is key to its success.
Steps have already been taken to put financial learning on children’s curriculums. This is welcome and is something that advisers can help with. There is nothing to stop them from giving presentations in schools, discussing basic financial products available and helping people understand from an early age the job that banks, insurers and mortgage providers can do for them.
There is a range of courses and projects being run in schools across the country which need local advisers to add a human dimension to the subject. For their part, advisers would widen their reach into the community and may even be able to help school leavers in the years to come. It may even be possible for firms to establish work experience programmes, helping generate a flow of people into the industry that it desperately needs.
There are also hundreds of thousands of adults who would benefit from basic financial education. Again, the question is how advisers can impart some of the knowledge they have.
Bigger corporate firms are likely to provide financial advice to staff, although this will not necessarily be the same for smaller companies. Indeed many staff will only really want a more rudimentary explanation of their options so they can manage their affairs better.
Without seeking to sell to individuals, advisers could organise seminars discussing the basic issues surrounding pensions, savings and mortgages. They could offer local workers the opportunity to find out more about how products work and to encourage people to ask questions.
Although such sessions would run on an information-only basis, there is no doubt that interacting more closely with local firms and their employees would deliver future enquiries and help raise the profile of the advisory business.
If smaller advisory firms allow their larger counterparts to muscle in on the provision of such education and training they will have lost an opportunity to develop valuable business partnerships for the future, raise their profile and meet potential recruits. They will also have lost the opportunity to help improve standards and make a difference to the thousands of people who struggle because of a lack of financial education.
Of course advisers should not be expected to carry the can when it comes to raising the bar of nationwide financial literacy, but it is equally ridiculous to suggest they should sit back and do nothing about it when they have so much to offer.
Let me know your thoughts in the comments below.
And thanks to One Cent at a Time for featuring this post.