A longstanding criticism of the education system in the UK is that it doesn’t cover the skills that really matter in life. Among the more consequential of these skills is the ability to handle money. If you aren’t financially literate, then you risk going through adulthood working hard for your money – rather than having your money work hard for you.
But what skills are we talking about? Let’s run through a few key things to consider.
Budgeting: Building a Realistic Financial Plan
A budget, at its heart, is a list of things that you’re spending money on, matched against your income. For a budget to be useful, it should be reasonably detailed – but not at the expense of clarity. For many, the act of writing down areas of spending can be useful, in that it will drive conscientious spending. You might also make use of a range of budgeting apps. The 50/30/20 rule is a common approach for splitting your necessary spending (like the rent), your savings, and your discretionary spending (like entertainment). But the way you split things will tend to depend on your circumstances and means.
Understanding Credit: Navigating Loans and Credit Cards
Borrowing money needn’t be seen as inherently wasteful. Sometimes, you need to take out a loan to save yourself money in the long term. For example, buying a car on finance might allow you to travel to a lucrative new job.
On the other hand, certain kinds of credit cards can also be extremely useful, in that they come with built-in insurance for major purchases. Just be aware of the interest you’re paying. You can avoid interest entirely by paying off the full outstanding amount each month. Make sure that you set aside the money to do this – and that you remember to actually do it.
Investing Basics: Growing Your Wealth Early
The earlier you start saving, the more money you’ll be able to accumulate in compound interest. Assuming an annual interest rate of around 5%, a person who opens a saving account at twenty, and sets aside £100 each month, can expect to earn just over £17,000 in interest by the time they reach forty. There’s also more volatile investment in things like stocks, bonds, and assets like property. Investment brings with it risk, to be sure – but this risk can often be offset by diversifying your portfolio.
Protecting Yourself: Recognising and Avoiding Financial Scams
A good financial education should instil a healthy scepticism of deals that look too good to be true. Scam artists have become more sophisticated in recent times, thanks to an increasingly effective set of technological tools. Being aware of practices like phishing and AI-powered voice cloning can help a saver avoid being tricked into giving their money away. While it’s easy to imagine an older person falling victim to these kinds of scams, in many cases, it’s younger people who are at greater risk. By maintaining your vigilance, you can keep your money safe.
