Thought leaders: Academic insights: Financial knowledge is an essential skill

Key points

• 71% of people blame a lack of personal finance understanding for debt.

• 7% learn about personal finance from parents and 4% from banks; 81% pick it up through trial and error.

• 16% of Brits are not knowledgeable about personal finance until they are at least 35 years old.

• 70% say that personal finance is a lot more complicated nowadays; 95% say it should be taught in schools.

Source: Research carried out online with the consumer opinion panel in August 2010 among a sample of 1,235 GB adults.

Personal financial education can go a long way towards easing workplace stress, says Martin Higginson

But, as a nation, are we ready for this challenge? A survey published by USwitch in September 2010 found that 71% of people thought it was their lack of personal financial education that led to too high levels of debt.

Also, the Money sickness syndrome report published by Axa in July 2010 showed that financial stress among employees has risen significantly in recent years. The number affected has doubled since the syndrome was first identified in 2006 by GP and mental health specialist Dr Roger Henderson.

The research found one in 10 people suffer financial stress all the time, one in four frequently and one in three sometimes. Staff in junior managerial and supervisory jobs are showing the biggest rise in financial stress.

According to the same report, financial stress in the workplace often shows itself through higher absence and attrition rates. Employers are recognising that, at a time when financial stress is likely to increase, having more financially educated employees makes business sense, as well as being socially responsible.

The Open University has pioneered a new approach to financial education based on four key themes.

First, the role of financial planning. This includes personal finance topics such as budgeting, debt, savings, pensions, housing and insurance, helping people to understand financial products and how to find the right one to meet the needs of their household. Financial planning is a dynamic process and financial calculators should be on-hand to help with the number work. People must learn how to interpret and make sense of the numbers.

Second, financial planning is related to change over the life-course. We all face different financial needs at different times throughout our lives, and any education should show people how to think through what is likely to be needed. This can be for expected events, such as starting a family or planning for retirement, or preparing for what we hope might not happen, such as the sickness of a relative, separation or unemployment.

The third theme acknowledges that many of us live with others and our financial decisions affect people around us, and, in turn, their decisions affect us. These others may include partners, children or relatives, and we need to understand this inter-connectedness between individuals.

Finally, and perhaps the most unique aspect of this approach to personal financial education, is to place the above themes in a context of understanding the changing social and economic world around us.

This is fundamental because people’s financial plans need to be reviewed and adjusted in the light of such change.

This provides greater understanding of planning household finances, and gives greater confidence in thinking through how government policy affects your household finances. It empowers people to have an informed voice on policy debates and become more active citizens to shape policy that affects our finances.

Martin Higginson is senior lecturer and staff tutor at the Open University

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