Five financial lessons you should have learnt at school
When I was at school, I was never taught how to handle my personal finances. I dabbled with decimals, analysed angles and even solved simultaneous equations. Yet I learned nothing of banks, bills or budgeting.
The government announced in April that it plans to make financial capability education compulsory in primary and secondary schools from September 2011.This should come as quite a relief; in 2008, research by the Personal Finance Society found that 800,000 school leavers believed an ISA to be an iPod accessory!
If, like me, you missed personal finance 101 in school, you can start your financial education now. All you have to do is study these five top tips…
Lesson 1: Balance the books
In order to keep control of your finances you need know exactly what you’re dealing with.
If you have a stash of unopened bills and bank statements, your first step should be to open them.
Next, create a spreadsheet that shows exactly how much money you have coming in and going out each month. Include essential spending such as mortgage repayments and grocery shopping, then work out a rough estimate of how much you pay for little extras such as new clothes, occasional treats and meals out.
If you find your books don’t balance (that is, your total outgoings exceed your incomings), it’s vital to sit down and address your spending habits.
Keeping a spending diary for a week should show you where you’re splashing too much cash and how you might make savings.
Lesson 2: ‘Good debt’ v ‘bad debt’
For many people, debt is a dirty word – particularly since the credit crunch began to batter the British economy.
However, it’s likely that at some point in our lives we will all need to borrow money, whether it is to pay for higher education, a house or a car.
Therefore, it’s important you’re able to differentiate between ‘good debt’ and ‘bad debt’. Good debt is borrowing that allows to invest in your future (perhaps by going to university) or to enhance your life. Good debt is planned for, and always as cheap as possible.
Bad debt is unplanned, expensive or unnecessary borrowing. If you find your lifestyle is driving you into bad debt and you’re struggling to meet your monthly repayments, you could be heading into a downward debt spiral.
If you have old, expensive debts, see if you can switch them to a cheaper balance transfer card.
Alternatively, if you find yourself facing unforeseen expenses and you don’t have savings to fall back on, investigate whether you could spread the cost by using a credit card that offers a 0% interest rate on new purchases.
Lesson 3: Loyalty loses
Sadly, the financial institutions we deal with every day are not our friends. Ultimately, the first priority of any business is to make money – so while new customers are offered attractive products and prices, loyal customers are likely to be left out in the cold.
If you always buy your financial products from the same provider, it’s unlikely you will get the best deals.
Instead, you could save money by shopping around online and comparing quotes from a variety of companies.
For example, if you’ve never switched your energy supplier or haven’t done so recently, you could save up to £391 a year.
Lesson 4: The subject of savings
Savings can provide a vital safety net for you to fall back on in the event of an emergency. And, with unemployment rising, it’s more important than ever to squirrel away some of your hard earned cash ready for a rainy day.
The first sensible place to stash your cash is in a tax free ISA (Individual Savings Account). If you’re a basic rate tax payer, you’ll usually lose 20% of the interest accrued on savings – yet if you put the first £3,600 of your cash into an ISA, you’ll receive every penny you earn.
Remember, in order for your money tree to grow it needs constant care and attention. Ensure you make the most of your money by checking regularly to see where the most competitive rates are.
Lesson 5: It’s time to talk money
By nature, we Brits are polite folk. In the past, nothing would embarrass us more than chatting openly about our finances.
However, going through money troubles alone can cause stress and sleepless nights – whereas sharing your financial burden with friends and family could help put your mind at ease.
The good news is that since the start of the credit crunch many more people have started talking about money. These days, a lot of us are trying to keep more cash in our pockets – so you may find your friends are able to help you out with some useful money saving tips.
Does anyone have any questions?
Hands up anyone who’s ever signed something that they didn’t fully understood?
Unfortunately, if you’re not vigilant, you could end up paying for something useless you don’t need or want.
Even worse, you could be spending hard-earned cash on a product that won’t offer the vital benefits you think it does!
Today’s key lesson is that it’s crucial to be in the know. Always ask questions about financial concepts you don’t understand and always read the small print on any agreement you sign.
If a contract seems to be written in a foreign language, request an explanation. This won’t make you look stupid, but it will ensure you aren’t left in the dark about whether a financial decision is right for you.
Finally, your homework! Repeat after me: plan, plan and then plan some more.
As my teacher once told me – if you research in the present, you’ll reap the rewards in the future.
School’s out!
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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