We must wise up about money

THERE is a national financial emergency and it has nothing to do with Brexit, low productivity or any of the other things that economists fuss about. It is that many people don’t understand how to handle their money wisely.

Ben Broadbent, deputy governor of the Bank of England, was talking last week at a conference in London entitled ‘Helping children and young people learn about money’.

The most troubling bit of his message was that we are particularly bad at managing our finances. He quoted a study by the Organisation for Economic Co-operation and Development that found in the UK financial literacy – the ability to answer relatively straightforward financial questions – was lower than in other advanced economies. And another study showed that fewer than half of adults in the UK, and barely a third of teenagers, knew what an interest rate was. If you don’t

understand interest rates you are liable to run up debts you cannot afford. Some 7 per cent of households say they are very concerned about their debts, and we know that financial worries are associated with anxiety, depression and other mental health issues.

‘The more cash-strapped people feel,’ he said, ‘the more prone they are to taking decisions that make the situation worse.’ So what’s to be done? The Bank of England has made a start. As Broadbent explained, it has an outreach plan, where its staff visit secondary schools, explaining what the Bank does. And last year it launched online materials for schools to teach the practical aspects of finance. A similar exercise for primaries is on its way later this year. Here at newspapers we try to help with our personal finance sections, writing both about savings and debt. But inevitably our readers are people already interested in financial matters – that is why they come to our pages. The challenge is getting people who are not interested in money to grasp the basics.

I’m worried it will get worse. The shift to a cashless society brings many benefits, from reducing the scope for certain types of crime to the convenience of paying for a coffee with your phone. But by disconnecting transactions from coins and notes, we don’t really see the money going out. And a minus on a bank account is somehow different from not having enough cash in a purse or wallet.

I can see three broad ways forward. First, we have to stop being snooty about money: people thinking it is smart to say they don’t really understand it, and slagging off the (admittedly flawed) financial services sector.

Second, while teaching about money in schools is important, we have to start in the home. Is there a piggy bank for every child? Do parents explain how much things cost? Pay children for odd jobs, such as washing the car?

And third, I think we have to be better at encouraging people to look to the future. Broadbent noted that people focus too much on present, urgent needs, and neglect things that are more important over the long-term. Auto-enrolment in pensions is a good example of nudging people to do something they might otherwise neglect.

The big point here is that the more fluid our work patterns, and the greater the pressure on Government finances, the more we will have to rely on ourselves. Our society must attack financial illiteracy in a variety of ways, just as we have discouraged smoking and reduced road deaths over a generation. We have made a start, but there is so much more to be done. ALLAN LEIGHTON makes a number of good points in the interview on page 99, the key one being that delay over Brexit is stifling investment. Whatever you think about the issue, uncertainty is never good.

What is particularly worrying is the way this uncertainty is coinciding with bad news from the rest of the world. I’m not so worried about the UK slowdown, though the past couple of months are discouraging. More worrying is what is happening in Germany and the rest of the eurozone, where people are now talking of a lost decade. The US remains a beacon of growth, but the world economy cannot fly on one engine alone – or at least not for long.

If people don’t understand interest rates, they will end up in debt