We asked the team to have a think about the money lessons we have learnt through life, but wish they had been taught at school.
Much of our money habits are shaped from what we experienced growing up – and these typically tend to be based on how money was treated in our household. It seems that much of financial education is either taken for granted or passed down from generation to generation, like some ancient fable or legend.
Back in the 1990s, the BBA (British Bankers Association) had an educational arm known as The Banking Information Service which used to send local bankers out to schools to help educate the children (sadly, today there is not even a trace of it on Google). As one of the lucky few, after a week’s residence in a flash Bloomsbury hotel, we were sent to a school in Tower Hamlets (in the days before most schools had 12 ft fences around them), where for most of the children, English was not even their second language. We were all astounded by the enthusiasm the children had, that someone had taken time out of their day to help interact with them about money.
Sadly, the BIS lost it’s funding around 25 years ago, and monetary education in schools is typically left to the occasional tutor time session with professional bodies doing the best they can.
So, what did the Serenity team wish they had learned in school and why?
- Pensions
- The importance of saving money on a regular basis
- How to budget and manage bills on a monthly basis
- Tax
- Mortgages
- The difference between rich and wealthy and what is enough (see Jordan’s post this month for more on that)
As you’ll notice, most of these (perhaps with the exception of pensions and tax) are pretty basic financial themes but can make a huge impact to our financial plans.
Let’s take a closer look…
Budgeting
As a Serenity client, you know that each year we are going to ask you to update your annual expenditure – your budget. We don’t ask for this just to tick a box, but rather to encourage you to spend some time analysing where your money is spent.
Are there things that are not really needed, and how much can then be allocated towards moving you in the direction where you will feel the most gratitude. What can you intentionally divert today to benefit the future.
In its basic form, budgeting makes sure we are not spending more than is coming in – and allows us to anticipate upcoming expenses.
Taking me back to my banking days, the number of people who used to call up having ‘been caught out by Christmas’ amazed me. Easter I know moves around, but Christmas doesn’t, yet so many people failed to budget.
Saving on a Regular Basis (and pay yourself first)
The hardest thing to do when it comes to saving is to start.
We know it is easier to increase a direct debit or standing order (it’s only a couple of clicks) that actually set the plan up.Our advice – set a savings plan up as soon as possible – even if it’s only £10 a month, then increase the amount when you can.
If the standing order goes out at the start of the month (paying yourself first), you have made the saving contribution, but if you wait until the end, well we all know what is likely to happen then – no money left = no savings.
Mortgages
Most of us will need one of these, yet there is little education, until we’re sat in front of someone trying to sell us one.Is a 30 (or even 35) year mortgage better than a 25 year one?
That’s a big question which comes up more often these days.
A little example :
- A £250k mortgage over 25 years on a rate of 3% would cost £1,185pm (£355.5k over time)
- The same mortgage over 30 years, reduces to £1,054pm (but increases to £379.5k)
A first time buyer, looking to keep the monthly premium to a minimum, may opt for even 35 years. This brings their cost down to £962 pm, but at a huge increase of £404k total cost.
This brings us back to budgeting again – what is there that we habitually spend, which if we cut out, could save us almost £50k on the cost of a house.
Just like starting the savings, once we’ve been paying the mortgage for the first few months, the pain is over, and we adjust to the new budget.
Tax
Well that’s one for another day…
As you know, there are many forms of tax efficiency – which is best will depend often on which tax we are considering.
For example, an ISA grows free of Capital Gains and Income Tax, but is included for your Inheritance calculation. A pension fund falls outside of your estate for IHT, but you are likely to pay income tax when you draw benefits (again, that’s not a clear answer for all).
If you have ever tried to ask a tax adviser a ‘quick question’ you’ll know that there is no such thing as a quick tax answer – so maybe that is one best left out of school!
We would love to know what money lessons you wish you had either been taught at school, or have learned since which have been invaluable over the years.
