Financial Literacy: Take Back Control of Your Finances
You might have come across the term financial literacy in the news or scrolling through social media: it’s popped up as something of a buzz-phrase the last few years. But what does it mean to be financially literate today, let alone post-Covid-19 in 2021?
Financial literacy is defined as ‘personal financial education’ - It is knowledge that allows individuals to manage their money effectively.
We're all about being in control of your money, and financial literacy is a BIG step towards getting there. Let's demystify it.
In theory, financial literacy is part of the UK school curriculum and has been since 2014. In practice, however, financial education at schools across the UK is patchy at best. A review on the progress of the ‘take-up of financial education in schools’ found that yes, progress has been made since it was brought in, but that it has not only slowed but ‘in some areas seems to be going into reverse’.
In the absence of traditional education, it's hardly surprising that many people across the UK struggle to understand their finances.
As the most recent financial capability study in 2018 found, Britslagg behind other countries like France and Norway in financial understanding and education. In part, the slow development of financial literacy in the UK can be put down to 'changes in social attitudes and a retail-led culture have outpaced consumers' ability to develop money management skills.
Now, with the pandemic causing a massive rise in the UK's financial vulnerability, 30% feel more financially vulnerable than they did in March 2020. Being financially aware and educated is more important than ever, and can help many build financial resilience and feel more secure.
63% of Brits answered no when asked whether they felt confident in their financial literacy. Those at risk of financial illiteracy include young people alongside disadvantaged black, Asian and minority ethnic (BAME) communities, migrants and women. As Andy Haldane (the Bank of England’s chief economist and vice-chair of the National Numeracy charity) notes, while some parts of the country appear to have a higher financial literacy than others, that there is such a 'huge need for it' across often marginalised groups is a big concern.
So, without a massive overhaul of the financial education system (we'll save that for another day🤘), what are a few of the keys to financial literacy?
- Budget. We’ll start with what you know already but sometimes… forget? repeatedly snooze that daily reminder? We get it. It sounds simple enough, but in a society where it’s possible to put pretty much anything on plastic, budgeting is a skill that is neglected until needed. Aggressive marketing and encouragement of consumer-driven lifestyles leave millions of Brits living beyond their means. Budgeting means taking control of personal finances and altering spending habits. It builds goal-orientated thinking and requires self-discipline. Implementing a budget for yourself and/or your family is a massively positive step towards financial freedom.
- Save. The sooner the better. On one level we understand the necessity to create a savings account that can give us peace of mind, but implementing it is another thing. It’s easy to slip into the ‘I’ll start it next month’ type of mentality but creating an emergency fund goes a long way to securing financial wellness. Like any new habit it takes some time to become ingrained but the feel-good factor of knowing that you are in control of your financial situation, regardless of external factors, is immense. It’s about making money work for you and creating an empowering attitude towards saving.
- Avoid the Credit-Dept loop. There are different types of debt, and many can be considered "good debt", including things like mortgages and student loans. There are two sides to the coin: it's useful when you purchase something that helps to invest in the future, but you have to pay it off. Then there are other types of debt, that often come from moments of desperation or a last resort. Unfortunately, there have been many of these moments over the last few years. The most recent data from the Office of National Statistics show that the combined household debt has not risen that dramatically - only 2.4% on the previous year. But what the data also shows is that this impacted lower-income households disproportionally. The Resolution Foundation found that 54% of adults in families from lower-income households ‘borrowed more in March-June 2020 to cover everyday costs like food and housing’. When you can't pay off the money you’ve borrowed, things can spiral and you can end up in a debt cycle that's hard to get out of. If you've fallen into the debt trap, look at your finances without judgement and start taking action. Knowledge and understanding are key. Then, back to our first point, but with even more emphasis: track your spending and budget. The Balance have some clear and useful advice on getting out of debt and managing your finances.
Where do we go from here?
- Create a Support System. First things first, if you’re experiencing financial hardship right now know that you’re not alone. It’s okay to admit that spending may have got out of control, or that you don’t know what interest rates are. Having real and open conversations about personal finances is the first step in creating positive and lasting change. If it feels too daunting to speak to family or a friend about money, there are plenty of free services out there that are well equipped and ready to help.
- Make a Plan. Creating financial goals and a strategy to deal with the repercussions of financial illiteracy is an excellent place to start. Making a plan and breaking it down into actionable steps puts you back in the driving seat of your personal finances. There’s something so satisfying about reaching a goal and ticking it off the list. In turn, it helps you feel a sense of achievement and personal progress.
- Learn. Knowledge is power and when you apply it big shifts begin to happen. Absorbing as much information as possible about money management, how it works and how to make it work for you is a key part of overcoming financial difficulty. Whether books, online courses or podcasts the resources are there. When we work on challenging our beliefs around money we are able to transform our mindset and our situation. We may not have had a say in what we learnt about at school, but we most certainly have control over what we feed our minds with now. See this as an opportunity to take back control and change the narrative.
It's never too late to take control of your finances and make conscious choices to use your money in ways that work for you.
Punk Money views financial literacy as a social objective. Though many of us may have missed out on financial education at school, there are projects and courses accessible. Projects like Andy Haldane's National Numeracy are a step in the right direction.
Resources and Courses available
- Finance Fundamentals: Financial Planning and Budgeting. Accessible via the FutureLearn platform this course was developed by The Open University to help deal with household budgets and encourage good financial decisions.
- National Numeracy: Getting on with Numbers. Read more on their blog and stories from real peoples experiences with battling numeracy skills.
- The Money Charity. Experts at money management and making the most out of it, they've made it their mission to spread the word, take a look at their workshops, consultancy services and helpful blog posts.
- StepChange have plenty of resources and advice on getting your finances back on track.
We hope you enjoyed this article. The views expressed are entirely our own and we take steps to check our facts are correct at the time of writing.