MSE News: Young people have 'dangerous gaps' in money knowledge, charity says

John_Pierpoint

Who is going to Teach this part of the National Curriculum ?

I would think that the average teacher has not worked in commerce, is a PAYE employee and may well have a sketchy command of maths, let alone understanding double entry book keeping and be able to explain the difference between a debit and a credit.

It is like asking an order of nuns to take the sex education classes.

Ah well if you really want to understand something, be forced to teach it.
Perhaps there is some hope?

securityguy

Fluff15 wrote: »

but what good is that when I need to work how much I'd pay in interest over 60 months with a car on finance?!

Calculating, from scratch, the monthly repayments on a loan of £X at Y% over Z months is far from straightforward, and the precise answer depends on the precise terms of the loan. The underlying formula (see here) is not easy to use, because it relies on various numbers (particularly the raw monthly interest rate) which you may not have. Deriving that formula is hard, using it requires a scientific calculator or a book of log tables and you often don't have the right data to use it anyway. That's hardly a candidate for teaching in school.

It's precisely because of that problem that the APR was introduced to make comparison possible. You can compare APRs to see best value, but then the best way to find out the monthly repayments on a loan is to ask the lender.

FBaby

Financial knowledge is a big part of the education I provide my kids. My parents were financially comfortable and never bothered to teach me much. At 18, I could hardly distinguish the difference between £18K and £180K (both were just a lot of money). I wouldn't even have been able to say how much an average house cost. Very embarrassing when I think back. It led me to wasting some opportunities and took me years to learn proper budgeting.

My kids' dad has never learnt to manage his money and his been in debts for all his life (one of the mean reasons that led to our separation). He had great potential, but ruined so many opportunities because he has never been able to manage his money.

I have spoken about money to my kids since they were toddlers! At 5 or 6, they understood the concept of insurance, at 8, they understood the concept of banking and mortgage. My 13 yo knows the value of property and even what deposit she would need to put down (she is in a rush to move out!). My son knows the cost of our holidays and how I had to save to afford them. They understand that credit is dangerous and that if you want something, you need to save for it.

I can't be certain that this will prevent them from errors in the future, but I do hope it will give them the right foundations for proper management of their money later in life.

ermine

is a PAYE employee and may well have a sketchy command of maths, let alone understanding double entry book keeping and be able to explain the difference between a debit and a credit.

I've been a PAYE employee all my life and I don't really understand double entry book-keeping, though as an engineer I guess my maths is okay. These are all fancy arcana. Personal Finance is nowhere near as hard as its made out to be.

It seems the problem is at a deep and fundamental level if these young people can't tell DR from CR on their bank account. If they can't do that then they don't need to know about APR. Wilkins Micawber is all they need do know.

Spend less than you earn

If you don't, then at least only borrow for needs and to invest in yourself and your earning power.

but what good is that when I need to work how much I'd pay in interest over 60 months with a car on finance?!

With all due respect you are asking the wrong question. The first question you have to ask yourself is should you be buying a car on finace?

I bet you looked around to find the cheapest place to buy the car, no? After all you wouldn't go to a showroom that plastered in big red letters

20% Extra on ALL PRICES

And yet that is exactly what you are doing when you buy it on finance. Before you buy a depreciating asset like a car you need to ask yourself some fundamental questions.

• Will it save me more money that it costs?

for instance if it enables you to go to work cheaper than public transport, or saves you enough time so you can work a second bar job, then yes. Though it always pays to consider moving closer to work as the alternative...

• Will it appreciate in value more than the cost of the loan?

the answer is never yes for a car in 99.99% of cases

if the answer to both of these is no then this is a want and not a need. And it is not a good idea to buy wants on credit at the beginning of your working life because you will always be paying over the odds for your consumer goods by buying them on credit. That is because servicing the parasitic lump of credit you took out previously means you will feel the need to borrow to buy future consumer goods; paying the interest on previous loans means you don't have your full disposable income available to you.

The sugar rush of having it all at the start means you will then be in the debt trap of paying 10% to 20% more for all your Stuff, or alternatively only being able to afford 80-90% of the stuff that your salary could otherwise support. You don't borrow money from a bank, or The Man. You borrow it from your future self, who will be poorer than he would otherwise be. You become your future self slowly and irrevocably, one day at a time. Borrowing money for wants now means you become poorer later.

I lend a small amount on Zopa. I am happy that there are people who want to buy their cars now, because it makes me richer. The majority of my borrowers seem to be borrowing for cars. But at the same time I am a little bit saddened that they are doing this to themselves...

Viberduo

I blame it on the fact these days most kids are wrapped in cotton wool, getting every luxury they need, when I see kids that look younger than 10 with iphones and talking about how they are getting the latest games consoles for a birthday or christmas present it makes me think they are not taught the value of money, these same kids grow up and go to uni and just get loads of credit and struggle to pay it back if at all, and I have seen students pay £150 for a pair of jeans, or moan how they are in catered halls with free internet and yet they only have £100 to last 2 days for booze(yes this really happened and more than once) or how they wanted to buy legal highs or cannabis or party every night and just cram research in(funnily enough these were law and business students!)

Lunar_Eclipse

Whilst I think it's imperative for children to learn about finances and efficient money management, why would 14 year olds need to know about overdrafts? I can't help but wonder how those interviewed, of that age, even know about them: parents?

It's an interesting lowest common denominator article: overdrafts and APRs. I would have liked them to be asked about budgetting strategies, savings techiques and investment vehicles instead. Let's get some useful meat into this curriculum.

John_Pierpoint

Fluff15 wrote: »

I need to work how much I'd pay in interest over 60 months with a car on finance?!

Perhaps someone with this problem should buy a bike and get fit as well as rich?
An alternative is a motorbike but be careful as drivers with more than 2 wheels will try to kill you. Pedestrians have the advantage of being able to jump sideways.

tayforth

ermine wrote: »

I've been a PAYE employee all my life and I don't really understand double entry book-keeping, though as an engineer I guess my maths is okay. These are all fancy arcana. Personal Finance is nowhere near as hard as its made out to be.

It seems the problem is at a deep and fundamental level if these young people can't tell DR from CR on their bank account. If they can't do that then they don't need to know about APR. Wilkins Micawber is all they need do know.

Spend less than you earn

If you don't, then at least only borrow for needs and to invest in yourself and your earning power.

With all due respect you are asking the wrong question. The first question you have to ask yourself is should you be buying a car on finace?

I bet you looked around to find the cheapest place to buy the car, no? After all you wouldn't go to a showroom that plastered in big red letters

20% Extra on ALL PRICES

And yet that is exactly what you are doing when you buy it on finance. Before you buy a depreciating asset like a car you need to ask yourself some fundamental questions.

• Will it save me more money that it costs?

for instance if it enables you to go to work cheaper than public transport, or saves you enough time so you can work a second bar job, then yes. Though it always pays to consider moving closer to work as the alternative...

• Will it appreciate in value more than the cost of the loan?

the answer is never yes for a car in 99.99% of cases

if the answer to both of these is no then this is a want and not a need. And it is not a good idea to buy wants on credit at the beginning of your working life because you will always be paying over the odds for your consumer goods by buying them on credit. That is because servicing the parasitic lump of credit you took out previously means you will feel the need to borrow to buy future consumer goods; paying the interest on previous loans means you don't have your full disposable income available to you.

The sugar rush of having it all at the start means you will then be in the debt trap of paying 10% to 20% more for all your Stuff, or alternatively only being able to afford 80-90% of the stuff that your salary could otherwise support. You don't borrow money from a bank, or The Man. You borrow it from your future self, who will be poorer than he would otherwise be. You become your future self slowly and irrevocably, one day at a time. Borrowing money for wants now means you become poorer later.

^^^^ THIS. A million times over.

Can you please be Chancellor of the Exchequer?

John_Pierpoint

Ah but when you are Chancellor of the Exchequer you go to the magic money tree and arrange to print the difference.
Gone are the days when we had to fight a war with "revolting" Dutch people, to keep a grip on "our" supply of gold.

By 1899, when tensions erupted once more into the Second Boer War, the lure of gold made it worth committing the vast resources of the British Empire and incurring the huge costs required to win that war. However, the sharp lessons the British learned during the First Boer War which included Boer marksmanship, tactical flexibility, and good use of ground had largely been forgotten when the second war broke out 18 years later, which also led to heavy casualties as well as many setbacks for the ultimately victorious British.

Pincher

If you actually required competence to go through life, half the people on the street need to be locked up.

Try demanding house buyers pass an exam before they are allowed to buy a house. Do they know about council tax? Do they understand what constitutes a nuisance, like noise and smell? Do they know about supporting walls? gas safety checks?