Is financial education important?

Is financial education important?

Did you know you can improve your finances radically simply by investing a little time in your own financial education? It's well documented that levels of financial literacy need improving all over the world, but the good news is that a modest amount of learning can lead to a substantial improvement in your financial life.

In this video, Andrew Craig, founder of the financial education website Plain English Finance, explains why financial education matters so much and shares some practical rules to live by. Craig was inspired to start his site while working in the City of London, where he was struck by how many people, even seasoned City professionals, had a shaky grasp of the basics: what an ISA is, how pensions work, what stock markets are, and how inflation and interest rates actually affect them. Plain English Finance grew out of his determination to improve the financial affairs of as many people as possible.

You'll learn the two personal finance rules Andrew Craig regards as most important. Rule one: don't spend more than a third of your income on your home, a challenging idea in a culture obsessed with homeownership. Rule two: aim to invest around ten percent of your income in investment products other than your house. The two are connected, because people who overspend on housing often find they simply can't afford to save and invest the ten percent that builds long-term wealth.

You'll also learn his practical method for finding that ten percent. Rather than agonising over small savings like your daily coffee, he suggests building a spreadsheet of all your monthly outgoings and focusing on the biggest numbers. Almost always, the largest is the roof over your head, followed by cars, an area where, he suggests, many people (and he admits, often men) rush to buy something flash and expensive far too soon. Being willing to live somewhere slightly less fashionable, or to drive a more modest car, can free up far more than trimming little everyday expenses ever will.

The takeaway: financial education is genuinely worth your time. A little knowledge, combined with a couple of simple rules and a clear-eyed look at your biggest outgoings, can transform your ability to save, invest and build lasting financial security.

Chapters / Key points

• Why financial literacy needs improving worldwide
• How a little financial education can substantially improve your finances
• Andrew Craig and the story behind Plain English Finance
• Why even City professionals often lack the basics
• Rule one: don't spend more than a third of your income on your home
• Rule two: invest around ten percent of your income beyond your house
• Why overspending on housing crowds out saving and investing
• The spreadsheet method: focus on your biggest outgoings
• Why housing and cars matter more than small everyday savings

Transcript

Is financial education important?

RP: It's well documented that, all over the world, levels of financial literacy need improving. The good news is that, by investing a modest amount of time in researching this subject, you can improve your finances substantially.

Andrew Craig runs a financial education website called Plain English Finance. He was inspired to start it while working in the City of London.

AC: One of the things that really came home to me in doing that was, even people in the City had a really kind of bad nuts-and-bolts understanding of their personal finances. What is an ISA? What is a pension? What are stock markets? What's inflation? What are interest rates?

I started Plain English Finance as a sort of angry young man, as a reaction to that. And our guiding principle ever since I did that has really been to improve the financial affairs of as many people as we can.

RP: What then, according to Andrew, are the most important personal finance rules to follow? He suggests there are two main ones.

AC: Rule number one is: don't spend more than a third of your income on your house, which is something that sounds a bit crazy to people these days because we're so obsessed with homeownership in Britain, because rule number two is: you should basically always invest ten percent of your income in investment products that aren't your house. And a lot of people, in spending vastly more than a third of their income on a roof over their head, find that they then can't afford to save and invest ten percent of their money in investments.

RP: Saving or investing ten percent of what you earn can be a challenge. The best way to tackle it, says Andrew, is to start a spreadsheet showing all your monthly outgoings. You should then focus on trying to reduce the biggest numbers.

AC: Rather than trying to save money on how many cappuccinos you buy every day, or, you know, going to Lidl instead of Waitrose, which is all very laudable, actually the single easiest way, there are two things that are very easy to change if you're willing to live in a less fashionable neighbourhood and perhaps a slightly smaller house or flat, is, number one, the biggest number is invariably the roof over your head. And then the second one down the spreadsheet from that tends to be cars. Too many people, dare I be slightly sexist, particularly men, rush to buy a really flash, expensive car prematurely.

RP: For more tips on keeping your finances in shape, you can always visit Andrew Craig's website. You'll find it at plainenglishfinance.co.uk. That's plainenglishfinance.co.uk.