If the current financial crisis has taught us anything, it’s to understand what constitutes a ‘want’ vs. a ‘need in terms of spending. But first, people need to gain a basic understanding of the principles of budgeting, borrowing, and investing.
Sarah Dowzell, COO and co-founder of Natural HR reflects on how a Certificate in Financial Studies in 2005 helped to shape the path she took in life – when it came to banking brainpower.
It’s easy to take for granted that people understand finance. We all know we need money to survive, but our dependence on it is often misunderstood – and the industry itself shrouded in secrecy.
But, in truth, you don’t need a degree in economics to be financially aware – it’s essentially money coming in, and money outgoing. Where things can get confusing, and people find themselves struggling, is around lending, mortgages, why you need a good credit score, and how interest works.
When it comes to financial savviness, I firmly believe such skills should be taught in school – and not just in terms of how to cope with the arrival of a chunk of student loan, or you first wage, but the importance of taking a longer-term view, as early as you can.
Planning is key
Planning for your first house, starting a family, or even retirement is unlikely to be at the top of every 18-year-old’s to-do list, particularly when they are starting to see some disposable income for the first time, but we can’t all simply bury our head in the sand.
~Novel Serialisation: Heavens Fire~
I’m lucky that I’ve always had a sensible financial brain and look upon my personal finance in the same way I do for business.
As a student, I found such grounding immensely helpful when it came to my own personal situation, and understanding how long-term borrowing would affect me – from the student loan I needed to get me through study, to the credit cards and extra lending thrown at me as soon as I turned 18.
It was around this time I started trading on the stock market, and soon discovered that Natwest would let me set up stockbroker account with a £10,000 limit – with very little hassle. The ironic thing is, because I was a student at the time, I used to get a copy of The Times at a much-reduced cost. I’d read the paper religiously and use the intel to help me decide where to invest the money I had – and soon I was making a profit of anywhere between £20-80 on each trade.
Looking back now, I can see how it quickly gave me a taste for business, growth, and investment. I’d sit there, in my student halls, working out the potential return on investment while my flatmates were busy partying!
All best laid plans need to adapt
Of course, the plans you put in place need to be reviewed regularly. While you don’t have to go out and sign up for a financial advisor at 21, learning from a young age that certain milestone moments call for different financial attitudes is important.
I think people should be taken on that journey, to help them to understand where they are in life, right now, the stages they can expect to go through in life, and how financial wants and needs might change as a result.
We need to stop and consider the cost of living and how that affects the way we spend our income. Think of it as a business plan, but for life. It can sound quite scary but again, it’s simply what’s coming in vs. what’s going out.
If you bring home X and your rent, food, and bills amount to Y, it leaves you Z to spend each month – but you should try and evaluate how much of that can be put away for a rainy day.
That’s where standing orders to syphon off savings on payday are great, as are some of the great FinTech apps that exist today which allow you to track and categorise your spending. Being able to compare, month-on-month, helps you recognise habits and identify any opportunities for change.
Once you reflect on where your money goes each month – vs. it being another transaction leaving your account – you can see where savings can be made, particularly around the amount spent on things such as subscriptions and snacks.
I learnt a lot of this in 2005, when I took a Certificate in Financial Studies with the London Institute of Banking and Finance. Over the course of a year, I gained a real appreciation for monetary importance by understanding what money is as well as attitudes towards it, and how these might affect life choices – at varying ages and in different situations.
We recently held some payroll training for our ‘non-payroll’ team at Natural HR, to help them understand what our software needs to do, to fulfil payroll requirements. This was focused not on our system, but what a tax code is, what a payslip looks like, and the various things needed for someone to receive their wage each month.
A lot of colleagues left that session saying: “I can’t believe you don’t learn that in school.” Which, when you think about it, is surprising. You look at what is paid into your bank each month, and don’t consider all the deductions – and what they’re for – beyond perhaps feeling frustrated. Likewise, employers probably don’t consider that staff aren’t aware of that, too.
So, while it’s easy to assume people ‘learn on the job’ when it comes to financial know-how, it’s worth considering putting on some ‘back to basics’ training across all forms of banking – personal and professional ‘ in order to empower your colleagues.
By Sarah Dowzell, c0-founder of Natural HR
