Ifind it very difficult to understand financial products and am keen to educate myself further. What practical steps can I take to increase my financial knowledge?
Please do not feel alone on this. Most people lack the necessary tools to cope with their financial affairs unless they work in the industry or have a keen interest in finance. The financial services industry in the UK has been dogged by several scandals in recent years which have been due in part to the lack of financial knowledge of the population as a whole.
This lack of awareness provides problems for financial services firms which often lead to a lack of confidence in the purchases made and customer dissatisfaction. The industry and FSA are trying to address this but a large chunk of the population has very limited financial skills. So what resources are there to help?
First, your financial adviser. There is no doubt that part of an adviser’s job is to educate their clients and give them a comfortable working knowledge of any products or solutions they recommend. Some of these will be highly specialist and technical but it is an adviser’s job to help you cut through any jargon so that you can consider at least some of the technical aspects. Time and experience are often the best way to gain knowledge due to the intangible nature of the investments or insurance products you will be buying.
If you do not have an adviser, the FSA website is a good place to start for some basic financial instruction. It has a dedicated consumer website at www.money madeclear.fsa.gov.uk/ which has some basic factsheets, calculators and comparison tools. Its financial healthcheck is a bit like a magazine quiz and takes very little time to complete. Once you have tried a few of the other exercises such as the expenses calculator and goal setting tool, you will begin to understand the importance of having a good (hopefully independent) adviser working on your behalf.
Technology can help you with the hard facts but a good adviser will really help you to get to grips with how a financial plan fits in with your personal circumstances.
If you are looking for more in-depth information on choosing shares or running your own portfolio, then www.thisismoney.co.uk/ investing.guides is a much better place to go. You can really delve deep here, looking not just at basic investment instruction and portfolio construction but also more complex products such as venture capital trusts, warrants, options and even spread betting. Even I picked up a few pointers for my own investments here.
In addition to the internet, there are the newspapers and any number of books written on the subject. The For Dummies range has a book on finance as well as another showing you how to be a “financial goddess” (sorry if you are a bloke).
Browsing through Amazon, I was presented with a book called The Money Tree written by Martin Bamford which has been given rave reviews. What makes this book extra special is that it is written by a practising IFA who has been able to translate his working knowledge into truly practical advice in plain and simple language.
With all these resources, you still need to put in a great deal of effort to educate yourself in finance. You can become proficient and use this knowledge to transact your finances independently or use it as a way of having meaningful conversations with your adviser. Should you decide to go it alone and not make a success of things, you have no one to blame but yourself.
On the other hand, using an adviser not only allows you to tap into their knowledge but gives you a great deal of protection if things should go wrong which is, of course, a completely different subject.
Lisanne Mealing is a director at MDM Associates