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Children of the financial revolution

With people having to face financial realities at an increasingly younger age, it is vital for the industry to help them graduate with honours from the school of life, says ifs head of faculty financial regulation

Organising personal finances can be complicated. It involves a degree of long-term planning and requires us to imagine our needs in future years. Not surprisingly, financial planning is not a priority for the under-40s. Given that they normally have less disposable income, the task begins to seem impossible.

Listening to reaction to the Turner report, it has been interesting to hear how younger people respond to the possibility of working longer and saving more. Some still have a devil-may-care attitude, believing that things will simply work out. But what has been encouraging is the increasing number of youngsters expressing a greater interest in managing their finances.

There have been many factors driving this change in attitude in recent years. Increasing house prices in particular have forced younger people to face up to the realities of the financial world. For students, there have been changes to the way that fees are paid and support is given to those in further education. With pensions also in the news, it seems that the message is finally getting through.

No longer are the younger generations cocooned away from financial worries. Easy access to credit has seen many take on debt and, indeed, bankruptcy at an age that would have been unthinkable in years gone by. This has forced lenders and politicians to push the issue of financial management up the priority list and examine how we can ensure that young people give themselves the best opportunity to enjoy what they have and save for the future.

Speaking at one of the Council of Mortgage Lenders’ master classes in March, FSA director of retail themes Vernon Everitt highlighted the problems faced by the younger section of society. He said: “The under-40s live in a considerably more demanding environment than their parents and are generally less capable than their elders. Ability to manage money grows with age and experience but changes in economic and social trends mean that those in the 18 to 40 age range face an immediately more challenging society.

“For example, the costs of higher education and of retirement are increasingly being borne by individuals rather than the state or employers. This means the price tag of not having the necessary skills to make sound financial decisions is becoming increasingly significant. There is therefore an urgent need to help the young become more financially capable and we need to use new and innovative ways to reach and engage them.”

Examining bodies have realised this and some offer a certificates in financial services for young adults between 14 and 19.

The Government has also realised the importance of giving children a good grounding in financial education and, from 2008, financial management will take on a prominent role in the National Curriculum.

As an industry, it is important that providers and advisers begin to put out their own feelers into the community and start to build an understanding of what financial services can offer and why managing our finances is so important.

As a country, we have nothing to gain if our citizens are unable to manage their financial affairs properly. It has huge implications for the economy, the housing market and paying for long-term care in retirement.

Providers and advisers need to work with schools and colleges to provide presentations and seminars that will help pupils in the decisions they are facing. How can school leavers finance university? How should school leavers going into employment save for a house? Should they immediately consider even the smallest of pensions?

Unless these thoughts are brought to the fore by the industry, teenagers and those in their early 20s are unlikely to give them the prominence they need. They have other things to concern themselves with.

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