Financial storms are gathering on the horizon in the realm of personal finance. Financial literacy initiatives are gaining traction worldwide, but a crucial question emerges: are we truly preparing individuals to weather the complexities of their financial futures?
The rise of financial literacy initiatives across the globe is encouraging. Calls for its inclusion in school curriculums are growing louder, and while many of us feel it’s overdue, (some) progress is being made.
In addition, particularly in the UK (though similar situations exist elsewhere), the engaging interfaces and technology offered by neobanks (e.g. Monzo, Starling Bank) and fintech startups (e.g. Revolut, Emma) invite us to think about our finances in a much more engaging way.
These are all positive trends.
However, we risk making it feel too easy and simple which may create a false sense of security, leaving individuals ill-equipped for complex financial decisions.
Our financial future: a sea change
Our financial future will be vastly different from our past. We’ll have access to a wider range of tools for managing and learning about money, along with new avenues for saving and wealth creation. However, a “perfect storm” of factors creates a context for financial decision-making far removed from that of our grandparents.
Take again the UK for instance. Compared to our grandparents’ generation, the financial landscape has become considerably more intricate. Here’s mostly why:
- Increased Longevity: Life expectancy has risen dramatically across the board.
- Pension Transformation: Pensions are no longer guaranteed set amounts (defined benefit plans, where employers contribute a percentage of your final salary). Today, most pensions are defined contribution schemes, where employers contribute but individuals bear the investment risk by choosing how to invest the funds.
The Need for Holistic Guidance
The factors mentioned above, coupled with others, highlight the potential need for more comprehensive financial support. While the constant stream of financial technology innovations offers a wider range of tools and options, it’s crucial for these platforms to clearly communicate their limitations. Users should be informed of situations where seeking professional financial advice becomes essential.
Financial literacy initiatives, financial coaching, and professional financial advice can all work together to effectively complement these financial technologies.
Furthermore, it’s important to empower individuals to explore and experiment with these tools to find the ones that best suit their needs.