The combination of improving life expectancy, the demise of the final salary pension scheme and low interest rates means that today’s workers and the generations to come will have to work much harder than before to pay for their retirement. In a nutshell, people need to save more money for that retirement and those savings will have to last longer.This is a challenge that none of us can ignore, yet millions of us do. It would be all too easy for us, as a pension provider, to be seen as discussing this problem for our own commercial gain or to be portrayed as having a vested interest in raising the issue. However, our own direct interest pales into insignificance beside the much larger – and thornier - issue of financial literacy as a whole. It comes in the context of a society in which, all around us, debt is spiralling while savings are falling.One of the main reasons people give for not planning for their retirement is that it appears to be all just too complicated. It need not be, of course, but human nature is an important consideration: if you give a potential customer a choice of three similar financial products, whether that be pensions, mortgages or credit cards, they will probably choose one. In contrast, give them a choice of a hundred options and their eyes will glaze over. Another key driver of that apathy or confusion in any environment can be a lack of education.Nobody will argue against the need for, or the benefits of, financial education. Greater financial education leads to higher levels of financial literacy which, in turn, prepares people for important challenges in their lives and enables them to improve their life chances.Of course, this isn’t an issue to which politicians and policymakers have turned a blind eye. Quite rightly, it falls into the Government’s remit: informed consumers make good consumers and better consumers make a healthier economy, quite apart from the wider benefits to the quality of life of both individuals and society as a whole.Tomorrow’s consumers (and pensioners) are today’s young people. Financial education was introduced, with some fanfare, into the National Curriculum in 2014. Naturally, that was widely seen as a good thing although, in practice, anecdotal evidence suggests that its integration into the classroom environment has hardly been plain sailing. Teething problems include a lack of resources, the imbalance of a finite school day with a crowded curriculum with a variety of conflicting pressures and a lack of both time and budget for training.Additionally, financial education sits uneasily and contentiously across Maths and the broad churches of Citizenship and PHSE (Personal, Social and Health Education). It is too easy to take a maths problem about compound interest, stick a pound sign in front of it and expect that to tick the financial education box. Rather, Maths is usually about binary ‘right or wrong’ answers whereas children need to learn not only how compound interest works but also how to differentiate, in a decision-making process, between the merits, features and benefits – as well as just the check-out price – of, for example, two different-sized packages of washing powder on the supermarket shelf.The crux of the issue with financial education in schools is the question of what we want those schools to be. As well as right and wrong answers which can be measured in an exam, parents want their children to leave school equipped with tools for life outside the examination hall. In an ideal world, all children would do so as well-rounded individuals, educated to have the power of original thought and the abilities to compare things, to make up their own minds, to face uncertainty and make informed and considered decisions. In that context, financial education is about learning vocational skills, having the confidence and understanding of how to make individual decisions in life, rather than akin to the mental gymnastics of learning a Latin declension or working out the surface area of a cone. Naturally these are things which can’t be measured by exam certificates or a position on a schools’ league table, but they are the things with which financial literacy sits.Perhaps the main problem with financial education comes from its very name. The word ‘education’ is a poor label, since it rather implies that it is something which should be limited to schools. Of course, that is not the case. It is something which ideally should come from parents at home as much as within the hours a child spends at school and is something that is as much practical as it is theoretical: for many school leavers the next step is university, which invariably means tuition fees, a student loan, interest and debt. And, just as financial literacy shouldn’t begin at the classroom door, it shouldn’t end there either. A good employer might offer a subsidised gym membership, a season ticket loan or a subsidised staff canteen. Is it too much to think that, in the future, employers might also offer staff ongoing financial literacy training and support and, possibly, provide a tax break or other incentive for doing so? One day, might financial education be something employers have a legal obligation to provide in the workplace on an ongoing basis, rather like Health and Safety training?By definition, an essay like this can only scratch the surface of what is a huge issue. It is entirely understandable that for working families these are not easy times and paying the rent and feeding children are more pressing and immediate concerns than long-term planning for something like a retirement that is years away. However, that is not to justify ignoring the problem and doesn’t magically make it disappear. What is clear, though, is that digital has a role to play: the secret to financial literacy of tomorrow’s adults is making maths and personal finance more relevant, more fun and more accessible on an ongoing basis, and that is something which digital technology can – and should – take the lead in supporting.
Smart is a global savings and investments technology platform provider. Co-founded in 2014 by Andrew Evans, Group CEO, and Will Wynne, Group MD, it is one of the UK's largest providers of workplace pensions. Its award-winning master trust, Smart Pension, is overseen by independent professional trustees.
In 2020 Smart Pension was named Master Trust Offering of the Year at the Pension Age Awards. Other awards include DC Master Trust of the Year, DC Innovation of the Year and Retirement Innovation of the Year in the 2019 UK Pensions Awards. Smart Pension was also named European Pension Fund of the Year 2019 in the European Pension Awards.
Legal & General Investment Management (LGIM), J.P. Morgan, Link Group, Natixis Investment Managers, Barclays, Chrysalis Investments and DWS Group are all investors in Smart.
We tweet as @SmartPensionUK.
Contact the Smart press office on 020 8016 2553 or email [email protected]