Emma Wall: Hello and welcome to the Morningstar series, 'Ask the Expert.' I'm Emma Wall and here with me today is Freddie Ewer, Co-Founder of RedSTART.
Hello Freddie.
Freddie Ewer: Thank you very much for having me.
Wall: Good to see you. So, RedSTART is about financial education. What are the biggest problems we're facing in financial education at the moment?
Ewer: Well, at the moment we see a big challenge because you're seeing a big shift in responsibilities. You are seeing a shift in responsibility from the government and corporates on to the shoulders of individuals and this is particularly the young people. You see this in pensions with the shift from defined benefit to defined contribution; you see this in healthcare; you see it in tuition fees as well. Tuition fees are something that young people are going to have to deal with at a very young age. And we feel at RedSTART that if you don't have the financial education to go along the side that shift in responsibility, there is a real risk that we head towards a socioeconomic crisis where people can't manage their debt, people can't manage their personal finances.
Wall: This is almost something that has been lost over the generations, everybody talks about the ‘good old days’, but I think financial responsibility back then was something that was innate, that was perhaps taught to you at a young age in the past.
Then we became a bit of a nanny state and we've lost the ability to take control, to take responsibility. I mean, that's not just something that applies to children though, is it? It's a nationwide problem, with the pension changes and even with rumors that auto-enrolment is going to be prelude to having a state pension removed entirely. Those sorts of things affect all ages, don't they?
Ewer: They do, they do absolutely and financial literacy or a lack thereof is not just a problem for young people, it's a problem across the ages and people need to have the guidance that they need in order to make the correct decisions. So, if you take away the nanny state as you put it and you have to make sure that there is some help and some support to support that transition. Otherwise, you'll find people in real trouble as they go through the stages of their personal financial journey.
Wall: One of the things that the Government is doing is auto-enrollment. That's making sure that every employer does provide a pension for every employee. Other than that what can we be doing as individuals to make sure that we're not cut short or stopped short?
Ewer: Stopped short of?
Wall: Financially when we get there, to pensionable age, as well as auto-enrolment, what can we do as individuals?
Ewer: Yeah, I mean, the key thing is planning. The key thing is to have a personal financial plan and to really think forward and to think about what you're going to be doing in the future. So, to give you an example of the kind of lack of knowledge that we observe when we do our teaching; 16, 17, 18-year-olds don't know the difference between a credit and a debit card and they don't know that a high rate of APR on a credit card is a bad thing. They think it's a good thing.
So, if people don't have that basic knowledge, it becomes very difficult for them to plan their financial future. But I think it's really empowering individuals to think forward and think about how am I going to pay back my student loan, how am I going to save up for a car, how am I going to save up for a house, so they can actually understand that process.
Wall: Should this not be the Government's responsibility? I know you're a private organisation. Is there some argument that says actually this should be in the curriculum more than it already is?
Ewer: Yeah, I think there is this strong argument there. I am sure as you will already know, the financial education did enter the curriculum in September. So, it now sits within citizenship and within maths.
But our concern and the concern of other organisations that we work with is that unless these subject areas are really focused on and tested, teachers aren't incentivized to focus on them in the way that should. And then another problem that we found is that the teachers that come along to our education days don't have a huge amount of financial knowledge themselves. So, they will say, we feel like we're learning today and if they are in a position where they don't have that knowledge, it's very difficult for them to pass that on to the young people that they are teaching.
Wall: What about parents? What can parents be doing? So, our readership generally is of an age where they have teenage and young adult children. What can they be doing to help make sure that that generation is well equipped?
Ewer: Yeah, I think the role that parents have is really key and certainly prior to 2007-2008 we saw the development of a real culture of debt-driven consumption and immediate gratification. So, if I want something, I want it now. I'll put it on the credit card, I worry about it later.
What we really need to see is from a very young age, young children being taught the value of savings. So, if you want something, you have to save up for it. You're not just going to get it immediately.
So, I think you can instill that attitude and that culture within young people at a very young age that sets them on the right path. I think that's very important.
Wall: What about talking about pensions, because you've mentioned there immediate gratification and sort of short-term-ish attitude to money? Talking to people even under the age of 35 about the concept of something they are not going to feel the benefit of for at least another 20 years is a challenge.
Ewer: Yeah, it really is a challenge, but it's a challenge that needs to be addressed because we all know the value of contributing earlier. If you contribute to your pension earlier, it has time compound up and the contributions you make at the beginning of your savings path are very, very important.
And kind of to address your point, the key challenge there is to try and make this stuff interesting, finance, personal finance, pensions can be really dry and if you deliver it in a dry boring way then young people just won't pick it up.
So, what we try and do is design a syllabus that's really student-led, really interactive to make sure that it's enjoyable for the young people and they leave having enjoyed discussing it and learning about it because if you fail to do that then you fail to teach anything and the long-term impact is minimal if at all.
Wall: And the long-term impact if you do get it right, of course, is exponential?
Ewer: Yeah, exactly. I mean, it's really critical not only at an individual level but for the economy as a whole that we have a shift away from this debt-driven consumption to prudent saving. It needs to happen. We can see what happens if debt mounts and becomes insurmountable you can see that at a national level, you can see it at a personal level. So, I think it's really important.
Wall: Freddie, thank you very much.
Ewer: Thank you very much for having me.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
