The Role of Financial Education in an Uncertain Economy

It does not take a financial expert to know that we are living in difficult times, economically speaking. The UK has been buffeted by crisis after crisis, from the global to the local; coronavirus impacted businesses heavily, and the ensuing cost-of-living crisis – caused by a combination of geopolitical tensions and the UK’s exit from the European Union – saw inflation spike at hitherto unanticipated levels. Even today we live in the shadow of that crisis, with high grocery bills and higher energy bills.

All this, against stagnated wages nationally, make living considerably more expensive for the average household. And, though the economy has stabilised in recent months and years, the fact of high household costs has not disappeared. In such an environment, we need to pull every lever possible to grow savings and achieve financial security. Here, we will make the argument for financial education – and, as it were, financial self-education – in an unforgiving financial landscape that demands more from you. 

1) Building Blocks: Money, Saving and Investing

For the less financially-literate amongst us, it can be difficult to conceive of using one’s own money to derive more money. Saving and investing can feel like rarefied activities, that require intimate knowledge beyond the basics of budgeting and careful saving. But they are not the reserve of the already-wealthy; indeed, they can be used by anyone to create wealth.

Here, it’s important to start defining objectives. The first should be a short-term objective to save enough for an emergency fund – the kind that can keep a household afloat for at least six months in the event of a redundancy or costly emergency. The next should be a long-term goal, whether it is a pre-set amount of money saved, or an aspiration: enough to retire; enough to buy a home. The shape of your goals will define where you need to start, and how you need to think about things like risk.

2) Core Investment Concepts

Growing your money can be done, in small part, by sticking it in cash ISAs and high-yield savings accounts. But these are not inflation-beating methods of passive income accrual. You need to get active with your money – which means investing. There are various investment and trading courses online from which you can benefit, but the core concepts are a good enough starting point.

For one, investing is not necessarily the same as day-trading – the high-octane, blockbuster-friendly purchase and sale of assets to make marginal gains in short term. Investing, in a broader sense, is allowing an owned asset or stock to accrue value over time; the long game is a key strategy. Likewise, investment isn’t about going ‘all-in’ on an individual business’ stocks, or an individual asset. Diversification is the spreading of risk across numerous stocks and assets, so that the failure of one does not materially impact the bigger picture.

3) Behavioural Pitfalls to Avoid

With this in mind, addressing your behaviour is a key initial process for getting involved in investing. There are common biases that derail new investors of all stripes – recency bias, FOMO, loss aversion chief amongst them. This is why ‘meme stocks’ are the worst introduction to trading as wealth accrual; they exhibit the worst instincts of domestic traders. If you can keep your emotions from dictating decisions, you’ll be on the right track to learn to invest the right way..