Financial education: Helping to break the short-term mindset
By David Penney
When it comes to planning for the future, evolution is not our friend.
As a species of hunter-gatherers that successfully combined the ability to forage for food while trying to avoid being eaten, our brains are very much hard wired to live in the moment.
Fast forward those few thousand years since we stopped living as hunter-gatherers and while society has clearly changed enormously, our brains are yet to catch up.
Indeed, if we look at the relationship we have with our smart phones – endless doomscrolling and notifications – it would seem that the need for instant gratification remains a powerful one.
Over-riding this natural urge to focus on the short term and look further into the distance is fundamental tenet of successful investing and in turn, achieving the financial security that we are all searching for.
It is a message that we espouse to our clients, who will often become disciples themselves of the value of a long-term orientation once they begin to see the tangible benefits of that approach.
Paradoxically it is a message that seems to resonate more, the older we get and yet the earlier this message is understood, the more beneficial it can be for those that hear it.
That, in a nutshell, is why financial education for everyone but especially young people, is so critical when it comes to enabling people to take control of their own financial futures and creating a more financially independent society generally.
For many years now I have been an Accredited Financial Education Specialist, sanctioned by St. James’s Place, and regularly run workshops with young people of various ages where we look a range of themes around money – a subject that remains woefully lacking on the school curriculum.
Each session is different and appropriate to the age of the group but central to each are three key themes that I believe get to the heart of achieving financial wellbeing – mindset, knowledge and good habits (although not always necessarily in that order).
Understanding some core financial principles has to be the starting point of any financial education – taxes, pensions, saving, interest rates and the power of compounding are all topics that will impact us all on our financial journey.
Developing sound financial habits is also a hugely important aspect of achieving financial wellbeing – whether that is setting budgets, avoiding consumer debt or establishing a regular saving strategy to name but a few.
But for all the benefits of understanding core financial principles and the importance of good habits, it really is that right mindset that underpins all else – and is ultimately the thing that is most difficult to create.
When it comes down to it, financial wellbeing can in many ways be seen as a choice.
What it isn’t about is how much money you have – history is littered with people who had all the money in the world and then lost it.
It also isn’t about how much you earn – more than a third earning more than £100k per year admit they couldn’t go three months if losing their job, only slightly fewer than those earning less than £15k.
Ultimately it is about establishing financial goals and then having a plan that will help you achieve them – perhaps not the core message for a group of seven-year-olds but essential messaging for my most recent session to young people who were about to head off to university or into the world of work.
We live in an era where everyone is looking for shortcuts – whether that is fitness, relationships, life generally or making money. However, a key part of having the right mindset to achieve financial wellbeing is accepting that very few people get rich quick.
The lure of social influencers and following the crowd can be intoxicating – it is the petrol that fueled history’s most spectacular bubbles.
Today it is the explosion of digital assets such as cryptocurrencies and NFTs that promise easy returns and while they will undoubtedly continue to create significant wealth for some, in all likelihood there will be very many others where the outcome will be less favourable.
It was the peerless Steve Jobs who said that “overnight success stories take a long time” and it is this mindset that lies at the heart of achieving financial wellbeing.
In the real world, it is patience that pays and with knowledge, good habits but most importantly the right mindset, everybody has the opportunity to get rich slow.
It may not be as sexy as the idea of getting rich quick but it’s eminently more achievable – we just need to change millions of years of evolutionary development, one workshop at a time.