What they don’t teach you about money

This is an audio transcript of the Money Clinic podcast episode: ‘What they don’t teach you about money’

Claer Barrett
And if I said to you, you could spend like £1,000 right now on anything you wanted, what would you spend it on?

Patrick
Protein. I’d have it so that that thousand pounds pays for my gym membership.

Claer Barrett
If someone had asked me that question when I was 16, my answer then would have been very different from my answer today. I ask because anyone who listens to the podcast will know I’m always talking about the need for better financial education. In fact, I’ve just written a book about it called What They Don’t Teach You About Money. Like many people, I was taught precisely nothing in school, college or university to prepare me for the financial ups and downs of the adult world. The words “tax” and “national insurance” only entered my vocabulary at the age of 18 when I received my first payslip. I’ve made many financial mistakes, from an early brush with store cards to not starting my pension early enough. But they’re faults I’m prepared to admit, in the hope that others can learn from them. As a trustee of the FT-backed charity, the Financial Literacy and Inclusion Campaign, I think financial education is vital for us to continue learning about money throughout every stage of our lives. But it’s those early lessons that can be really crucial. That’s why I went along to an event that aimed to teach young people about personal finance.

[CLIP FROM PERSONAL FINANCE EVENT PLAYING]

Claer Barrett
Welcome to Money Clinic, the weekly podcast from the Financial Times about personal finance and investing. I’m Claer Barrett, the FT’s consumer editor.

[CLIP FROM PERSONAL FINANCE EVENT PLAYING]

Claer Barrett
So today I’ve come to the headquarters of Nationwide, the building society, in central London. They’ve invited about 100 students aged between 16 and 18 to come here today and take part in a series of talks and workshops on everything from interest rates to apprenticeships to problem debt and buy-now-pay-later schemes. Now, normally I’m the one asking all the questions, but for this episode, students at the event are going to be asking me questions too. So let’s meet some of them.

Lucinda
My name’s Lucinda. I’m 16 years old and I would love to be involved in international affairs when I’m older.

Loisse-Lhana
Hi, my name is Loisse-Lhana. I am 17 years old and I’m currently looking into forensic accounting.

Claer Barrett
I’m guessing, you must be Patrick.

Patrick
I am. Hi, I am Patrick. I am 16, and I’d like to join the Marines or if not, I’d like to go into law.

Claer Barrett
Patrick was who we heard from at the start of the show. He’s the guy who would spend £1,000 on protein supplements. Last but not least, there was Demi.

Demi
Hi, my name’s Demi. I’m 17 and I want to go into real estate.

Claer Barrett
Oh, why did you want to go into real estate?

Demi
You can earn, like, profits from the properties that you sell, and then you build up, like, different clients’ houses as well.

Claer Barrett
OK, so what were the things that you’ve learned today that stuck in your heads?

Patrick
I thought the fact that interest rates go up to 1,000 per cent was quite mind-boggling.

Claer Barrett
On a payday loan.

Patrick
Yeah. And the interest rate, that could be detrimental to some.

Claer Barrett
Yeah. Lucinda, how about you? What was the thing you most remember from today?

Lucinda
It was quite crazy to me to find other people are on their . . . like, £20 away from bankruptcy. I think that was pretty crazy.

Claer Barrett
Yeah, yeah. And I don’t know about you, but so many things in the finance world we feel a bit threatened or confused or anxious, especially with this overlay of the cost of living crisis, which I’m sure you’re going to be hearing it all the time about how people’s finances are under pressure. And do you talk much about the cost of living crisis at home or rather the effects of it? Like you can’t have a new pair of trainers this month?

Lucinda
Well, during the winter, my parents have cut down on turning on the heating, so there’s, like, really big blanket hoodies have been my saviour throughout the winter because they refuse to turn up the heating because it’s getting more expensive.

Claer Barrett
That’s great. How about you, Loisse?

Loisse-Lhana
My parents have really said the need-or-want mindset. They’ve, we really adapted to that. We do have space for leisure, but mostly just what we need. So I think that’s really important to have: that need or want mindset.

Claer Barrett
(inaudible) . . . in a horrible way, the cost of living crisis does have advantages in terms of teaching us more about money. But Patrick, have you had any kind of lessons in school that have touched on it?

Patrick
(inaudible) . . . to A Level Business and I think in school that’s the closest you get to any like financial education and even with business, it’s not teaching you how to be, like, for lack of a better word, savvy with the money. It’s teaching you how to run a business.

Claer Barrett
And if you were taught more stuff about money in school, what are the kind of things that you’d like to learn more about?

Loisse-Lhana
I think we’re always taught about how to increase profitability in a business, but I think we should learn about the financial responsibilities that comes with that, such as taxes and, like, the shock of debt, receiving a pay cheque and seeing that the fifth of it is like gone. So I think really learning about taxes and other, like, things that maybe us students aren’t so aware of that we will be aware of in the future. I think just being aware of that at a younger age, that should be, like, our starting point.

Claer Barrett
Mmm. I mean, I can remember very clearly when I was 18, I think my payslip and saying to my dad, but like all of this money has been taken out for tax, like, what’s that about? He said to me, “Welcome to the club, Claer.” (laughter) This is so awful. But how about you, Lucinda? What would you like to learn more about money at the moment?

Lucinda
I’d love to learn more about budgeting and saving because I cannot save my money to, like, to save my life, honestly. I spend very recklessly and I would love to learn different ways, like budgeting and saving.

Claer Barrett
And where do you get your money from that you’re spending? Have you got a job, or do you get pocket money?

Lucinda
Yeah. I have a part-time job and it doesn’t last me very long.

Claer Barrett
What do you do for your part-time job?

Lucinda
I work as a customer’s assistant in a bowling alley.

Claer Barrett
OK. But that’s great because you’re learning the value of money. Do you . . . when you get the money paid into your bank account from your job, does that happen, like, once a month or once a week or . . . 

Lucinda
It’s monthly.

Claer Barrett
It’s monthly, OK. So the money lesson I would give to you is called “Pay yourself first.” Have you ever heard of that before? “Pay yourself first” basically means on the day that you get paid, if you put some money at the point in which it goes into your account, straight into a savings account. So it’s locked away, rather than wait until the end of the month and think, “What if I’ve got £5 left over? Then I’ll save that.” Trust me, you’re only going to save the money if you put it aside on Day 1. And then what you’re left with is what you can spend. Now what you’ll have to decide is how much money could you afford to set aside? You still got to meet your spending needs. You don’t want to set aside 95 per cent of it and never, ever have any fun or see your friends. But sometimes having a goal to motivate you . . . so maybe if you think, “I’m going to save £50 from my wages every month because after 10 months I’ll have £500 and that will be what I need to go on holiday for a week with a friend or something like that. And then you’re buying something really big and exciting. So is my advice any good? (chuckles)

Lucinda
It is very good, yeah. I might be a bit generous with how much I’m giving myself to spend, but I will definitely start doing that next pay cheque.

Patrick
Claer, I’ve got a question for you. So from personal experience, I grew up on quite a rough council estate. From a young age, I massively learned the value of money and the problems that come in not having enough money. So as soon as I turned 15 and nine months, I’ve got a national insurance number and I was looking for a job immediately. So by three months, I just, I just . . . after I turned 16, (inaudible). So (inaudible) per hour and I work Fridays and Saturdays. I’m very good at saving. When I get my pay cheque, I’ve put 80 per cent in the junior Isa and 20 per cent I use to spend for my lunches and anything, but I never had much growing up. So I have bought myself five pairs of trainers, but that’s it, literally. That’s it. And my question to you is, with having the money saved up, how do I turn my money into more money? How do I go about that?

Claer Barrett
That’s a really good question. Now you’ve got it in the junior Isa, so that’s locked up until you’re 18 and you’re now 16. There are two different types of junior Isa. There are cash ones where you get a rate of interest, and then there are stocks-and-shares junior Isas, where you can actually put your money to work in the stock market. I’m guessing that if you opened it yourself it might be a cash Isa?

Patrick
Yeah.

Claer Barrett
OK. So I think somebody like you, Patrick, who’s really good at saving, the first rule of investing is that because it is a risky thing and you don’t know whether your money is going to go up or down in value, and both will happen, you need to get an emergency fund saved up first. But clearly you’ve got a savings habit so you can put money aside into an emergency fund. You can also control your spending. So I think that for you, investing would be a great discipline to have. You could do it within your junior Isa. When you get to the age of 18, you can open an account called a lifetime Isa, which is a special savings and investment product for the under-40s. And while there are risks that you’re taking, if you have got a long-term view with your investments, then in the long term, the stock market nearly always will recover. And because of the income that you’re getting in from your investments, you get the effect of what’s called compound interest. Has anyone heard about compound interest in, like, maths lessons? So if you’re reinvesting the money that your investments are drawing off, it’s like a snowball at the top of a mountain. So you start a little snowball running and it’s picking up more flakes of snow as it goes down. But also in the world of work, you can invest through a workplace pension. A lot of people hear the word “pension” and think, “Oh, old people.” But it’s actually, as I say in the book, free money. If you pay money into a pension, your employer will also match or even better the money that you’re paying in. Plus, talking about tax earlier, you also get tax relief. Now, Loisse, have you got a question that you want to ask me about money?

Loisse-Lhana
I think pensions, when you first hear it, it’s very, like, just underwhelming or just it puts you off. But now that the way that you’ve put pensions, I think it’s really just more helpful to me and how I could, like, see my future.

Claer Barrett
I came up with an idea that if they renamed pensions, you know, like your freedom fund or your future fund, it’s just like a more positive way of thinking about it, because we do need to be thinking of the future even when we are really young. Another fact that might surprise you, if you start paying into pensions and investments when you are really young, because of that compounding effect, you’ll be so much better off than somebody like me who, like, I was 30 before I started to save into a pension. So I missed out on ten years of contributions. And it’s those early contributions that are the most valuable because they’ve got the longest amount of time to grow. So that’s a big reason for me (chuckles) to write this book to say, “Hello. Nobody told you about this in school or in the workplace. You have to find out yourself the hard way.” And I would like lots of people to find out about it the easy way. Demi, would you like to ask me a question about anything? Could be cost of living. Could be property.

Demi
Actually, I’ve got a different question. So when you have money, how do you make more? Well, it’s a bit of a broad question.

Claer Barrett
Well, we’ve covered investing, which is one way of getting a better return on your money over the long term. But then there’s also cash savings, interest rates are going up. You could even get 7 per cent interest, which is the highest it’s been since the financial crisis. So around the time that you guys were born. So interest rates coming back on cash savings, that’s a fantastic incentive. Believe me. It helps. They call it the marshmallow test. I could put one marshmallow in front of all of you now and say, “You can either eat that now or wait, and in 10 minutes, you get another one.” They do this test on, like, primary school age children, and they say that the children who defer the pleasure of eating the marshmallow and get to are more likely to be good with money when they grow up. Now, I think as a child, I probably would have scoffed, (laughter) but like you are all coming up to the point where you’re gonna leave school and fully enter the real world. That could be uni or it could be college or it could be going into work. How prepared do you feel for entering this world of finance? And is it something that excites you maybe, or something that scares you?

Loisse-Lhana
I think it’s a really daunting concept because from one side it reminds you that maybe you’re going to be more independent, but at the same time it’s also exciting. I can earn my own money. I don’t have to rely on my parents. My parents don’t have to be as responsible for me as they are right now. So I think it’s two sides. I don’t know which route I’m taking. I do think it’s daunting and exciting at the same time.

Claer Barrett
How about you, Lucinda?

Lucinda
Oh, I’m absolutely terrified, but I don’t think I’m completely unprepared.

Claer Barrett
No.

Lucinda
Because my parents from, like a young age, have made me pay for everything. I had a debit card once I turned 11,  11, I think? And from then on, I’ve had to be responsible of my own purchases. I think I’m OK. In the future, I think I might take a student loan or obviously the saving that I’m going to start doing right after this interview. (chuckles)

Claer Barrett
Excellent.

Lucinda
I’m terrified. But I don’t think I’m completely unprepared for the future.

Claer Barrett
No, I think you’re better than you give yourself credit for. You know, it’s just the fact that you sort of know yourself and can see that you could maybe develop a better habit with money. That’s kind of like stage one. That’s fine. How about you, Patrick? I mean, you’re already working, you’re earning money. How do you think that will change when you’re working full time or doing uni or doing the Marines?

Patrick
I don’t think it would change. I’m very regimented with how I am. It came from my dad. He’s a 70-year-old Irish man. He has very traditional views. And similar to a lot in his family, my dad always preaches that there are needs and wants in this world and you buy what you need. You don’t necessarily buy what you want. Obviously, I’m 16. You could say immature. I’ve probably wasted some money on trainers, but at the end of the day I feel like I will save 80 per cent of my pay cheque. And as long as I minimalize my expenditure and I can save as much money as possible, I think I’ll be all right.

Claer Barrett
And how about you, Demi, how prepared do you feel for the adult world of finance and has today helped with any of that?

Demi
Yeah, today’s definitely helped. I’m scared but, like, not scared at the same time because it’s a process that we all have to, like, face at some point in our life. And everyone . . . not everyone, but most people seem to manage it.

Claer Barrett
And if I said to you, Lucinda, if you had, if I gave you £1,000 and you could spend it on anything you wanted, what’s top of your list?

Lucinda
I mean, this may come as a surprise, but with that large amount of money, I wouldn’t spend it. I would like to keep it and just put it in my bank, and let it just sit there. Because it’s such a large amount of money, I wouldn’t even know the first thing to spend it on. So I think I would just let it sit there in my bank account and then waste it over the months.

Claer Barrett
(Laughter) Very good. And how about you, Loisse?

Loisse-Lhana
I’m pretty content with my situation financially right now. So when I do, like, buy things that I want, I do feel guilty that it’s coming from my parents. So I’d say a part of that money I would give to my parents to say, “Thank you. Here you go.”

Claer Barrett
Aww.

Loisse-Lhana
Also, if I really did want something, it would probably be something along the lines of musical instruments.

Claer Barrett
What kind of musical instrument?

Loisse-Lhana
Probably a new guitar. Maybe electric guitar.

Claer Barrett
Excellent, yeah. And Demi, if I gave you £1,000, you could spend it in any way you wanted to, what’s on your list?

Demi
Yeah. Mine would be repaying back my parents for everything they’ve done for me.

Claer Barrett
You guys are all so nice. (laughter)

Demi
And then also probably towards my car insurance because I wanna start driving soon.

Claer Barrett
Oh, and have you paid for your driving lessons yet?

Demi
Yeah, I’ve only had three so far, so I’m really determined to do that.

Claer Barrett
Well, thank you so much for talking to me about money.

Guests in unison
Thank you so much.

Loisse-Lhana
Thank you so much for enlightening us, actually. I think . . . I just think keep doing what you’re doing and keep enlightening the younger generation with whatever knowledge that you have on the Financial Times. Thank you.

Claer Barrett
Thank you so much again.

Demi
Thank you, really appreciate it.

Claer Barrett
Thank you to Loisse-Lhana, Lucinda, Demi and, of course, Patrick for chatting to me on today’s episode and to their schools for letting them take part. My book What They Don’t Teach You About Money: Seven Habits to Unlock Financial Independence will be released by Penguin Books on Thursday, 16th of March. And guess what? I also recorded the audiobook version myself, which took a lot longer than recording this podcast. Plus, I’ll be taking part in a free online FT event, discussing the themes of the book and taking your questions on Friday, 21st of April. You can register for your free place by going to ft.com/moneyevent, and that link is also in today’s show notes.

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That’s it for Money Clinic with me, Claer Barrett, this week and we hope you like what you’ve heard. If you did, spread the word and leave us a review. We’re always looking to chat with people about their money issues on the show. So if you’re interested in being part of a future episode and are looking for some expert money advice, then just email us: money@ft.com. You could also take a peek at our website ft.com/money, grab a copy of the FT Weekend newspaper or follow me on Instagram. I’m @ClaerB. Money Clinic was produced in London by Persis Love. Our sound engineer is Breen Turner and our editor is Manuela Saragosa. You heard original tunes this week by Metaphor Music. And finally, our usual disclaimer: the Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that you’ll need to find an independent financial adviser. That’s all the small print for now. See you back here next week. Goodbye.