When was the last time you used a Bunsen burner? Or worked out the angles in a triangle? You learn a lot in school – but not all of it sticks. As we get older, we’ve realised some pretty important lessons were missed off the curriculum, particularly when it comes to money. So, here are five financial lessons we wish we were taught in school.
1. Investing – and the impact of starting young
Investing is one of the best ways to grow your money – especially if you start young. It takes time and patience to see the benefit, so it’s something that works best for any long-term goals you might have.
That’s because the longer you leave your money invested, the more chance it has to grow. Starting young also gives you enough time to ride out the inevitable market ups and downs.
If you’re new to investing, a Stocks & Shares ISA is an easy way to get started. There are lots of options out there, so be sure to shop around for the one that suits you. And keep in mind investments can go down as well as up and can be worth less than was paid in.
2. Managing debt: the basics
Debt can impact anyone – but it can be easily racked up when you’re young and become old enough to get a credit card or an overdraft for the first time. You can quite easily be lured in by initially low or zero percent interest rate offers. Especially when you’re a student or on an entry-level salary in your career, it can become an easy crutch to help you get by.
But often debt can escalate. Once you start, it can be hard to stop relying on it. And once those initial offers end, the amount of interest you need to pay can shoot up. If you struggle to get it under control, you could find yourself only able to pay off the interest charges each month, rather than chipping away at paying back the money you borrowed.
So, try to keep your debt minimal if you can. And always have a plan for how and when you’ll pay back any loans or debt.
If you’re finding debt hard to manage just now, there are places you can turn to for help. Try Citizens Advice or National Debtline for free advice.
3. What a credit score is and how to improve it
Your credit score tells lenders how responsible you are with money. It can affect your ability to borrow money and get access to things like credit cards, loans, phone contracts and a mortgage.
Ideally you want to build up a good credit score over time, rather than only trying to improve it when you need it to be good. However, if you find it needs a bit of TLC, there are some steps you can take to improve it. Here’s an example of a few:
- Register to vote
- Make sure your address is correct
- Pay your bills on time
- If you’ve already got a credit card or loan, show lenders you’re responsible by paying back what you’re due each month in full
- Check for any mistakes on your credit report
You can check your credit score for free using websites like ClearScore.
4. The ins and outs of buying a house
Every first-time buyer would probably agree that there’s a lot more involved with buying a house than they first thought. It’s not just saving for a deposit and putting an offer in.
We’re talking legal fees, taxes, mortgage adviser and solicitor appointments and generally a lot more time and money spent that you’d think. It’s worth getting to grips with how this all works before you start the process. That way, you can get a better idea of how much you’ll actually need to save.
Money Helper have a pretty in-depth first-time buyer guide if you want to get into the detail.
5. Why it’s important to start paying into your pension now
Retirement probably isn’t at the forefront of your mind when you’re young. But, like investing, starting young could make a huge difference when you’re older. Even starting to pay into your pension at 22 instead of 27 could give you an extra £114,000 in retirement*.
This is partly because your pension savings are invested, so it gives them the same opportunity to grow that we talked about earlier. But your pension also comes with a bunch of benefits that make it easy to get a lot out of a little. And over time, that can really add up.
First, your employer needs to pay into your pension too. They’ll need to pay in at least 3% of your qualifying earnings, but sometimes they’ll offer to pay in more or match your payments up to a certain percentage as an employee benefit.
Next, you’ll benefit from tax relief on your pension payments. If you’re a basic-rate taxpayer, it only costs you £80 to pay £100 into your pension plan. And it’ll cost you even less if you’re a higher or additional-rate taxpayer.
Feeling inspired? If you’ve got a Standard Life pension plan, you can top up your regular payments or make a single payment easily online.
*if beginning working with a salary of £25,000 per year and paying 5% employee and 3% employer monthly contributions into a workplace pension at the age of 22 and assuming 3.5% salary growth per year, a 1% annual investment cost and 5% investment growth per year. No Earnings Limits.
The information here is based on our understanding in February 2024 and shouldn’t be taken as financial advice.
A pension is an investment and its value can go down as well as up and may be worth less than was paid in.