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Can fintech succeed where schools and parents have failed?

Young people in Britain are unprepared to manage their finances when they leave home and, as a result, many run into serious problems

Two-thirds of British people struggle to make good decisions when it comes to their finances and most claim that the education system has let them down.

Half of Brits even think it should be the banks’ responsibility to help, but traditional banks are ill-equipped to do so.

Digital challenger bank Pepper, set up by Israel’s Leumi Bank, has issued a report following research into the financial education – or lack of it – that Brits receive.

According to the research, 67% of Brits do not feel well-equipped to make the best financial decisions for themselves and, as a result, 68% admit to not being vigilant with their finances.

They are turning to banks for help, with 47% saying it is the bank’s responsibility to help them manage their money better – although 25% of the Brits questioned believe they have been misled by banks in the past.

There were no figures showing the importance of people’s relatives in providing financial education, but 93% of the British people questioned said their school, college or university did not properly prepare them to manage their finances.

Tom Berry, business teacher at Sutton Grammar School, said that, in general, young people are not well qualified to manage their finances when they leave home.

Berry, who also owns a public relations business in London, said schools are good at preparing pupils to pass exams, but not at equipping young people with the skills they need to make the next step in their lives. “Schools can get people ready to go to university and help them fill out the forms, but we can’t help them balance their budget or understand the difference between income and costs and understand the implications of not paying their rent,” he said.

Berry said there is a mandate to provide some education around financial literacy, but it is not a core subject and is rarely delivered by a specialist. Schools could benefit from teachers giving students real-world examples of financial management, he added. “You can put terms up in a PowerPoint like interest rates, inflation and credit, but unless you make it real, pupils won’t learn.”

Financial technology (fintech) service providers could be part of the solution, said Berry. “Most children I teach have a card of some sort, but they don’t really understand how it works,” he said. “They might understand better if they had things like running balances, where they can see costs going out and income coming in and they can start to equate the two. 

“They carry their lives around on a smartphone, so there is an argument for them carrying their finances around with them, too.” 

Berry said it is worrying that so many people think it is the banks’ responsibility to help people manage their money. “This is nonsense,” he said. “Of course the banks have a responsibility, but people have to take control of their money as it is a key life skill.”

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Information is key and some of the services being offered by fintechs seem to be hitting the spot. Some 47% of the people questioned by Pepper said they value a service that shows them a breakdown of how they spend their money, and 53% would like a service that shows them how to manage their finances better. 

This is where fintechs have a real advantage over the traditional banks – so what will it take to get those current account switching figures up?

Pepper’s research report said: “The research results are clear – adults want access to a similar service that we offer to six to 18-year-olds. Good money management is a vital life skill that, like most life skills, is best taught when young. We have a unique opportunity to use tech for good and teach the skills that can help the next generation of adults avoid the stress that comes with a lack of financial education.”

Money management tools were the first fintech apps that saw significant take-up, even before the emergence of digital challenger banks. The arrival of open banking regulation has also sparked investment in fintech tools to help people access and manage their finances across multiple suppliers.

Challenger banks are offering customers a similar services as part of their accounts. Ricky Knox, CEO at Tandem Bank, told Computer weekly in an interview last year that his and his co-founders’ vision was to build a good bank. “Money is difficult to deal with and most people mess it up and banks make it more difficult,” he said.

“We make tools that actually allow people to make all these complex decisions and help them do what they want to do without any of the gobbledygook that the banks spout.”

Knox gave an example of how banks are not designed for customers, which is a major failing when there is so much choice today. “Think about it, why do you have a current account and a savings account?” he said. “Obviously, this is because banks don’t want to pay interest on a current account. Why not? If they did, you wouldn’t need a savings account.”

He added: “People should get interest on everything they have got.”

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