youthmoney

Don’t yawn. Well, ok, yawn if you feel like it. But it won’t do any good. Policymakers have adopted financial capability as their phrase of the moment. It won’t last for ever. But while it is here, the quick guide will explain it.

First, the objections

Some people don’t like the term financial capability because it tends to highlight the deficiencies of people. It’s like the financial services industry creates a whole lot of confusing products, with complex rules, tariffs, ever-changing terms and conditions-a whole industry of weird and wonderful craziness and mystification. And somehow the poor consumer is at fault – is labelled financially incapable – for not being able to keep up. Thanks a lot.

The government and the Financial Services Authority, who are fond of the term, have been accused of being too focused on helping people become skilled consumers of financial products. If it were proper education, this argument goes, the focus would be to start with young people’s actual needs and interests, rather than merely training them to be more savvy consumers.

What is it?

To get a better handle on it, financial capability is usually divided into five areas:

• Making ends meet. That’s not getting into debt.
• Keeping track of finances. That’s knowing how, when and where the money came in. And likewise about where it went out.
• Planning ahead. This isn’t just about long-term saving and pensions and things. It’s being prepared to deal with non-regular spending – so called “lumpy” outgoings including presents, holidays, and big purchases.
• Choosing financial products. Shopping. Everyone’s favourite pastime. As if.
• Staying informed. This isn’t just about financial products, though that tends to be the emphasis. It is also about market conditions, say in housing, or in tax or benefit changes. Those who don’t update their knowledge can miss out.

What is relevant to young people?

All of it, potentially. Obviously, the first two – making ends meet and keeping track of finances – are the basic building blocks of financial capability. Helping young people see their value, and develop good habits or at least an awareness of where to turn when they need them, is pretty crucial.

The other areas also cover key skills and understanding that young people will need to for the modern world. Young people of this generation must consciously plan for their retirement – a task that their parents and grandparents mostly left to employers or the state. Many regard debt as a fact of life. From 2018, all 16 year olds will be able to manage their own trust funds.

It is worth remembering that young people have to survive in a much more sophisticated and demanding financial world than ever before – and with less support.

Other jargon

Of course, there are plenty of other phrases used to indicate help for young people managing their money. Financial education, financial inclusion and money management are used in policy papers. And even the FSA, which leads the UK’s National Strategy for Financial Capability, doesn’t tend to use the term in its resources for general use. Watch out for grabby titles such as money matters, moneysense, money talks and so on.