Financial Planner, Emma Sands, reflects on some financial tips and tools she wished she’d known when she first started getting a monthly salary.

Money has made the world go round since the Mesopotamian era, and yet financial education has only been a part of the UK curriculum since 2014.   

The 2021 National Student Money Survey found that 74% of students wish they’d had a better financial education 1. Interestingly, 76% worry about making ends meet, which suggests that a better education would increase confidence and sense of security.  

When I was asked to write this piece, I thought about my own experience of preparing for university.  Effectively, I was sold a lifelong loan, with no key features document or suitability report. I’m still paying it 11 years on, and the interest keeps racking up.   

Interest and compounding are something I’d liked to have learned at school.  Let’s say you take out a loan of £10,000, with an interest rate of 3.75%, added at the end of the year.  At the end of the first year, the debt is £10,375; pretty simple. Roll forward five years though, and the debt is now £12,021.  This is because interest is added to the loan and that new amount is used when the next year’s interest is worked out.  Compound interest can easily cause debts to become out of control. 

Conversely, compound interest has a powerful effect on savings. 

In my first job after graduating, I was offered a company pension, but money would be taken from my pay. When you’re 22 you think in terms of cocktails: miss out on mojitos? I think not! 

If I’d started my pension at 22, by investing £100 per month (and the fund growing at 3% p.a.), it could be worth £105,340 at age 65. If I started at age 44 but invested £200 per month to catch up, I’d only have £79,558. I would have invested the same amount of money over time, but due to compound interest, the pension is worth more when started at age 22. This ignores the free money I would also have got from tax relief and employer contributions.  

From a position of needing to play catch up, it’s tempting to consider assets like cryptocurrencies, or NFTs (non-fungible tokens). Social media has been awash with stories of huge returns for investors.   

Unfortunately, the relationship between risk and reward is overlooked. If you’re offered a return much higher than the rest of the market, that investment is more likely to fail. There are no exceptions to this rule, despite what the media says.  

Another consideration is that of regulation. Cryptoassets are not regulated by the FCA 2 and are not members of the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS). If something goes wrong, you’re unlikely to have access to these services.  

CBW is regulated by the FCA, and we only recommend regulated investment providers.

What next?

If you feel it’s time to become more confident with money, please contact Emma Sands or get in touch here. 

1 https://www.savethestudent.org/money/surveys/student-money-survey-2021-results.html

2 Since 2020, UK-based cryptocurrency firms must be registered with the FCA for anti-money laundering and counter-terrorism purposes.  However, they are not regulated.