The importance of equipping young people with financial literacy skills
By Jonny Hurst
A stronger focus on financial literacy in schools is crucial for helping young professionals manage debt, budget effectively, and avoid ‘get-rich-quick’ schemes, argues Jonny Hurst.
I qualified as a solicitor in a mid-size firm in 1991, and within a few years I was earning over three times my trainee starting salary, which comfortably exceeded the combined income of my working parents. I was working in London in a role I had dreamed of for years, I was being well paid after living close to the breadline for my entire adult life and I had no commitments – other than those I owed to my firm and my clients.
So, come pay-day, my personal finances were given as much priority as a good night’s sleep. Thirty years on, has anything really changed for junior lawyers? Or are they just as ill-prepared as I was to make the transition from a student budget to a healthy salary?
With the recent news that starting salaries for newly qualified solicitors at the City office of at least one US firm have reached a staggering £140,000, there is a strong case for prospective lawyers needing to develop their money management skills well before they set foot in the office.
Lack of financial literacy
Despite financial literacy becoming a part of the national curriculum in schools seven years ago, recent data shows that the UK lags behind many other countries in terms of financial literacy levels amongst its adult population – ranking 15th out of the 30 countries who participated in the study.
This year, research carried out by the money-saving app, Student Beans, found that a third of students were unaware of how to choose a bank account and the factors to consider when doing so, with more than 50% who currently use financial services admitting to not fully understanding how interest rates work.
Money worries are also having a significant impact on the mental health and wellbeing of young adults. Mental Health UK and the Money Charity have found that the undeveloped financial literacy of a significant proportion of young adults is undermining their mental health. So, it was not surprising that the above report highlighted that a person’s mental wellbeing is significantly worsened by financial problems.
Junior professionals are not immune to getting into financial difficulties as a consequence of making poor financial decisions. So, it is incumbent on educators and the profession to increase the financial education we make available to the next generation of lawyers.
Experts fear that ‘personal financial literacy’ among graduates hasn’t kept pace with the growth in earnings or the proliferation of often dubious ‘get-rich-quick’ schemes, notoriously targeted at the novice investor.
A report published in March earlier this year by the Financial Conduct Authority warned that an increasing number of young adults were taking significant financial risks when investing in high-risk products such as cryptocurrencies and foreign exchange trading. The UK regulator highlighted that young women from an ethnic minority background were particularly vulnerable to getting involved in such investments.
Preparing future lawyers to transition from life as a student
At BPP University Law School, we recently researched our own postgraduate students’ personal financial literacy. The results revealed that, while studying elsewhere as an undergraduate, 93% of them had not been provided with any advice about how to make the financial transition from life as a student to life in the workplace.
Only half of the students said that they felt confident when it came to managing their money. Three in five stated that worrying about their finances had impacted their mental wellbeing.
We pride ourselves on preparing around half of our LPC graduates for a career at City law firms, and so in response to this research, BPP has brought in the country’s top financial planner to improve our law students’ personal financial literacy. Paul Welsh, from the Financial Planning Corporation, who was awarded Certified Financial Planner of the Year in 2020, will in the new academic year design and run a short money management course for our students, which will be the first of its kind in higher education.
During these sessions, students will learn about the importance of investments, tax, pensions, estate planning, and will structures. The University – under the guidance of Mr Welsh and his colleagues – will also provide students with personal, one-to-one financial advice and a consultation to support them in making the transition from student to working professional.
While not every junior lawyer will find themselves earning six-figure salaries at the start of their career, it is important to recognise that most trainees are in receipt of a reasonable amount of disposable income from the start of their careers.
That is why we will be running online modules on ‘how to acquire good financial habits from your first day in the office’, and ‘how to manage your budget in your first year of work’. And for many students with student loans now exceeding £50,000, getting sound advice on how to manage that debt is imperative.
Many students who have joined top firms have been privately educated or are from backgrounds where they have grown up with an awareness of the importance of personal financial management. However, with trainee cohorts now, thankfully, becoming more diverse as firms respond to the widening participation agenda, a good proportion of students are from so-called ‘non-traditional’, low-income backgrounds who won’t have the financial reference points of their peers.
Many of them will be the first in their family to attend university and will become their family’s top earners overnight. It is those students, in particular, who should benefit from sessions to improve their personal financial literacy.
Avoiding red flags
It’s so important that young people can spot the red flag ‘get-rich-quick’ schemes and understand the difference between the scams and the real opportunities. Worryingly, our research found that less than half of students, after securing their first legal job, would be willing to pay for financial advice on matters such as repaying loans, saving and options for retirement.
So, we have responded to design the programme to explain why sound money management is vital, even at the start of a career, and to highlight areas which are frequently overlooked or misunderstood by the junior lawyer community when it comes to dealing with their personal finances.
Unfortunately, there is still so much stigma around talking about financial worries. Our research signified that one in five prospective lawyers would feel embarrassed talking to friends and family about their financial circumstances, and two thirds feel a tension between living in the moment and trying to exercise some level of financial self-control. Two in five said they feel pressured to keep up with the spending habits of their friends.
A fellow solicitor once admitted to me “it doesn’t matter how much we earn, eventually we all learn to live beyond our means.” I laughed at him at the time, but now I see how avoidable his financial problems were. Hopefully, with initiatives like the one BPP is introducing, junior lawyers will start to become more confident to talk about their personal finances and more open to taking financial advice from the beginning of their careers.
Jonny Hurst is a senior lecturer and head of outreach and student recruitment at BPP University Law School bpp.com He is a former law firm partner