I really wish I had a pound for each time I've uttered those first five words.
Have I got a solution for all IFAs? No, I don't think so yet, but I would strongly urge you to think about talking to your clients, who have children, and asking them to talk to their children about all matters financial, in whatever level of detail.
It's been some time now since financial education was introduced into England's secondary schools, and it has been cited that school leavers now have better money management skills than many adults*, so surely this bodes well for the UK in years to come?
I'm not sure. Although London has been ranked the world's capital for global financial services, it does however rank disappointingly below average for its teaching of financial literacy. Surprised? I was, so I thought I would take it upon myself to survey the offspring of my colleagues and ask parents how they think children should be educated in the ways of finance and their long-term financial security.
Before we delve into the feedback, whose job is it to educate our children on financial matters; just parents, or school as well, or only society in general, when perhaps it'll be too late? In my opinion, it's all three, with our children needing good role models to follow so they can apply what they have learned when going into our wider society.
Back to the survey, and the cross-section of children and parents quizzed were asked about matters ranging from, "What is income protection?" to "Do they have targets when saving?" Is it fair to say that I didn't expect them to know too much, if anything, about insurance, as anything they have learned already at school or from parents would be around saving, but nonetheless, the answers made for some revealing and interesting reading, and aren't short of talking points!
I started off by asking "What do you think 'protection' means in a financial context?" None of the respondents were expected to speak 'financia-lese', so other than the predictable "no" responses, which was a fair answer for ages ranging from 10 – 21, those responses returned, whether right or wrong, made complete sense – "the protection of one's money," and, "protecting financial information." It's great that GDPR seems to have possibly crept into their psyche, perhaps also not a surprise the word 'insurance' didn't feature in any replies, however, by extending the question to, "what do you need to protect, if you take a mortgage or rent a house?", answers seemed more thought through, varying between, "protecting the money you pay for rent or a mortgage", to "home/legal insurance and life insurance", to "need to protect any debt, and your money, yes, you need to protect the salary that you earn each month".
Then came the trickier questions like "what does income protection do?", and "What is term assurance?" Perhaps, based on these answers, albeit a small sample size, as an industry we do need to rethink the naming convention of our products. I'll start with term assurance. "No idea", was the most common riposte.
In fact, there was only one answer other than that, which was "future planning – like putting money away for a holiday". Now I'm not saying we need to change it on the back of one reply from a 21-year-old, but it has been a while since you would have surely had to explain a term like this:
Term Life Assurance is a policy that provides coverage at a fixed rate of payments for a limited period, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount over a specific period.
Thanks to Wikipedia for that clarity, but surely one could just say it is life insurance that pays out if you die during the term of the policy? You then tag on the essential trust discussion, but can't we look to move towards product names that mean something to us all, ones that evolve as different generations grow up and take the protection they will need, especially in this world dictated by money and spending?
We all know income protection is a different beast. Let those surveyed tell you why. It can mean literally anything to anyone, whether you work in financial services or not. Apparently, IP is a "security tool to stop people stealing your money online or by hacking", or it's "when an insurance man knocks on your door and demands protection money". Man from the Pru, you have so much to answer to!
We did get closer to the right answer though. To one teenager it is "when you have income from a job you put some into a protection scheme in case something happens to you." A good start, however I am told the discussion quickly descended into dying your hair and moving home like you're in a witness protection scheme! Others did however, and it was the younger children who grasped the fact that IP "protects the income you get, income being what you earn from work and this would be something that would pay you if your work didn't", and, "protects your income"!
The saving grace though could be saving. Something this bunch of Alphas and Generation Zs take very seriously - well almost. There are some caveats. One 13-year-old saves "for an expensive item but if something else comes along that I also want, I get my parents to buy one of them for me", but overall, saving and budgeting were high on everyone's agenda, although marrying a millionaire still got a look in.
So, what's the answer from this snapshot? Some funny anecdotes, but in the main each young person canvassed expressed the same overarching approach to finances, in that they will take it very seriously in the future, once and if the bank of mum and dad ever closes its doors for a final time!
What about the parents then? A couple of highlights stand out. The first being, "Hmm, don't really talk about the detail very much but they do know our property is our main investment for now, that money is being set aside for a uni fund, if required, and that we have policies in place if the worst were to happen. It's the sort of thing that I never spoke about with my parents and in hindsight I seemed to have passed that down".
Another was, "We do try to talk about finances with them occasionally and we have a few things in place to help support their future. In terms of educating them about finances, we dabbled with the Go Henry card to get them used to managing money and thinking about saving, but we stopped it as the novelty soon wore off and the monthly subscription of £3 became more than the amount being earned for doing tasks around the house"!
Have I got a solution for all IFAs? No, I don't think so yet, but I would strongly urge you to think about talking to your clients, who have children, and asking them to talk to their children about all matters financial, in whatever level of detail. I'd also love to hear how you explain insurance products to your customers and maybe we can get an aide memoire produced to help advisers, customers, and possibly educators. Perhaps encouraging youngsters to get involved in local Young Enterprise schemes is one answer.