If you deposited €1,200 each year into a savings account at an annual rate of 0.5% (which is currently the average interest rate available on deposit accounts in Ireland) you would have €54,721 in the bank after 40 years (as a result of compounding interest). If you invested the same amount at an annual return of 9% (which is the average annualised return of the stock market) you would have €479,642 after 40 years. If you could just slightly more than double your annual investment to €2,800 (which equates to €233 a month) you would have a cool million in just 40 years. Basic concepts such as this urgently need to be taught in Irish schools.
According to the Central Statistics Office, Ireland’s pension liabilities at the end of 2015 stood at €436.3 billion (more than double the national debt figure). As a result, the Irish public is being urged to save more for retirement. Currently however only about a third of private sector workers in Ireland have made any financial provision for their retirement. This shouldn’t be a huge surprise given that the OECD estimates that only 56% of adults achieve a “minimum target score” for financial knowledge and according to research carried out by Irish Life one in four Irish savers don’t know either how to invest or what level of return they could expect from investing. This is of little surprise when you consider that financial education, without question one of life’s most important tools, isn’t taught as a subject in Irish schools.
In England financial education has been on the national curriculum since 2014 and while that is a step in the right direction a study by the English all party parliamentary group on financial education found that only 17% of secondary schoolteachers had received training or advice about how to teach it. This led Martin Lewis, founder of moneysavingexpert.com, to donate £325,000 to fund a personal finance textbook aimed at 15 and 16-year-olds. The aim of the book is to make it “easier for teachers and schools to teach financial education”. Every state secondary school in England will receive 100 free copies of the book, entitled Your Money Matters, and has been produced by financial education charity Young Money with guidance from Mr. Lewis. The textbook covers topics such as earnings and savings, interest, money and mental health, budgeting, borrowing, managing debt, risk and reward, investments, tax, pensions, the dangers of gambling, insurance, security and fraud, student finance and knowing your consumer rights. “Companies spend billions on advertising, marketing and teaching staff to sell, yet we don’t get any buyer’s training. That needs to change,” said Mr. Lewis. “The best place to teach is in the classroom — I hope this textbook will help make that easier.” Emphasising the importance of financial education to society, chief executive of Young Money, Michael Mercieca, said: “It’s vital to the personal well-being of individuals and to the country that we improve the education of young people in this area to give them the best possible chance of success in the future.”
According to research carried out in 2018 by Amarach Research half of Irish people say their mental health suffered due to the economic recession with hundreds of thousands driven to thoughts of suicide or self-harm. The research showed that seven in ten experienced stress and anxiety, while over a quarter had to seek professional help to cope with the mental struggle. Even as the economy recovers Irish households continue to be the fourth most indebted in the EU at an average of €29,307 per capita and approximately one third of all Irish third level students are currently experiencing serious financial problems. With our financial wellbeing and mental health being so closely related, financial education early in life is critical to both economic stability and mental welfare.
Another way the Irish government can encourage people to save and invest for the future is by offering incentives. In the UK residents can open Individual Savings Accounts (ISAs) and invest up to £20,000 per year tax free. ISAs were introduced in 1999 and were designed to encourage people to save. There were 10.8 million adult ISA accounts subscribed to in 2017-2018 including the new lifetime ISA which allows people to invest up to £4,000 per year (which counts towards your £20,000 allowance), onto which the government will add an additional £1,000. The lifetime ISA is designed for two specific purposes. The first is to help first time buyers purchase a house, the second is to help people save for retirement. The hope is that by mixing the two that people who are saving for their first home will develop a habit for saving and carry on afterwards. There are many types of ISA (cash ISAs, stocks and shares ISAs, junior ISAs for children, help-to-buy ISAs, etc.) which you can open but most allow you to buy shares in companies, bonds, and investment funds. There are dozens of providers through which you can open an ISA and for as little as £1 per transaction (and in some cases for free depending on the type of account you hold) you can buy shares in Google, Amazon, Apple, Ryanair, whatever.
Ireland is facing a massive pension shortfall and urgent action needs to be taken. People are living longer, the financial landscape is becoming more crowded and complicated and individuals are being asked in a time of historically low interest rates to provide more for their own financial security in retirement. If this is to become a reality, the Irish government needs to urgently introduce financial education into schools and introduce incentives for adults already in employment.