A financial adviser has warned that young people are leaving school without understanding how credit cards work or how mistakes made in their late teens can potentially affect their money for years.
Ben Perks, managing director at Stourbridge-based Orchard Financial Advisers, regularly visits schools to speak to pupils about money, credit and borrowing and believes basic financial education should play a much bigger role in the classroom.
Teaching practical lessons
Rather than bombarding pupils with financial jargon, Mr Perks talks about the things young people actually want to buy and what happens when credit makes those purchases appear affordable.
He said: "I'll show them all the things they want, whether that's clothes, trainers, bags or whatever else and explain that you can potentially go out and get these things on credit. But the important part is understanding that it's borrowed money. You have to pay it back and if you don't manage it properly, those decisions can follow you around for years.
"That's the bit I wish everybody was taught at school before they're suddenly old enough to start accessing credit. For me, financial education is as important as sex education."
Common mistakes and long-term impact
One of the biggest mistakes, according to Perks, is treating a credit limit as though it is money available to spend rather than debt that will eventually need repaying. A £1,000 credit limit, for example, does not make somebody £1,000 richer.
Spending on a card without thinking about how the balance will be cleared can result in interest being charged and debt becoming increasingly difficult to manage. Missing repayments can potentially be even more damaging because the consequences can extend beyond the original purchase.
Mr Perks said: "When you're young, getting a mortgage can feel like something that's years away and completely irrelevant to you. But eventually you might want to buy a house, take out finance or borrow money for something important. How you've managed credit in the past can matter when lenders are making those decisions.
"I've had so many mortgage meetings where people have effectively said, 'why weren't we told this at school?' That's why I think teaching it early is so important."
Making lessons relevant
Another danger is getting into the habit of borrowing to maintain a lifestyle somebody cannot really afford. Credit can be useful when managed responsibly, but repeatedly buying things now and worrying about paying for them later can quickly create problems, particularly when several different debts are involved.
Mr Perks believes young people should understand the consequences before being given access to borrowing rather than learning through expensive mistakes. His approach when speaking in schools is deliberately practical. Instead of simply explaining credit scores and interest rates, he connects borrowing with the products pupils recognise and want to own, before showing what can happen when repayments are not maintained.
He added: "The kids are really engaged because it's relevant to them. You can tell somebody not to get into debt, but that doesn't necessarily mean much on its own.
"If you explain what credit actually allows you to buy, what you're agreeing to when you use it and what happens if you don't repay it properly, suddenly it becomes real.
"Financial education is incredibly important. You don't need to frighten young people away from credit completely. You need to teach them how it works before they're expected to make these decisions for themselves."
