The global financial crisis has changed the relationship between the State and the individual. High levels of sovereign debt and large budget deficits have left many governments struggling to finance public spending, to pay welfare benefits and to control escalating health costs. The public pay the price of that adjustment in higher taxes, lower benefits and increased charges for public services.
The economic downturn has also affected the workplace in different ways. For many companies in the private sector, defined benefit – or final-salary – pensions for employees have become an unaffordable luxury. And in the public sector, its more generous final-salary scheme, largely financed by taxpayers, is unsustainable without major reform. In tomorrow’s world people can rely less on the state or their employer, and depend more on their own efforts: whether in saving for pensions, providing for healthcare or financing education costs. But the Irish public are not, it seems, well prepared to meet that challenge.
Knowledge of basic personal finance matters – interest rates, inflation and risk assessment – is one way of measuring adult financial literacy. A survey on these issues by the Irish Association of Pension Funds last year showed Ireland compared poorly with other countries. Could greater financial literacy have checked some of the worst excesses in the Irish property market? And how well-informed were home buyers of the different mortgage options and the hazards in making their investment decisions?
Ireland has one of the highest levels of household debt in the world, in part due to reckless lending to reckless borrowers. There is an urgent need for more financial education in schools to equip school leavers with basic financial literacy skills. They will need these to make more informed judgments about money and about future financial choices in a changed workplace: one where their pensions on retirement will reflect the investment decisions that they – rather than their employer – take.