The deficiencies in financial education lead to making bad money decisions with disastrous consequences, as was evident in the economic crisis of 2008. Despite this, a quarter of the Spanish population has little knowledge in this area, according to a survey by the Bank of Spain and the National Securities Market Commission (CNMV).
For more than two decades, Iñaki Jiménez Largo (Barcelona, 1973) has been fighting financial ignorance from the classroom. In addition to teaching high school Economics and Business Fundamentals classes at the University of Barcelona (UB), he has recently published his fourth popular book - Learn Economics. A guide for everyone (Pyramid)-, where he explains in an entertaining and intelligible way everyday economic issues that can be complex to understand, such as taxes, rising prices, pensions and gender gaps in the economic world.
What is the best time to start learning economics?
At an early age -from 13 or 14 years old-, but it is also very important to learn it at home. For example, the fact that parents allocate a salary to teach their children to manage themselves is still a budget on a small scale in which it is necessary to anticipate expenses and income and decide how much to save and for what.
As an internship before facing real life.
I believe that one of the problems that the youth of today have is that they are used to having material things very simply. I see it in my children: they take the mouse or the mobile charger in any way, they break it and they think “well, that's okay, dad will buy me another one”. We have to try to instill in young people that material things cost an effort to obtain and that, therefore, they must be taken care of. The weekly or monthly pay helps them to be more aware and careful with what they have and try to optimize their resources.
Although sometimes the elderly also have a hard time.
Yes, there are people who are a disaster, who when they reach 25 or 30 years old have bought everything on credit: the car, the house, the trips... That becomes a mountain of interest that they have to pay and that later they don't get. It allows you to make other investments to improve your finances.
In fact, there is an increase in the number of citizens who need to draw on credit to cover immediate needs to face the rise in prices.
This is a mistake. The first solution that people find when they don't make ends meet is the easiest but the worst, which is to ask for a loan or use a credit card.
Which is the solution then?
First, spend less, even if you may have to cancel your Netflix subscription or unsubscribe from the gym and go for a run, which is free. And secondly, try to increase your income by looking for alternatives that can give you a bonus every month. For example, look for another job and try to make your few savings more profitable in order to generate passive income, which is what you earn without having to do anything. But if you never manage to save, you will never manage to have passive income, which is essential.
In the case of having few savings, what investments do you recommend to counteract the effect of inflation?
Putting a part in conservative financial products -such as deposits, guaranteed investment funds, public debt...-, even if they give little interest, is better than having it under the mattress, and another part could be risked by investing in the stock market. It is also about simply being attentive to what is happening.
As?
If where you live, they are putting a green or blue zone and you know that there will be less parking, you can decide to invest your savings -and if necessary, ask for some financing- in a parking space to rent. You don't need to be a brilliant economist or know a lot about mathematics, just look a little at our environment.
Who does inflation hurt more, the poor or the rich?
Inflation is called "the tax of the poor" because if you have a very low salary -1,000 euros, for example- with which you already reached the end of the month very precisely and, in addition, it is updated below the CPI, you will probably no longer be able to afford basic food or a supply, which will condemn you to poverty. On the other hand, the rich or a citizen with a high salary may no longer be able to afford lunch and dinner in a restaurant every weekend, but they will not have to do without basic goods and services.
One of the precedents for an inflationary spiral that you remember in your book is the oil crisis (1973). Can the recipes of that time help us to combat the effects of rising prices?
Economics is a living science; I tell my students that it is science that brings you up to date, because the situation is never exactly the same. The fundamental difference that I see with respect to that time is that the economy is now adulterated. Whereas before a person with financial problems who suffered from very high inflation did not have many other options than to tighten their belts, now with such easy access to credit, demand does not drop so much, and this causes inflation to feed back.
Is it only because of the easy access to credit or also because of the saved savings from the pandemic?
Yes, it is true that during the pandemic there was forced savings that is now being thrown away, but I also mistakenly believe that many people are eating that savings with some superfluous expenses when they should have invested them to have passive income.
And what advice do you have for low-income households with no savings?
The short-term solution is complicated. For a family with few resources, one of the magic wands is to increase the chances of finding better jobs, that is, I value education, which is the best investment in the world. I always explain that material wealth suffers fluctuations in value, but education is an investment that no one can steal from you, which is not at the expense of cyclical fluctuations in the economy. So, I believe that families with few resources can ensure that their children have more possibilities than they do to have a more comfortable life at an economic level. And how is it achieved? Investing in your children's education; making sure they know languages, taking them to schools where they think they can get a better education, trying to get them to take it seriously, because it's the only way we have for those generations to live better than the previous ones.
Another aspect that you address in the book is the social elevator in Spain.
It is not working, and one of the main reasons is education. In the Pisa report, Spanish students do very poorly in science and mathematics subjects.
And, in fact, they have gotten worse, why?
They are opting for the formula that there is no school failure based on lowering the level; I see it every day. I don't want to be a catastrophist, but we are putting an irreversible brake on our social elevator when the brilliant and hard-working son of a family with few economic resources has to end up competing with the son of a person with a lot of purchasing power who, despite his little effort, it is easier for him to obtain the title. In addition, the son of the rich man will do a much more expensive and better master's degree, and he will end up once again being the boss of the son of the humble family.
How to avoid it?
Trying to get teachers and education experts to ever take sides when laws and educational reforms are made. Eight reforms have been approved in the last four decades, which is impossible for schools to carry, because the subjects are constantly changing, the specialists that are needed, there is no stability in the cloisters, so it is difficult for there to be a clear project carried out by experienced professionals. There is also the issue of lack of investment in education. Education should be a state pact, and there should be a minimum requirement so that people who deserve it and make an effort can change their social situation. If we give titles to everyone equally, the social elevator doesn't work.
Will young people pay our pensions?
What is clear is that measures must be taken to achieve the sustainability of the pension system, and it is being done. One of them, although it has a very nice name –Intergenerational Equity Mechanism-, means that the worker allocates more money from his payroll to Social Security. Another way is to further penalize those who retire early. The legal retirement age is close to 67 years, but the real one does not reach 65 years due to early retirement. This is unfeasible to maintain. And the third way is to reward those who are working longer than the legal age, because they continue to contribute, contributing to the pension fund and, furthermore, they do not collect from it.
But working beyond the age of 65 is not as feasible for a bricklayer as it is for a teacher.
More intellectual jobs tend to be better paid than those that are very physical, so the people who work in them tend to have higher pensions. And, precisely, those who have very physical jobs may be the ones with the lowest pension and who would be interested in complementing it by contributing more years, but physically they can no longer continue working. From that point of view it's a bit unfair.
Any other measure that can help the sustainability of the pension system?
The maximum pension, which is over 2,700 euros per month, is too high, despite the fact that the people who have it have worked and contributed for many years and, therefore, deserve it. But, is it necessary for a 67-year-old person who in theory has paid for his house and is not going to have more children to collect that pension when the level of spending of a young person is higher? In addition, it does not make much sense that the average salary of young people is just over 1,000 euros and that there are maximum pensions of 2,700 euros. But if you lower the maximum pension, you lose votes, because Spain has a very aged population. I think it's a matter of explaining things well.
And finally, what three pieces of advice would you give a young person to achieve financial success?
The first is that he is not wasteful, that he gets used to saving to get things, that he does not abuse credit. The second advice is not to be scared of the economy, that there are no easy or difficult things, but things that are understood and that are not understood, and that it is currently very easy to access economic advice and ways to invest without having great knowledge . And the third piece of advice: the one who has the most is not happier, but the one who knows how to appreciate what he has, who is able to enjoy his patrimony and his life.
