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When you know how to do something, it can feel very easy.

However encountering others who cannot do it reminds you that everything has to be learned, either by study, or by hard experience.

I grew up in a very poor family. My parents taught me the importance of not wasting money, avoiding paying interest whenever possible, etc. Some people never learn even those things.

My formal education (mathematics degree, chartered accountant) gave me an excellent knowledge of compound interest, how to read accounts, economics, financial markets, and related subjects.

On top of that, I have been an investor since my early 20's, and have been reading about investing theory and practice ever since. The combined effect of this background is that I feel very confident with my understanding of personal finance.

What always suprises me is how many of those people who I would expect to be financially literate are not.

I will share just two examples, both involving chartered accountants at my old firm of Price Waterhouse / PwC:

1. When I joined PW in 1987 as a senior tax manager, the staff partner asked me if I wanted to join the employee defined benefit pension scheme. I confirmed that I did. When asked for my reason, I explained that my analysis was very simple. I would have to pay a tax deductible employee contribution of 5% (at that time) of salary. I knew that the employer's contribution was about 10%. Forfeiting an employer contribution of 10% to keep 5% of my salary (minus income tax) in my bank account would be stupid in my view. However despite that simple (to me) logic, several of my fellow senior tax managers were not pension scheme members.
2. I often found myself helping audit partners with the calculation of their maximum self-employed pension contributions. There was no reason why they should be experts on the relevant tax rules. However, during such personal conversations I learned to my surpise that many of them never made any personal equity related investments, despite all of them being near the top end of the UK personal income distribution.

As part of my voluntary role with the UK Shareholders' Association policy team, I recently wrote down my thoughts on those basics of personal finance that everyone in the UK needs to know. I then converted that text into an article for "The Private Investor" which is UKSA's house magazine.

You can read that article below. "101" is the standard US designation for a beginner's course in a subject.

It obviously comes with the disclaimer that is in the footer of every page of this website.

Personal finance 101 – advice for children and friends

For those unfamiliar with American English, part “101” of any college course aims to cover the absolute basics.

UKSA members of course don’t need to learn personal finance 101; all of us should already know it. However, many have children, and most are also likely to have friends who occasionally ask for financial advice.

At that point, as well as the common-sense risk of giving advice that might turn out badly and lose a friend, the law severely inhibits what you can say to people without falling foul of financial services regulations.

With my own children, I operate on the basis that I can say what I want to them. If the law wants to get involved, I will take my chance to become a regulatory martyr!

However, with anyone outside the family I just have to say that I cannot help them, beyond suggesting some good quality reading material.

UKSA emphasised how current rules prevent the sharing of basic common-sense knowledge in its recent response to the FCA consultation on the Consumer Investments Market.

As part of my collaboration on that response, I wrote down what I regard as the absolute basics of personal finance, which we should be able to share with anyone. Unfortunately, what the law stops us doing is naming any names of suitable products, even when the choices are obvious.

Below is what I wrote, which became the key part of Appendix 2 of the UKSA submission, since readers may wish to share this with family and friends who approach them.

The following points are numbered because they follow a strict order of priority:

1. Repay expensive debt, which would normally mean all debt apart from mortgages.
2. If you have any dependants, after considering employer provided death cover, ensure that you have about 20 times your annual income in term insurance before you buy any other financial products.
3. If an employer pension scheme is available, join it.
4. Maximise your employee pension contributions up to the largest amount for which your employer will make matching contributions. Invest 100% of this in a global developed countries’ market capitalisation weighted ETF (exchange traded fund), or the nearest equivalent out of the employer’s scheme’s investment choices.  However, in the UK be aware of taxation’s annual and lifetime limits.
5. After taking into account your confidence in finding other employment if you lose your job, and any other relevant family circumstances, ensure that you have the equivalent of several years’ worth of essential expenditure, perhaps as many as five, in cash or near-cash before you buy any long-term investments such as equity or property linked investment products.
6. If you are young enough to qualify, the next step after the ones above should be to put your savings into a Lifetime ISA (individual savings account), invested in the same ETF as mentioned above.
7. Any further savings should be put into an ISA or SIPP (self-invested personal pension plan) subject to the limits allowed, with the choice of priority depending on your forecast of current and future tax rates. If in doubt about future tax rates, ISA first and then SIPP.
8. Be very aware of the importance of costs in investment, including the costs charged by providers such as investment platforms, the explicit costs of the managers of any collective investment funds, and the implicit cost that have to be met by collective investment funds including the costs of trading.

Unless and until you attain sufficient confidence to make judgements about company financial reports, business models and competitive environments, do not venture into individual company shares.

Mohammed Amin MBE FRSA MA FCA AMCT CTA(Fellow)
Editor's note: although Amin is a member of UKSA’s Policy Team, he is writing in a personal capacity.