When it comes to financial literacy skills, our country does not have a glowing record. The recent payment protection insurance mis-selling scandal highlighted just how clueless a lot of consumers are when it comes to understanding how a financial contract works and what it is they are signing up for.
Many youngsters leave school without a basic understanding of how financial products such as bank accounts, mortgages and loans work, and how payments are calculated. This is not just having a detrimental effect on individuals but on society as a whole, with the average person’s personal debt spiralling out of control.
According to the latest figures from Credit Action, the average amount owed per UK adult, including mortgages, was £29,681 in March, compared with £18,152 in March 2005. And the latest figures from the Insolvency Service show individual insolvencies in Q1 2012 stood at a colossal 28,723, compared with 13,190 in Q1 2005.
You only have to switch on the television during the day to see the number of firms that are preying on people who have made financial mistakes and need fast access to cash.
After all, how many consumers really know what it means to take out a payday loan with an APR of 4,214% and what the implications will be if they fail to pay it back?
Credit has never been more readily available, yet our understanding of how financial products work has never been so weak. Youngsters are growing up in a society where many of their parents have lived by the mantra of buy now, pay later, with the cycle not looking likely to break any time soon.
Some argue that if there was financial education in schools from an early age, it would help prevent product mis-selling and misunderstandings by consumers about their finances, leading to a better economy and more employable youngsters.
Unfortunately though, a large majority of youngsters leave school ill-equipped to deal with the challenges they face, as demonstrated by a recent YouGov survey, which found that 70% of youngsters between the ages of 18 and 24 already find themselves in some form of debt.
One of the biggest debts most youngsters will ever take on is their student loan at the age of 18. I’m sure I’m not alone in admitting that I had little knowledge at that age about what an interest rate or APR was when I signed up for my £12,000 loan.
I had even less understanding of my finances when I applied for a £10,000 professional studies loan at the age of 21, not really knowing what it meant when the adviser said it would track the base rate. Although the adviser explained it to me as best she could, I still was left with little knowledge about what it meant for my future finances.
I do remember financial education being taught at school, but it was seen as a relatively unimportant subject, taught as part of the general studies module – which you could tell the teachers enjoyed teaching as much as we enjoyed learning.
I still question today whether I would have been so easy with my money throughout university had I understood that I would still be paying it back well into my late 20s.
Yet despite numerous calls for financial education to be included as part of the national curriculum, the government is still reluctant to introduce it as a mandatory subject in schools.
While it seems amenable to introducing it, the main challenge is where it will fit into the overcrowded national curriculum. When you add limited budgets and a lack of financially trained teachers into the equation, implementing financial education in schools does not seem to add up.
Fighting for financial education
At the end of 2009, the government announced that from September 2011, personal finance education would be a compulsory part of the primary and secondary school curriculum. It was due to be embedded in Personal, Health and Social Education – a life skills class that includes sex, drugs, hygiene and health matters.
However, these plans were dropped in early 2010, mainly due to political disagreement over the age at which youngsters should learn about sex. As a consequence, the government’s plans for making financial education compulsory were shelved.
Although PHSE is being taught in schools, some argue that it is being done in a half-hearted way. Finance only makes up a small part of these classes and schools have flexibility over what they teach. This means that if a teacher has little interest or understanding when it comes to financial matters, the subject may not get the attention it deserves.
As a result of the government scrapping its plans, numerous consumer groups have set up their own campaigns and are calling for financial education to be placed at the top of its agenda. Two of the groups that have been spearheading such campaigns are the Personal Finance Education Group – an independent charity that helps schools to plan and teach personal finance – and consumer champion MoneySavingExpert.com.
Some headway was made last year, when the All Party Parliamentary Group on Financial Education for Young People published the findings of its report in December 2011.
The group was launched at the House of Commons in January 2011. Its remit is to discuss the provision of financial education and encourage the introduction of a requirement on schools and colleges to provide this education.
Among other things, the report recommends that financial education should be compulsory and each school should employ a ’champion’ to make sure it is being taught in the right way. The report does not recommend that the subject should be taught as a standalone subject but that it should be incorporated into schools’ current teaching. For example, in secondary schools, financial education should be taught within maths and PHSE lessons.
Martin Lewis, founder of MoneySavingExpert.com, also secured a debate in the House of Commons last December after his e-petition gained over 100,000 signatures.
The next step for lobbyists is to try to influence a consultation paper that is due this year. The paper will be a general review of the national curriculum with the changes due to be implemented in September 2014.
“The government has been sympathetic to our cause but has not confirmed any changes,” says Wendy Alcock, campaigns co-ordinator at MoneySavingExpert.com.
She faces an uphill struggle because the government is trying to remove elements of the curriculum.
“There is the basic curriculum, which differs from the national one and includes aspects such as sex education, which schools are required to cover,” says Alcock. “This is where we are trying to position financial advice.
“If the government says it won’t fit financial education into one of the curriculums, we will look at where it can fit in.”
She believes financial education is important because it could prevent youngsters from getting into financial trouble later in life.
“It’s a fundamental right for young people to have a financial education,” Alcock says. “A lack of financial education has a knock-on effect and can cause all kinds of problems in society. People would not need to take out as much credit as they do if they knew more about the risks.
“Youngsters have a store card or phone contract from the age of 18 and can get into trouble because they don’t understand the contract and the adverse effect it can have on their credit rating if they do not pay their bills.”
She says some schools already have a robust financial education system in place but MoneySavingExpert.com wants to see one implemented in all schools.
Is the message hitting home?
The message from consumer groups is not falling on deaf ears and already within the past few years, a number of schools have taken it on themselves to teach financial education in schools.
The ifs School of Finance is a registered educational charity with a remit to provide the financial services industry with a skilled, effective and competent workforce while also promoting a better understanding of finance among consumers.
It offers formal qualifications ranging from GCSEs and A-levels for the 14 to 19 age group. It currently provides financial education to around 25,000 pupils in the UK in 440 schools.
Rod McKee is vice-principal of financial capability at the charity. Before joining the organisation, he worked as a banker for 20 years at Lloyds Banking Group and also had a brief spell as an enterprise adviser in schools, where part of his job was to teach financial education.
“I have never been into a school or college that has not thought it is a good idea to teach young people about finance,” says McKee.
But although schools are keen to teach it, government legislation does not always make it possible.
“Unfortunately, the direction of education at the present time is veering towards academic studies, with vocational qualifications being squeezed as a result,” he says.
“I’ve no idea what the jobs of tomorrow will be but all the young people in schools and colleges are going to have to make better financial decisions than people of my generation.”
The ifs courses have grown in popularity over the years as more youngsters look towards a career in financial education and its qualifications become more prevalent among employers.
But the government’s decision to focus less on vocational qualifications could mean that the popularity of the courses start to dwindle. Earlier in the year, the Department for Education carried out a review of academic and vocational qualifications to determine which ones it would take into account when assessing schools’ performance and attainment tables. Unfortunately, it did not include the ifs’ financial capability qualification on its list of 115 courses.
“We were disappointed when our qualification wasn’t included,” says McKee. “The reasoning that the Department for Education gave us was that it felt the subject of personal finance wasn’t broad enough to lead to general business studies, which we found quite surprising.
“Putting my former bank manager’s hat on, I would say that the majority of skills needed to run a small business come from financial capability.
“Most small businesses don’t go bust because they are not good hairdressers or mechanics, but because the firm can’t manage their books,” he adds.
Putting education into practice
One of the things that the APPG’s report highlighted was that within the financial education framework, there is the opportunity for volunteers and financial institutions to help educate pupils.
But the report found that only 24% of teachers used the services of volunteers from the financial services sector.
“A lot of business people I speak to would love to go into schools and engage with the pupils,” says Paul Hunt, managing director of Phoebus Software.
“Some youngsters tend to live for today instead of thinking about tomorrow. When they leave school, they need to understand how the tax system works, how their salary and rent is paid and all about bills and loans. At some point, youngsters will get a mortgage and they need to know how it differs from a normal loan.”
He believes part of financial education should be incorporated into lessons such as maths and English, but also believes there is an argument for financial education to be taught as a standalone subject, and the wider issues should be examined, such as the advantages of renting over home ownership.
“There is an expectation in today’s society that you should buy a house at an early age,” says Hunt. “While this isn’t always wrong, youngsters need to learn that it is also OK to not buy a home and it is not something they should be pushed into at 23.”
It is not just financial commitments such as mortgages that will be a major cause for concern for youngsters in years to come, but changes to pensions, coupled with later life expectancy and working for longer, which mean that today’s generation are going to have to be more switched on to how they will fund their retirement.
“Britain is in the midst of an unprecedented and growing pensions crisis,” says Nigel Green, chief executive of deVere Group. “It is important that we teach young people who will soon be entering the world of work, those in secondary schools, the fundamentals of financial planning.
“Educating young people that financial planning for their mature years is a personal responsibility will ease the burden on the government and the taxpayer.”
Counting the cost
A number of banks run programmes in schools but there is a fear that their help comes at a price and often they use the premise of financial education to promote their own services and products.
“Resources provided by financial services firms – excellent though many are – are not tailored to individual schools’ needs or put in a local context,” the APPG’s report says.
“Schools value a bespoke service as it helps to meet the specific needs of their students. Therefore, teachers should use providers to enhance their lessons if they are considered helpful, but should not rely on them.”
So while companies might have the best intentions, constraints on teachers’ time often mean that in order for a class to hear from a local specialist, the teacher would have to spend less time on teaching another aspect of the curriculum, which many might be reluctant to do.
Some also fear that teaching financial education in schools could potentially create a nation of financial DIY-ers and reduce demand for professional advisers.
But Hunt argues that knowledge can sometimes be power and if you give youngsters a taste of what financial products are available, they will want to learn more.
“If youngsters are taught financial education from an early age, it will make them realise how little they know and may encourage them to go to an adviser even more,” he says. “If you educate them a little bit, they will want more information.”
It appears that all sides of spectrum, from teachers to consumers and the financial services industry, believe that financial education should be made compulsory in schools.
But with consumer groups and teachers fighting a battle against a predominantly academic curriculum, financial education runs the risk of being sidelined.
Let’s hope that the government takes note of the lobbyists fighting for financial education, or it could find that a nation of financially illiterate youngsters is a noose around its neck.
Equipping our kids for the future
Association of Mortgage Intermediaries
Much is written on the education system of today. What is undoubted is that too many children disengage from subjects as they see them as lacking relevance to the world they live in or aspire to live in. Many fail to attain a basic grasp of numbers and arithmetic, never mind more complex mathematics.
However, many soon become adept at chalking the scores at a darts match and calculating a three-dart finish, while others calculate the odds on horses and employ compound interest on accumulators with great speed, despite having driven their teachers nearly to despair.
It is against this background that a cross-party group of MPs last year embarked on a campaign to persuade the education secretary to make financial education part of the core curriculum in England and Wales.
If we can deliver this as a partnership between teachers and the industry then we have a real chance of success. We already have many advisers doing pro bono work in schools. There are school banks that assist in teaching the basics of money. Some banks have tutors who talk to pupils about the basics of money, banking and saving. Others act as ’dragons’, by assessing the business dreams of small teams.
However, this campaign is a more fundamental revolution, where the curriculum sets out that our children should learn about banking, saving, investing, pensions and insuring against risks. That borrowing must be done responsibly. How interest rates really work and whether a high APR or AER is good. It aims to teach about budgeting and tax and real returns.
This is done through interactive programmes via experienced financial services professionals, IT solutions and teachers who need to get their pupils to the right standard to demonstrate competence.
Some might argue that, armed with this information and knowledge, we will set free a new breed of confident consumers who will avoid advice and buy direct. On the other hand, I think it is more likely to create a generation that will know what they don’t know. They will ask the right questions, but ultimately they will know the value of good advice and want to seek it out.
The greatest legacy that this might also bring is that these children go home and challenge their parents, as the green movement did, and deliver cross-generational change to the plans people set out for a better and safer financial future.
Of all the events I have attended over the past five years at parliament, this resonated with me the most, as did the passion of those hundreds of MPs who agree with this. It is only the Department for Education that needs to catch up and the campaign should have the full support of the mortgage industry.
Schools should make financial education enjoyable and empowering
Personal Finance Education Group
”We work with teachers to build confidence and competence so they can deliver stimulating financial education lessons. The range of financial products available can be daunting when one is well informed. Imagine trying to access services with an inability to understand the small print.
As a country, we face unprecedented household debt. Many families have fallen into debt because they haven’t been offered the chance to learn how to avoid it. Pension arrangements are changing – how are young people going to understand this and sign up to auto-enrolment, let alone know to plan adequately for their future?
Helping young people to learn about money is one of the most important things we can do. The Education Act states that children must be prepared for life, but we cannot say they are fully prepared without access to financial education. When young people need to make a decision about going to university, they have to work out how to manage debt and risk. It is hard to for them to have a sense of well-being without having economic well-being.
PFEG works with teachers and schools to make finance education compelling and engaging, working the knowledge and confidence into existing subjects to give context to traditional study areas.
Recent examples include work by six year olds at Aragon Primary School in Merton. Starting with the painting Children’s Games by Peter Brueghel, they compared the costs involved in making toys now and in the past, and considered how expensive toys differ from cheaper ones.
Pupils aged 11 at Luckwell School in Bristol read the book <I>Millions </I>by Frank Cotterell Boyce. They then had a lively debate about why we have money and what life would be like without it.
And at a school in Hartlepool, learning for 14 year olds took place in maths lessons that addressed real-life issues identified by the pupils themselves. These included the use of catalogues to purchase fashion items, electrical goods, computer games and mobile phone top-ups. The unit used mathematical skills to budget, calculate the costs, risks and benefits of paying online, investigated utility bills and looked at the impact of tariff changes.
When lessons are planned and delivered by teachers who have confidence, pupils enjoy the experience and make progress.
case study: How Felpham Community College is making a difference
Felpham Community College is a mixed comprehensive school of around 1,300 students, of whom 170 are in the sixth form. Its work in financial education won it an award for excellence from the Personal Finance Education Group.
Personal finance has been used at the school as a context to raise the confidence of middle-ability girls in year five, aged nine to 10. They looked at the economics of different phone tariffs and compared the cost of living over the past 100 years. Workshops for other year five pupils included Making Your Money Grow – Deal or No Deal, which asked children to evaluate different pocket money deals as well as simple share dealing.
In the sixth form, students have the opportunity to opt into personal finance education lessons, which help them prepare for economic independence either via the world of work or while in higher education. This includes working with the local Citizens’ Advice Bureau, which offers students advice about their rights as consumers.
Students benefit from input from a number of other organisations, such as Barclays, NatWest and the West Sussex Fuel Poverty Co-ordinator. The school has also formed excellent links with small local businesses that offer work experience to students following the IT diploma course so that they understand the economic reality of becoming self-employed.
As part of their course, the students compile a database of local businesses to make further contact with these firms easier.
As a mathematics and computing specialist college, the curriculum in maths is seen as a key driver for school improvement. Research work carried out in 2009 demonstrated the motivating nature of personal finance education delivered within mathematics. Following these findings, the college has made strenuous efforts to incorporate explicit personal finance education content within its schemes of work for key stages three and four.
In 2009, the college applied for funding from the National Centre for Excellence in Teaching in Mathematics for a teacher enquiry funded project. The project plan focussed on the use of personal finance education to raise attainment in mathematics for able students who were not enjoying mathematics and hence were not achieving their potential.
The project, known as Smart Money, had the twin aims of raising levels of financial capability within key stage four and also to raise attainment in mathematics. The results of the project have been disseminated widely within the mathematics community, both local and nationally.