Gavin Shreeve: Personal finance should be taught in schools

Gavin Shreeve is Chief Executive of the ifs School of Finance

There is a burning issue with which the Tories could make hay in a way that is both traditional yet Cameronian. It is the policy announced by George Osborne the other week that if elected to Government, financial education will be taught in all schools. However it is crucial that this doesn’t go the way of so many eye-catching initiatives that create headlines yet fizzle out before the hard detail is confronted. 

This issue is indeed reaching crisis proportions. The UK’s consumer debt mountain now breaches the £1.3 trillion mark and growing at the rate of £1m every four minutes. This figure translates to an average household debt in the UK of an astonishing £9,000 (excluding mortgages).

The Citizens Advice Bureau recently released figures to show that more than 5,300 people were seeking their advice about debt related problems every day. Government statistics released this month confirm there have been a record number of insolvencies in the last quarter. The implications for society at large are obvious – at the core of almost all of our social problems is the mismanagement of money due to financial ignorance.

Consumers cannot be expected to make appropriate choices about their personal finances when surveys show that 79% of people do not know what an APR is. Amazingly 25% have no idea how much they spend in a week and 26% have no idea of their monthly cash flow.

Furthermore, some 15% of 18-24 year-olds think an ISA is an iPod accessory while 19% of adults hope to improve their standard of living in retirement by winning the lottery.

The ability to manage personal finances is a crucial life skill, no matter what your income, class, or background. If future generations are better educated about personal finance, most of the above problems will be significantly reduced.

The Building Society Association recently stated that:

“…teaching young people how to manage their money effectively is as important as drugs or sex education.” 

Other research has suggested that a majority of parents would rather their children were taught about personal finance than a range of traditional subjects such as History and Geography. 

An independent longitudinal study by the University of Manchester into the effectiveness of financial education qualifications confirmed that 95% of students were better able to manage their finances as a result of taking our Certificate In Financial Studies (an AS level-equivalent qualification). 
  
The course, carrying full UCAS tariff, is being taken at schools and colleges across the UK in rapidly increasing numbers. Many students taking the course have changed to a different bank account yielding a better return. Whilst others purchased additional ‘non-traditional’ products, such as ISAs or investment bonds.

There was an increase in the number of students owning multiple financial products and a decrease in the proportion of students who owned one or more credit or store cards.

Whilst the course appears to change behaviour by ensuring borrowing is affordable, increasing saving and ensuring students are generally able to manage their money, the course is not available at all schools and colleges in the UK. If all teenagers had the opportunity to study such courses, the improvements would be far more widespread. The result being a seismic shift in the financial behaviour of society at large.

When George Osborne made his announcement on Financial Education, he said:

“The ifs School of Finance and others are doing excellent work to increase financial literacy. But government could and should be doing much more to promote financial literacy teaching in our schools.”

The ifs welcomes this statement of intent but hope that as these plans develop, the Conservatives will ensure financial education is a dedicated standalone subject. We need to avoid it being bolted on to another subject such as maths or citizenship as the current Government intend.

If we are serious about improving levels of financial capability, we need to dramatically improve the financial education of the nation – and all the available evidence suggests the best way to do so is via a standalone qualification in personal finance.

Comments

[Winchester whisperer]

This is quite right but I think we as a Party should make a far more cogent attack on the Govt's moral attitude towards personal debts and indeed assets. Labour is very happy for at least 40% (their % target for schoolchildren to go to university) of young people to start their lives with high levels of debt. It also purports to encourage home ownership, although the reason for this is not clear to me. On death, however, one has to give up 40% of one's assets to the Govt. Regarding pensions, they were very happy to let Equitable Life policy holders go under. I thought they had been encouraging the idea of portable personal pensions but in yesterday's pre-Budget report, GB announced an additional inheritance tax of up to 70% on Sipps. So what can we conclude? GB will be the bankrupt PM: not only will he see higely increased levels of personal bankuptcy but also he himself is morally bankrupt. On the other hand, who cares? They've now changed the law so you can become a company Director even if you've been bankrupt. What a relief!

[Kelly Ostler]

I agree with Gavin, the knowledge of personal finance issues are essential life skills, that many of us take for granted. The practical and simple application of maths to show how it is applied in everyday life can make a difference as to whether someone would take a loan from a door-to-door sales man with 300% APR.

There are many people who do not understand APRs, percentages, compound interest, how to manage a household budget or how to write cheque.

We shouldn't just be talking about social inclusion but also financial inclusion. The Conservatives really could make a big impact in this area.

The Personal Finance Education Group (PFEG) and credit unions work tirelessly on these issues.

[David Belchamber]

George Osborne and Gavin are absolutely correct on this one. Many years ago I used to teach sixth formers a bit about personal finances in General Studies, because I was so appalled at how little otherwise highly intelligent teenagers knew how to cope with financial matters.
As for student loans being a millstone around graduate necks, perhaps George Osborne might like to suggest that parents do what so many parents, whose children will go to independent schools, do: start saving for the costs of college life when their child enters senior school.
After all, they are getting almost a free education and, if the child doesn't go to college, then there will be a nice little nest egg for them when they leave school.

[sjm]

I'd like to volunteer to design the schools' personal economics course. The whole course will take no more than three periods, will be extremely simple, and I will guarantee success in the final test (I brought up two kids who manage their money just fine).

My precepts would be:

There ain't no such thing as a free lunch - in one way or another, you will pay for anything you want or need.

If a financial offer looks too good to be true - it is.

The satisfaction of buying something with money honestly earned far outweighs the satisfaction of buying something on borrowed money.

Hope for the best - plan for the worst.

Don't trust the Government - ANY Government.

[Stewart Nairn]

I have my doubts as to whether "at the core of almost all of our social problems is the mismanagement of money due to financial ignorance."

While I think it likely that the majority of the 5,300 people seeking advice from the CAB about their debt related problems are financially ignorant, perhaps even as ignorant as me,it is not ignorance, but rather, I would suggest, indolence, that is the source of their debt problems.

It is hard, nowadays, to indebt ones self without signing a piece of paper saying that the terms and conditions relating to the loan/overdraft/credit card etc. etc. have been read and understood.

No one actually reads them. Why not? Because nobody cares. We live in an increasingly consequence free society where you don't have to be careful, you don't have to consider consequences or make provision. If you get into difficulty the state will bail you out. That's what it's there for, isn't it?

Most of the 5,300 are not in debt to the extent that it causes them problems, because the cannot work out compound interest to the nth degree. They wouldn't want to even if they could. “I want it, and I want it now".

What has lead us to this consequence free society? I would suggest it is the ever expanding state. If our responsibilities are taken away from us is it surprising that we act irresponsibly.

Requiring schools to teach financial management is self defeating. By setting a national curriculum, requiring schools to teach specific things in specific ways, setting up an inspection regimen to check that they are doing it properly, setting national standards, measuring schools against those standards, giving and taking away school finance on the basis of these measurements and so on and so on, is going in exactly the wrong direction. It is increasing the activity of the state and removing personal responsibility.

Personally I'm all for a bit of real world finance being taught in school. If I had a choice I would take this into account when deciding what school to send my children to.

Is it really such a radical idea to let schools teach whatever they want to teach, free from government dictat, and let them stand or fall on their record as measured by their paying customers, the parents.