By John Edom, Reform Intern.
On Monday Reform held a seminar entitled “Financial capability can deliver social mobility” with the ICAEW and Conservative Shadow Work and Pensions Secretary Chris Grayling. The seminar was extremely timely, coinciding with the launch of a research paper by the Prime Minister’s Strategy Unit entitled “Getting On, Getting Ahead: A Discussion Paper Analysing the Trends and Drivers of Social Mobility”.
The Government’s findings indicate that social mobility has at best improved marginally since the 1970s and raise awkward questions about the opportunities available to people to move up from the social group they are born into. The implications of these findings are even more critical given the current economic downturn: the ability of Britain’s lowest earners to weather the storm of a recession is in serious doubt. They need financial support and expertise to survive in the short term, but in the long term financial capability is vital to making real improvements in Britain’s social mobility.
Individuals, couples and families who fall within the lowest income bracket are most likely to struggle with debt. They are less likely to have access to even the most basic financial services, such as a bank account, let alone the knowledge and information they need to be financially capable. The FSA has estimated that lack of access to financial services that most people take for granted can cost low income families as much as £700 a year: for example, without a bank account to set up a direct debit they miss out on the cheapest energy tariffs.
The current economic situation has shown that individuals across the whole of society could benefit from an improved knowledge of financial matters. Both public and private sector organisations can contribute towards this goal. The ICAEW and the Citizenship Foundation offer good examples: they run programmes encouraging finance professionals to share their knowledge, both in designing school financial capability lessons and through initiatives with public groups such as local housing associations. The ICAEW also runs an all party support group to answer MPs questions on financial issues relating to elements of policy that require a well informed vote and queries raised by constituents.
As Reform’s most recent report, Money's too tight to mention: will the IPOD generation ever trust financial services?, shows, the IPOD generation (Insecure, Pressurised, Over-taxed and Debt-ridden 18-34 year olds) has the highest debt and the lowest savings compared to other adults. The next generation must be given the support needed to ensure that they don’t find themselves in the same situation. The Citizenship Foundation has estimated the cost of delivering a pocket booklet of key financial information to every 15 year old in Britain at just £750,000, a sum that equates to only £1 per child. Such initiatives could be simple but essential steps towards fostering financial capability in the next generation of young adults. An important contribution to this end could be made by Britain’s banks as part of their commitment to delivering financial capability to individuals and businesses.
People must be given the opportunity – and encouraged – to invest in themselves to raise their financial capability and to take responsibility for their own finances. The public and private sectors must work together to provide easily accessible, high quality information about financial services. Britain’s most financially and socially vulnerable must be given the support they need to make the decisions which will allow them to innovate their way out of recession.
