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.