One of the most common complaints from school children is that the subjects they are taught often seem to have little relevance to the real world. There is evidence to suggest that many parents feel the same. Earlier this year a survey revealed that parents would rather their children were taught about personal finance than a range of traditional school curriculum subjects, such as history and geography.
While I obviously do not share any aspiration to scrap history or geography, I do believe the fact that a majority of parents feel so strongly about this issue demonstrates general public support for introducing greater financial education in schools.
Parents also believed they would be in a much healthier financial position had they received personal finance education when they were at school – and they are right to believe this. The Financial Literacy Report in 2005 found that young people made positive changes to their spending and saving when taught about personal finance. This is backed up by independent research from the University of Manchester, which showed 95 per cent of students taking the ifs School of Finance Certificate in Financial Studies (CeFS) were better able to manage their own finances as a result.
Encouraging and educating
We are encouraging schools and colleges to ensure students are educated about finance by offering them access to GCSE, AS and A Level equivalent qualifications in personal finance. Young people need to know how bank accounts work and the way to evaluate the products on the market, from mortgages to phone tariffs.
If people have no concept of money, how it works and how to manage it effectively, then increasingly they may simply look to spend as they wish and take advantage of credit where available. By succumbing to the ease with which we can now borrow money, many end up creating long-term problems for themselves.
Financial education is not about preventing people from spending their money, but about teaching them how to make it work for them effectively and crucially, how to make informed choices. Through better financial management people can still enjoy the things they want – the home they need, the holiday they look forward to and the range of other purchases made each year – without continually being plagued by levels of debt that are simply unsustainable.
The evidence suggests that those taking relevant courses are gaining the financial skills they require, such as understanding mortgages – the different types, and how each works best for particular circumstances.
Managing finances
By helping people to understand what financial products are available and how they work, more people will be able to successfully manage their own finances and purchase products appropriate to their needs.
Hundreds of schools have already signed up to financial education courses to help give students the kind of grounding they need in financial services – the number of students has more than tripled in less than a year.
However this is an issue which should concern not only schools and colleges, but also the wider financial services community as a whole.
Work is already being done by certain industry bodies to become more actively involved with schools and colleges and some organisations have been forthcoming in providing resource and expertise, but there is room for far greater involvement.
Several of the schools and colleges have been ‘adopted’ by a financial services sector employer. These experts interact with the schools and colleges to help deliver parts of the curriculum.
This may mean a taxation expert visiting a school, students visiting financial services institutions or having a visit from a debt counsellor. There are other means by which interaction can be facilitated, be it with a video conference or site visit or simply being at the end of the phone if a teacher requires advice about a specific financial issue due to be taught to their students.
As stated above, our personal financial management courses include educating about mortgages and it would naturally be helpful if those involved in the mortgage industry were to become involved.
Broker effort
The fragmented nature of the broker channel, where there are thousands of small firms often working in localised areas, means getting support for a learning programme on a national basis may prove difficult.
For schools and colleges, having access to practicing advisers will not only prove useful for students, it will also provide confidence and support for teachers who may not have taught financial courses in the past.
There are real advantages for firms getting involved. Not only will it boost their profiles locally with students, parents and teachers, it could help encourage students into careers in the mortgage industry. Furthermore, the knowledge that local firms are ‘putting something back’ into the communities they serve can be hugely rewarding in itself.
In the longer term, better educated consumers, like better educated advisers, are likely to result in far fewer cases of inappropriate product purchases – and with the news that the total expected cost of endowment mortgage mis-selling is likely to top £3 billion, it doesn’t take a rocket scientist to determine that a small investment now could save a huge cost later.
Mark Roberts is head of faculty financial regulation and corporate and academic relationships at ifs School of Finance
