In July 2008 the Financial Services Authority (FSA) published some research into financial education. This research, titled, Financial Capability: A Behavioural Economics Perspective was undertaken by the London School of Economics on behalf of the FSA. There was no accompanying press release and no great fanfare. Why?
Well, the research was far from a resounding endorsement of the financial capability work that the FSA has been undertaking. Work which is funded by the levies imposed on the financial services industry. For example, in relation to both what is being delivered in schools and how it is being measured, the research states: “Providing financial education to schoolchildren is pointless unless their adult behaviour changes. Questionnaires administered immediately after a lesson cannot address the key issue."
Limited evaluation
The ifs School of Finance has argued for many years that the FSA and Government approach to financial education lacks the tools with which to measure whether what they are doing will be of any use.
What little evaluation does take place is limited to inputs i.e. how many people have been "reached". We have long argued that evaluation should instead be based on outputs instead i.e. have new skills been learnt, what behavioural changes have taken place as a result and are they long lasting changes?
However, the manner in which this FSA research has been interpreted, particularly by the press (specifically, the Financial Times), suggests that all forms of financial education are unlikely to be of any help. This is simply not true.
The eminent researchers who undertook this supposedly comprehensive research for the FSA recently confirmed to us in writing that they were completely unaware of the fact the ifs School of Finance, an educational charity, had over 10,000 14-19 year olds taking one of our QCA accredited, GCSE, AS or A level equivalent qualifications in personal finance during the last academic year. Nor were they aware that during the past three years more than 20,000 students have gone through these qualifications and gained the skills and confidence to make informed financial decisions as a result. In fact, they had no idea that such qualifications existed! And yet the FSA's department for financial capability is very aware of what we are doing.
The researchers commissioned by the FSA were similarly unaware that the University of Manchester has conducted an independent study into the effectiveness of standalone qualifications in personal finance that found there were major lasting effects on students financial behaviour (95% of students able to manage their finances effectively).
Recognised qualification
There is an increasing body of evidence to suggest that a standalone, nationally recognised qualification produces financially capable young people e.g. University of Cornell (2001) University of Manchester (2006) Ofsted (2008).
It is this evidence-based approach that has led us to ask Government to add a standalone qualification in personal finance to the core school curriculum. This would put personal finance on an equal footing with other subjects such as Geography, History and Modern Foreign languages - compulsory for schools to at offer personal finance as a GCSE or equivalent option but not necessarily compulsory for students to take it.
Doing so would give financial education an equal footing with a wide range of other subjects and demonstrate that Government is serious about the need for future generations to become financially capable. This would lead to a step change in the number of young people leaving school with the necessary skills to manage their own finances effectively.
Also, by having to offer a qualification to students as a GCSE option, it is likely that many schools would choose to offer younger students an introduction to Personal Finance before they reach 14, even if they don't then choose it as an exam subject.
A further benefit is that if all schools had to offer such a subject, they would doubtless seek to ensure that their teachers had the skills and confidence to teach personal finance effectively.
Having an examinable subject also enables schools, parents and policymakers to determine how effective the teaching and learning of personal finance has been. As the FSA’s own research has clearly demonstrated, at present there is currently no effective evaluation for any of the numerous areas in which personal finance education is supposedly being delivered to young people. It is therefore very difficult to know whether any of the FSA or Government policies are changing students financial behaviour.
Ensuring schools are obliged to offer their students the opportunity to become financially capable will take political courage and sadly that appears to be in rather short supply at the moment.
Until such courage is found the ifs School of Finance will continue to press the Government to act whilst providing rapidly increasing numbers of schools and colleges with qualifications that are independently proven to make a positive difference to young people's financial capability, a key lifestyle skill.
