There are a number of initiatives that seem to have been around for ages, but which have really begun to gather momentum in recent months. ‘Treating Customers Fairly’ (TCF) is one such initiative from the Financial Services Authority (FSA), which has steadily been gathering pace, while financial capability is not far behind it. It should perhaps be no surprise that the two initiatives are gaining in prominence when one thinks that in many ways they represent two sides of the same coin. TCF is all about making sure that providers do everything in their powers to ensure that their entire operation, from product design to post-sales support, holds the customer at the centre of their thoughts. In return the financial capability movement seeks to give consumers the knowledge and financial acumen to make best use of what is available to them in the market.
In both areas training is key and the Institute of Financial Services (ifs) is heavily involved in developing and delivering training to the market in both areas.
A big issue
But why is it that financial capability has become such a big issue in the UK? First and foremost, there can be no doubting that we have become a nation of borrowers rather than a nation of savers. This, in part, has been driven by the increasing cost in living, but more by the rampant consumerism that has swept through recent generations and left us too impatient to save for the things we want. The financial markets have also developed to a degree that few could ever have predicted and access to substantial sums of money is incredibly easy. The speed at which finance can be arranged has also increased dramatically and this is especially true in the personal loan market although huge strides have also been taken in the mortgage market. While this shift in attitudes and access to credit has in many ways helped us develop as a society, it has also brought responsibility to shoulder. Finance providers must ensure they are distributing their products sensibly, while borrowers must take care in the debt they accept. On a wider note there is a duty within society to ensure that children are prepared for what the world has to throw at them and giving them a sound understanding in the basics of personal finance must now be central to both present and future moves in education.
A baseline standard
What the government is trying to do is create a baseline standard that will give everyone a basic level of understanding in financial matters. Not only will this make it harder for unscrupulous providers to abuse clients, but also give clients a better footing from which they can make the type of decisions that will help them in the future. The country now bears a hefty burden of personal debt well in excess of £1 trillion and while there is no reason that this cannot be tackled, there is a need to ensure the situation does not get worse through poor management.
In looking at the scale of the task ahead, it is worth taking note of a recent announcement from the FSA. Chief executive, John Tiner, said the regulator aims to help 10 million people over the next five years to ensure they avoid personal finance problems in the coming years. He said: “There is an urgent need to help the young. The ability to manage money grows with age and experience. But rapidly changing economic and social trends mean that today’s 18-40 year-olds are faced with greater challenges than were faced by their parents.”
There is no doubt this is the case and it is welcome news indeed that the issue has taken on such a priority for the regulator. ifs offers a range of qualifications to help equip 14-19 year-olds with the tools they will need to cope in today’s world. There is a Certificate in Financial Studies (CeFS) and a Diploma in Financial Studies (DipFS) – the diploma was recently recognised and granted a UCAS tariff, demonstrating how central to education personal finance is becoming. Alongside these, there is a Foundation Certificate in Personal Finance and an Intermediate Certificate in Personal Finance. The idea is that people can go from learning the basics to preparing themselves to be financially independent and be both capable and confident that they are well placed to make the right decisions for themselves.
Skills and knowledge
Debt will never go away and certainly students are likely always to have money problems while first-time buyers will struggle to get on the property ladder. These things are unlikely to change, but what we must ensure is that individuals have the skills and knowledge to make the markets work to their advantage.
If we can work towards a more financially literate society we can help protect the health of our wider economy and avoid stumbling blind into a situation where the debt is simply unmanageable. Intermediaries and providers will also benefit as well-educated clients will have a better understanding of what products can deliver for them and be happier to take them up where that need exists. Relationships should also become healthier as arrangements are better managed by clients looking to keep their financial house in order.
Improvements will be slow in coming but this must not be a deterrent, and we should work towards a situation where future generations take for granted a knowledge that today’s children simply do not have.
