Last month, the all-party Parliamentary group on financial education for young people produced its recommendations on how to increase financial knowledge and its solution to the problem of poor financial literacy is simple – personal finance needs to be compulsory in all schools.
The lack of understanding of financial services has traditionally been cited as one of the reasons that people take on unsustainable levels of debt and buy inappropriate or unsuitable financial products and the scale of the problem is brought home by some f the statistics included in the APPG’s report.
A study carried out for the Treasury in 2006 showed around one in four adults of working age was functionally innumerate.
Research carried out by credit card firm Capital One in 2011 found that 43 per cent of parents do not understand simple financial terms such as APR or PPI, while a survey carried out by YouGov in 2008 found that 70 per cent of 18 to 24-year-olds were in debt.
At present, there is no statutory requirement for personal finance to be taught in schools, with only 45 per cent of schools reporting they teach the subject. As there is no specific requirement to teach it, personal finance is incorporated in a haphazard manner, sometimes included in maths, sometimes as part of PSHE (personal, social, health and economics) or sometimes included in IT or history.
To correct the shortcomings in the current approach, the APPG has suggested financial education should be compulsory in all schools, both primary and secondary, an approach that finds wide-spread support among teachers, with 94 per cent of schools surveyed by the APPG supporting this approach.
The group’s report suggests that primary schools should teach basic money and maths skills while secondary schools should split financial education between maths and PSHE where it should be one of four core subject areas.
Andrew Percy MP, who led the APPG inquiry, says: “Credit cards, mortgages, hirepurchase agreements, mobile phone contracts, tuition fees and even supermarket offers all require us to apply functional maths skills, such as being able to calculate APR, compound interest and percentages, to real-life situations.
“But too many of our schoolleavers, who can perform complex mathematical equations and algebra, have no idea what basic financial terms such as APR and PPI mean, leaving them without the necessary level of financial literacy to make decisions in an increasingly complex financial world. These decisions only become more complex.
“We believe that financial education is a long-term solution to the national problem of irresponsible borrowing and personal insolvency. Furthermore, teaching people about budgeting and personal finance will help equip the workforce with the necessary skills to succeed in business and drive forward economic growth.”
Martin Lewis of Money-SavingExpert.com has been a firm supporter of the APPG’s aims and says: “We need compulsory financial education in our schools. Our nation is financially illiterate, for over 20 years we have educated our youth into debt when they go to university but never about debt. Breaking this cycle will mean less mis-selling, fewer bad debts, better consumers and could save the public coffers a fortune.”
But while there is wide-spread support of the aims of the report, there is some disagreement over how this should be put into practice.
One of the key differences of opinion is whether financial education should be taught by teachers or industry experts.
Institute of Financial Planning chief executive Nick Cann says: “A lot of initiatives in the past have been delivered or sponsored by the banks or insurance companies and are undoubtedly too productfocused.”
However, he says industry experts remain better placed to teach what can be a complicated area. He says: “It should probably not be delivered by teachers unless they are trained and competent.”
On the other hand, ifs School of Finance head of capability Rod McKee thinks there is nothing wrong using teachers to deliver most of the education providing they get support from industry experts when needed.
He says: “We strongly believe financial education should be delivered by trained teachers supported by experts. Not all these experts may have the ability to engage the students, although they may have the knowledge.”
The APPG’s report acknowledges advantages and disadvantages of both approaches and suggests awarding a quality mark to external experts who provide financial education.
But the biggest barrier to providing adequate financial education is not who delivers it but whether schools will be able to find the time to deliver it. In an already packed curriculum and one that is being shaped by Education Secretary Michael Gove to concentrate on core academic subjects, there is very little time to incorporate any additional matter.
McKee says: “Time is an issue but it is also a question of importance. Many schools will focus on what they are being measured by, which is maths and English and the academic subjects favoured by Mr Gove. We are not against improving academic standards but we need vocational qualifications to be available.”
Ample Financial Services managing director Colin Parkin says this raises the question of whether the subjects being taught are still relevant and says: “I think teachers probably do not have enough time but is what we teach and examine relevant anyway? Reading the classics like Charlotte Bronte might be good for basic education but does it teach children to talk correctly? Time needs to be spent on practically applicable subjects.”
After an online petition started by Martin Lewis reached 100,000 signatories in November, the backbench business committee of the House of Commons scheduled a debate on provision of financial education in schools in December. The debate ended with a recommendation that compulsory financial education for all schools should be included in the Department for Education’s current review of the national curriculum.
Parkin says if this move is successful we could see a big change in the way people deal with financial services: “Education is the best way. If the APPG succeeds, it could make a real difference.”
The APPG on financial education for young people has the biggest membership of any APPG and seems to command widespread support from the industry, schools and the public.
But McKee says for all its work, it is unlikely to make a difference. “While I appreciate the work the APPG has done, my fear is the recommendations will not change anything.”