View more on these topics

A Consumer&#39s view

Money Counts, the FSA&#39s new initiative to teach personal finance in primary schools, is a very welcome step in the right direction. One aspect of the educational system which has been sadly lacking for many decades is its effectiveness in equipping children to deal with the practicalities of life.

The Money Counts book marks the introduction of personal finance into the curriculum from this year and its aim is to prepare children for the sort of financial decisions they will face as adults.

Gill Hind, of the FSA&#39s consumer education department, says: “Despite enormous chan-ges in the world of personal finance in recent years, there remains a striking lack of financial awareness among large sections of the adult population.”

This is probably the understatement of the year. Walk out into the street and ask 100 passers-by to give a description of a mortgage and you would probably find less than 20 per cent who could give an accurate definition.

When it comes to products such as with-profits endowments, which have been deliberately surrounded in mystery by life companies, it is doubtful whether one person in 100 could accurately describe what they are or how they work.

Which brings us to the question of how much homebuyers could have been expected to understand about how an endowment-linked mortgage works and how much of the blame for the shortfalls they should be obliged to accept.

Should homebuyers be entitled to compensation if they suffer a shortfall on their endowment policy and could they reasonably have been expected to understand the risk involved in this repayment method? Almost certainly not.

Some homebuyers could be very badly hit by a potential shortfall and it is not enough to simply offer them a reimbursement of their endowment contributions plus a flat rate of interest.

Older borrowers with short-term mortgages of 10 to 15 years would have paid off a substantial amount of the loan capital if they had taken out a straight repayment mortgage.

The Financial Ombudsman Service has said it will be drawing up guidelines on how to treat claims for compensation. But there will be a large proportion of cases where the life companies and lenders will argue that the borrower knew there were no guarantees involved.

However, it is highly dubious whether the risks were really explained. Even if they were, most homebuyers would have interpreted this as a risk that the surplus would be less than expected – not that the maturity value would not even be enough to pay off their loan.

All of which brings us back to the topic of education. If we had all learned about endowment policies at school, we would probably not be in such a bad situation today.

But it is not all the institutions&#39 fault. In some areas. such as straightforward savings accounts, which are simple to understand, there is no doubt that consumer apathy, rather than lack of knowledge, plays a large part in them getting a raw deal.

Why do savers put up with miserable returns of less than 2 per cent gross from most of the high-street banks when, by shopping around, they could move to Northern Rock, Egg, First Active or a number of other institutions offering competitive rates?

Everybody benefits if consumers become more financially aware. Financial educa-tion is important to the Government if it is removing the state safety net and asking individuals to take responsibility for their financial security. It is also important to the institutions, too, that customers are not misled when buying financial products.

With the regulator becoming increasingly active, they will find themselves increasingly in the position of paying compensation for misselling – which, in the case of Equitable Life, has brought the company to its knees. This

cannot be the right way to do business.

Recommended

Gareth Marr

The cheapest way of handling stakeholder communication for IFAs is to do nothing. For many, this is probably the best planning at the moment.Stakeholder should be viewed as two separate and dis-tinct products – an employee benefit arrangement distributed via the employer and a personal financial product for the individual. If your main business is […]

Size of relief for heirs

Inheritance tax is often known as a voluntary tax because there are so many ways of not paying it.However, many estates are still subject to IHT – mainly because we are not prepared to give away the bulk of our assets during our lifetime.To minimise the amount of IHT paid, we also need to make […]

Finnie to star in West End

Scottish Life has appointed Andrew Finnie as its West End branch manager in London.Finnie will be responsible for developing business and raising the profile and perception of Scottish Life in London, focusing particularly on the West End. He will report directly to Scottish Life London manager Alan Easter.Prior to his new appointment, Finnie was Scottish […]

Blight at the end of the tunnel

Uncertainties surrounding RU64 continue to be a thorn in the side of pension planners.Life offices are calling for the PIA to clarify RU64 before the introduction of stakeholder to try to bring the pension planning blight to an end.ABI figures for the second quarter of the year reveal regular-premium pension sales have dropped by 25 […]

Frexit & contagion risk in Europe

Many commentators have suggested the UK’s exit from the European Union will trigger a domino effect, leading to its eventual break-up. Neptune Head of European Equities Rob Burnett discusses the likelihood of this happening. Click here to read more Important informationInvestment risks Neptune funds may have a high historic volatility rating and past performance is […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com