The basics of budgeting are as true today as when Dickens’ Mr Micawber explained ‘annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.’
But the Micawber lesson, valuable as it is, is a long way from the reality faced by the majority of young people. Taught to live with debt from an early age, for most young adults the idea of not spending money you do not have is alien.
So only the bleakest pessimist would condemn last week’s announcement that personal financial education is to be included in both maths and citizenship in the new national curriculum.
The financial services industry creates a lot of good products, but it also creates a lot of bad ones. So the team deciding precisely which products end up having their flaws analysed by the national curriculum next year have a crucial task, and can also expect a heavy bombardment of lobbying from concerned providers.
I only hope the people drafting this personal finance element of the curriculum do not miss this opportunity to nail the worst the financial services industry has to offer.
The new curriculum will require schools to prepare pupils to take their place in society as responsible citizens by ‘providing them with the skills and knowledge to manage their money well and make sound financial decisions’. Fair enough.
At key stage 3, when children are between the ages of 11 and 14, the content will be the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services.
Between 14 and 16 they will be learning about wages, taxes, credit, debt, financial risk and ‘a range of more sophisticated financial products and services’.
The Personal Finance Education Group argues with some force that children should be educated about the principles that underlie financial products rather than specific products themselves, which change with time.
Payday loans, for example, did not exist 20 years ago, so would have been missed off the curriculum. And with-profits bonds would have only made it into teacher’s bad books as they were no longer being marketed.
Instead the lessons are likely to focus on how to understand what is put in front of you and identify where its flaws may be: high interest, hidden penalties for missed payments and exit charges, to name but a few. Hopefully they will also focus on behavioural finance factors, the hard-wired human traits that influence our financial decision-making.
But these principles are bound to end up being developed in relation to specific products being marketed today, and that is bound to be making some providers of products that contribute little or nothing to the general good of society nervous.
We all have our pet hates, and it will be interesting to see which ones end up on the national curriculum.
Store cards, targeted at young people by some of the most respectable names in the high street, would be near the top of my list. Buying through a product that offers 10 per cent off today’s purchase feels like the financially prudent thing to do if you are an 18-year-old. But nobody clears the card straight away and the 29 per cent APR kicks in soon enough.
Doubtless someone from the Finance & Leasing Association will contact me to say how much store card users like their cards. The reality is the misery of the rising interest lives long after the useless piece of tat purchased has faded in the memory.
How lessons on risk are structured will also be watched with keen anticipation.
In a defined contribution world it is absolutely right that 16-year-olds are taught about financial risk and surely this should extend to the different asset classes they will be automatically enrolled into in five years time when they hit auto-enrolment age. But it is a big asset allocation call for whoever has to decide how that is expressed.
From unhealthy foods to global warming, our education system is moulding children with forthright views on a range of key issues. The battle for their hearts, minds and wallets will be hard fought.
John Greenwood is editor of Corporate Adviser