The general lack of financial capability in the UK is not only damaging to the individuals concerned, it affects their families, friends, the communities in which they reside and the economy as a whole.
This lack of capability naturally has significant implications for the financial services industry, too. If consumers were better educated, they would be able to make more informed financial decisions that in turn would lead to more appropriate product purchases and a reduced likelihood of taking on unaffordable debt.
Better understanding and greater confidence may also lead to increased use of financial services in general.
A further benefit for the industry is that by providing a good grounding in finance, both the numbers and quality of those entering the financial services industry would be boosted.
There can be little doubt that financial education has moved up the political agenda in recent years and we are pleased that this Government has devoted considerable energy to this issue. The problem is that they have missed a major opportunity to put in place a proper structured process to deal with the problem.
In July, as part of curriculum reforms, the Government announced that economic wellbeing and financial capability would become part of the existing personal social and health education subject in schools. However, the content was already there. All that appears to have changed is that it now has a name.
The study of PSHE will remain optional and non-examinable and the economic wellbeing component will continue be just one small strand of a very diverse subject.
As the schools inspectorate (part of Ofsted) confirmed, many secondary schools do not teach PSHE because they want to give more space to accredited subjects (that is, subjects that count towards school league tables).
Of those that do teach it, few include any of the personal finance elements that are already supposed to be part of the subject. The plans therefore appear highly unlikely to change the financial behaviour of any young person.
The Government has also stated that it is delivering personal finance through a range of other subjects across the school curriculum such as enterprise education and citizenship.
While these are clearly well intentioned policies, none of these non-statutory, non-examinable limited actions, either alone or combined, will achieve the objective of equipping young people with the necessary skills to manage their own finances. There is no evidence to suggest otherwise.
In contrast, stand-alone qualifications in personal finance have been independently proven to make a positive difference to the way in which young people manage their money.
In addition to positive feedback from the 200-plus schools delivering GCSE, AS and A level equivalent qualifications in personal finance, independent evidence in the form of a University of Manchester study found that 95 per cent of students taking an IFS School of Finance course were able to manage their own finances effectively as a result of what they had learned on the course.
The research also backed up earlier conclusions from Cornell University that a stand-alone course in finance, where students know that its total aims relate to areas of financial management, is more effective than courses which cover a wide range of often non-relevant topics.
We would therefore like to see the Government add a stand-alone course in personal finance to the core curriculum. This would put the subject on an equal footing with geography, history and modern Foreign languages, that is, compulsory for all schools to offer it but not compulsory for students to take it.
Doing so 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.
Having an examinable subject also enables schools, parents and policymakers to determine how effective the teaching and learning of personal finance has been. At present, there is no examination for any of the numerous areas in which personal finance education is supposedly being delivered and it is therefore very difficult to know whether any of these policies are changing students’ financial behaviour.
This is despite the comments of Secretary of State for Children, Families and Schools Ed Balls, who said this month: “As a parent, I do not apologise for supporting testing. I am keen to know the test results.”
But this belief is not applied to financial education. The only current attempt at evaluating personal finance education in schools would appear to be via the FSA. The FSA benchmark study of financial education in schools was undertaken in June 2006 and was based on the responses of just over 300 secondary schools.
The FSA committed to repeating the survey every four or five years, saying “In order to measure the progress and impact of [their] work to improve the quantity and quality of personal finance education in schools across the UK.”
But as the National Audit Office confirmed earlier this year: “The FSA does not expect to see real improvement appearing for 15 years or more.”
I am sure that the financial services industry would generally agree that waiting 15 years to see if any of the FSA work to improve financial capability is effective is stretching the realms of acceptability. Even then, how will they know?
There is no formal way for them to measure their efforts or the effectiveness of the spend which is expected to total about £90m.
The IFS School of Finance is far from alone in believing schools should be compelled to offer their students the opportunity to gain these crucial life skills.
Sixty-nine per cent of secondary schools believe financial education should be made statutory, the BBA and BSA have called on Government to make financial education statutory and prior to departing the FSA, former chief executive John Tiner said that Balls should “find room for financial education on the mandatory core curriculum at the earliest opportunity”.
The push for statutory financial education is gaining increasing momentum from educationalists and the financial services industry. We are hopeful that the Government will listen to these growing calls and recognise that the current approach to this important issue needs amending.
Meanwhile, we will continue to do our bit by offering our qualifications to any school or college that wants to give their students the opportunity to gain these crucial life skills.