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January 25, 2013 6:51 pm

Facing the financial facts of life

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Could money education help the savings crisis?
Children from year 6 at Brookside Primary School in Hayes, have a lesson in finance using money and games such as Monopoly©Rosie Hallam

Behind a desk in west London a new financial product is being developed. The crebit card is a combined credit and debit card which users can use to purchase items with either their own money when they have it, or credit when they don’t. The interest rates paid and charged vary according to its use.

The crebit card’s inventor is ten years old. Along with the rest of his class at Brookside Primary School, Arthur has been learning about money for the past few weeks – where it comes from, how it is used, why lenders charge interest.

One girl sitting at the back of the class thinks she has a better idea. Instead of borrowing money and paying it back, why not lend it out again and again and earn the interest? When asked what she would do if she had to pay the original sum back she shrugs and says: “Start again?”

Personal finance lessons such as this are rare in England.

The subject is not yet on the national curriculum, although it is taught in Wales, Scotland and Northern Ireland. English schools interested in adding it to their timetable must rely on help from businesses and charities such as Personal Finance Education Group (pfeg), MyBnk and DebtCred.

But as fears grow about the scale of the national savings crisis and its repercussions, there is more interest in the potential benefits of financial education.

Will money be on the curriculum?

The government’s planned overhaul of the English state school curriculum is expected to place more emphasis on factual information, and grant schools more freedom in the way subjects are taught.

Since it was first introduced in 1988, the national curriculum for state schools in England, Wales and Northern Ireland has undergone a number of changes including the introduction of A* grades and the requirement for courses in religious and sex education.

There are currently 12 subjects, including music, design and technology and citizenship, and some academics believe this number will be reduced to create a smaller core of subjects.

The All-Party Parliamentary Group for Financial Education for Young People, which is campaigning for personal finance to be included in the curriculum, says it has taken this into account.

“The government is looking to streamline the national curriculum, so we haven’t asked for a separate subject,” explains Justin Tomlinson, MP for North Swindon and chair of the group. “We want financial education to be embedded in maths and PSHE (personal, social, health and economic education).

“We’re at the biting our nails stage. We have had various parliamentary debates and we have spent six months answering questions. We have a 150-page report that 1,000 people fed into and which we have presented to the government. We’re waiting for the Department for Education to respond.”

So far the DfE is giving nothing away. “There has been a lot of interest in our review of the national curriculum ,” says a spokesperson. “We are listening to these comments and will publish the new draft curriculum for consultation soon.”

Changes to the curriculum are due to be implemented by 2014.

The Chartered Insurance Institute estimates that, collectively, individuals in the UK are already trillions of pounds short of the savings they need to retire comfortably, and says young workers are least likely to save. The UK savings ratio, a measure of how much income households squirrel away, is about 7 per cent, below countries such as Germany, where households put an average 10 per cent of their salary aside.

Some schemes to tackle endemic under-saving are in place, including the introduction of auto-enrolment workplace pension schemes, and campaigners say that financial education would complement such plans, enabling people to be confident and competent with money from a young age.

By the time a child reaches 16, charities such as pfeg want them to know how money is used, what consumer protection is available to them and how to budget over the long and short term.

The cost of doing this would not be high, they argue, if the UK follows the example of Australia and includes finance within existing subjects such as maths and PSHE (personal, social, health and economic education).

At the John Warner School in Hoddesdon, Hertfordshire, children aged 11 to 19 have been learning about personal finance for the past three years, mixing factual lessons on annual percentage rates and compound interest with discussions about financial responsibility.

Ellen McHugh, the senior teacher responsible for the programme, thinks the lessons help to alleviate the anxiety many students fell about their future, particularly the soaring costs of university and housing. “If schools are going to push young people to improve, they must be taught to manage their finances,” she argues.

The Financial Services Authority believes adults in their twenties, who are often required to made decisions about housing, loans and employment for the first time, are the least financially capable age group. And payday lender Wonga says more than a third of its 1m customers are aged between 25 and 35, suggesting many fail to budget correctly.

Sharon Collard, director of the Personal Finance Research Centre at University of Bristol, thinks that the increasing exposure of young people to commercialism means that financial education is a more pressing issue than ever.

“Good or bad money habits learned young tend to endure in adulthood and the lack of a savings culture in the UK, and the lack of any serious effort to promote one, is an ongoing issue,” she says.

Last summer, the Centre for the Study of Financial Innovation found that out of 440 young people aged 18-25, three-quarters had received no financial education.

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Sophie Robson, the 25-year-old author of the report, believes the lack of education also means young people are disengaged from the financial services industry.

“I have had a few consultations with financial advisers, and I’ve felt that they are either going much too fast, or explaining things to me that I already understand very well,” she writes. “I would have really benefited from more practical, hands-on advice when I was younger.”

Some academics argue that government resources would be better spent on regulation that ensure products sold to adults are marketed clearly, instead of material that teaches children what the products are.

Professor Brigitte Madrian, a professor in Harvard University’s John F. Kennedy School of Government, claims that the jury is still out on the effectiveness of financial literacy programmes. “What evidence is there that financial education actually increases financial literacy?” she asks. “The evidence is more limited and not as encouraging as one might expect.”

But Flore-Anne Messy, head of the OECD financial education project, says this argument holds little weight as global financial literacy schemes are still in their infancy. “Regulation and education are both necessary,” she says. “We need both if we are to tackle global financial problems.”

How Australia leads the way

England is not the only country preoccupied with financial illiteracy.

In December 2012, financial education experts and policy makers from 30 countries across the world gathered in Manila, capital of the Philippines, to review global financial problems and discuss whether teaching personal finance in schools might help to address some of these issues.

More than 40 countries now have, or are developing, a formal national strategy for financial literacy, according to the Organisation for Economic Co-operation and Development (OECD), which is conducting an international study to identify which countries have the most effective programmes.

Australia has one of the most comprehensive plans, following a $10m state investment in 2010, which included material for the subject to be taught within maths and face-to-face training for 6,000 teachers. The curriculum focuses on practical financial skills, including lessons about mobile phone plans and interest-free periods offered by chain stores.

In the Czech Republic, the subject has been taught in secondary schools since 2009 and the government now hopes to extend it to primary schools. Schools claim that pupils have demonstrated a much better understanding of topics such as credit and loans – a claim that was backed up by the Citi Foundation in 2010 when it found that Czech students had a better understanding of basic financial principles than children in many other European countries, including the UK.

A number of Czech schools use a board game called Ne$t Egg to engage pupils, encouraging them to budget and understand investment. The game’s inventor, Vladimir Fichtner, says that he had the idea in the 1990s when he realised that most citizens were unprepared for the entrance of capitalism into the country following years of communism. The game claims that within three hours of playing, students will talk “like financial planners”.

In Italy, financial literacy is taught as an extracurricular subject, using materials partially developed by the financial industry. A number of separate pilot schemes to make the subject a key part of the curriculum have been hailed as a success and plans to roll this out across the country are under discussion.

The approach by other countries, such as Malaysia and South Africa, is to include personal finance within maths, while in the US certain states have it as a standalone, mandatory subject. According to the OECD, many countries are waiting to see what happens in Brazil, where a wider programme is under way across 900 schools to teach children not just what finance is, but why they make the decisions they do, and how they might learn new and better money habits in the future.

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