The following speech was delivered at mallowstreet's "Partnership for Change" event on 1st May 2014, and is available on video here.
Let me start with a simple statement :
“If we don’t act now to provide the financial education that people in the UK need – we face one certain outcome – a socio-economic crisis.”
According to Financial Education charity pfeg; “Two-thirds of people in the UK feel too confused to make the right choices about their money.” The reason behind this is clear, a lack of appropriate education – MyBnk – another charitable financial education provider estimates that only 1in10 people have ever had any formal training in financial capability. A study commissioned by Aviva established a clear link between levels of financial capability and levels of well-being in people of all ages.
As a group (and by group I am referring to the 100 people sitting in this room), many of us spend our working lives dealing with the intricacies of our economy and the processes and stakeholders that interact to create it. For us it is easy to forget quite how daunting even the most basic financial products are to millions of people in the UK. Compound Interest, Credit ratings, Mortgage Interest Payments and Pensions are all terminology that are alien to large swathes of the UK populace - trying to comprehend forward guidance, monetary policy, the effects of inflation and the optimal way to draw-down your pension challenge even the more financially savvy members of the general public.
A study conducted by the Centre for Social Justice (CSJ) in 2013 estimated that levels of personal debt in the UK stand at around £1.4trn, the equivalent of £54,000 per household. The report shows that unsecured consumer debt has almost tripled in the last 20 years to nearly £160bn. Worryingly, indebted households in the poorest 10% of the country have average debts more than four times their annual income.
This is all the more concerning as we are living through a paradigm shift in financial responsibility – it is moving away from governments and corporations and onto the shoulders of individuals. Young people today have and will have significantly more financial responsibility than the generations that preceded them and most studies show they have lower levels of financial literacy. Many of you will be very familiar with this shift in the form of the move from Defined Benefit (DB) to Defined Contribution (DC) pension systems. The reforms to the pensions system announced in this year’s budget will give individuals more autonomy over when/how to access their money. This shift is also taking place within healthcare and even within education itself through tuition fees. This shift must be supported by financial education. The evidence is there that this is already turning into a ticking time-bomb, people are not saving and planning for retirement in the way that they need to and as we have already heard this morning, this problem is compounded by demographics – we are all expected to live significantly longer and we are an ageing population. Half of all babies born today will live to 100 years of age.
This is not a sudden realisation - The relevance of financial education is acknowledged at the highest level of global policy-making: In 2012, G20 Leaders endorsed OECD recommendations that specifically identified youth as one of the priority targets of government policies. The OECD report acknowledges that young people today will be faced by significantly greater demands for financial capability than their predecessors. In 2005, the OECD recommended that “financial education should start at school and that people should be educated about financial matters as early as possible in their lives.” The report also stressed that this is especially important since parents are unequally equipped to transmit to their children sound financial habits.
Since the OECD report was published 9 years ago, schools have failed to provide children with adequate levels of financial capability. These young people are missing out on a key life skill and are left in a position where they are completely ill-equipped to deal with the increased financial responsibility of entering higher education and/or the workplace. They are easily trapped by credit card companies and short-term loan businesses that have acted to perpetuate our culture of debt driven consumer consumption and immediate gratification. Our challenge is to nurture a cultural shift away from this towards one of long term financial prudence.
In September of this year financial education enters the school syllabus, for many pupils making up part of the citizenship and maths curriculum respectively. This is a big win for those of us concerned by this issue. But there are a number of key challenges that must be surmounted. Firstly, schools are incentivised to do whatever is necessary to achieve high scores based on the metrics upon which they are judged (i.e. the number of pupils achieving good grades). At the moment it is unclear whether financial education will be part of this process and I am concerned that if it is not it will be neglected.
Secondly, many of the teachers that I have spoken to have suggested that, even with the best intentions, they do not have the knowledge and skill-sets required to deliver these skills meaningfully and effectively. This is unsurprising and no fault of the teachers as they are likely to have missed out on financial education themselves for the reasons I outlined earlier.
So what can we do about this?
Using a mixture of teach the teachers and direct delivery we can support schools in providing financial education (the key messages and concepts).
At RedSTART we provide high impact, free 1 day introductions to financial education to young people from London and over the course of this year we will be expanding across other areas of the UK. We have delivered 20 education days since we started at the beginning of 2013 to over 350 young people. We teach four sessions covering goal setting & budgeting, assets & wealth, liabilities & financial risk and the entrepreneur. Recognising that with the resource limitations and capacity constraints of one firm we will be unable to reach very many young people – 350 young people is a drop in the Ocean - we have asked for help and the response has been overwhelming. We have been very pleased to welcome AXA Wealth, AXA Investment Managers, BlackRock and Hendersons Global Investors as full partners of the initiative – extending our reach and capacity to deliver the sessions to more young people. We are in discussions with 10 other financial firms, including one of our competitors about developing partnerships.
We know our limitations and recognise that there is a limit to the amount we can achieve in one day. We hope that the interactive teaching we deliver focused around some key messages and concepts will act as a supplementary resource to teachers as they beginning teaching financial education. Finally, I wanted to share some of the feedback that we have received which is testament to the hard work of a wide variety of people in making RedSTART happen:
“Thank you for a fantastic day on Friday, the students were buzzing all the way home. Money boxes were being filled with spare change, students were talking about setting up savings accounts and how to buy shares in Apple. It was a really inspirational day and the students were motivated and engaged all day. The feedback forms were so positive and they all learnt so much. It was a day that I wish I had received at that age as I clearly remember thinking that the world of money and finance was a daunting prospect that no one took the time to teach.”
Chris Connor, Helenswood School
Please contact me on firstname.lastname@example.org if you’d like to get involved.
Please note that all opinions expressed in this blog are the author’s own and do not constitute financial legal or investment advice. Click here for full disclaimer.