Why financial education should never fall by the wayside -Sarah Coles
Throughout all the stress and cramming, I can’t help thinking that there must be a better way to do things. Why does my son need to know the technical term for a poem with a full stop in the middle of a line? How useful is it for him to know an atomic model that was discredited over 100 years ago? And in all of this, why is he not learning those things he’ll actually need to know to get by in life – including the facts of financial life?
HL has done a piece of research, looking at how old people were when they first learned key money lessons. The good news is that parents and schools are teaching a chunky minority of children about savings fairly early in life. By the end of primary school, 15% of them understand about savings, and by the age of 18, 56% do. However, it means 44% reach the age of 18 in the dark – and this is the personal finance subject they know most about.
A huge number of topics are skipped entirely. By the age of 18, only around a third know what a pension is, and a similar percentage understand about interest rates or inflation. Meanwhile only a fifth know how mortgages work. When it comes to investments, even more are at sea, with just over quarter knowing what a share is, and one in seven knowing what an investment fund is. And this is despite the fact that financial education has been on the curriculum for nine years.
In fact, although it’s on the curriculum, it only kicks in during secondary school – when studies show people’s financial habits are already established. In addition, academies and free schools can opt out – which makes up around a third of schools.
The rest will usually combine it in the PHSE lessons, in among a vast number of incredibly pressing issues. When I think about my kids’ comprehensive and the amount of bullying of anyone with any degree of difference, I can completely understand why the teachers might think that LBGTQ issues or lessons on neurodiversity might be the priority. But it means finances are left by the wayside.
And it runs deeper than this: in February a report by the All-Party Parliamentary Group on Education for Young People found that two thirds of teachers who had a duty to deliver financial education didn’t know it was on the curriculum. It also found that teachers found it a challenging subject to teach – without the training, time or funding to make it work.
It’s worth highlighting that there’s also an awful lot of excellent financial teaching going on in schools, from incredibly committed teachers with a fundamental belief that it’s an essential life skill. There are also some brilliant charities who are dedicated to supporting schools with this work, including MyBnk, Young Enterprise and Just Finance Foundation. Some teach children directly and others support teachers with training, lesson plans and materials. If you’re concerned that a child in your life isn’t getting support with money issues at school, it’s worth letting the school know that this help is out there.
However, a big part of the puzzle is family. We know parents play a key role in supporting financial education and reinforcing teaching with key life lessons – from opening a saving account to managing an allowance, and in many cases, simply talking to them about money.
It’s part of preparing for the adult world. We wouldn’t send them out without knowing one end of a kettle from the other, so they need to understand money too. From day one they’ll be bombarded with offers for payday loans and credit cards. Some will also be taking on thousands of pounds of student loans and building up overdrafts. They need to understand how all of this works, well in advance, so they make the best possible decisions.
Our survey seems to show this isn’t happening. Only one in four know the rules around borrowing by the age of 18. The most common age for them to pick this up is between 22 and 30, and for many this will be far too late.
In fact, the survey showed some major gaps in knowledge at fairly advanced ages. Take pensions, for instance. Most people will now be automatically enrolled into a pension at the age of 22, and the earlier we get to grips with it, the better our chances of building a retirement income we can comfortably live on. And yet one in five reach the age of 30 without knowing what a pension is, and one in ten say they still don’t know what they are.
When it comes to the concepts that people are most unsure about today, investment terms dominate. Around half of people don’t know what compounding is, and half don’t know what an active fund is. There’s no shame in this. If nobody taught you and it’s not something you’re particularly interested in, there’s no reason why you would automatically know this.
However, we all need to learn about investment. Even if you never have the spare cash to invest in a stocks and shares ISA, if you have a defined contribution pension, you’re already an investor. If you don’t know anything about it, then you’re leaving someone else to make all the decisions on your behalf – without keeping track of how they’re doing or understanding if an alternative approach might suit you better.
Parents won’t be delighted to learn that part of the answer comes down to them. Even once the hell of exam season is over, your work won’t be done, because you need to get them on the right track with their financial education too. Meanwhile, it’s worth understanding where the gaps in your own financial education lie, and ask for some help in filling them. None of us need to be able to sit a GCSE in personal finance, but having this knowledge will be incredibly useful – long after you’ve forgotten all about the plum pudding model of the atom or the name for a caesura.
The inflation figures out this week revealed CPI had fallen to 8.7% in April – so we’re finally back in single figures. However, this doesn’t mean we can afford to relax. Our wallets aren’t under any less pressure than they were last month. With one or two exceptions – including petrol – prices are still rising horribly – and inflation is actually up 1.2% from March.
Within this, food inflation is still running at 19.1%. Among the most hair-raising increases is sugar, which is up 47.4% in a year, olive oil up 46.4%, eggs up 37% and low-fat milk up 33.5%. There is some hope for the future, because wholesale prices have fallen. We’ve already felt the impact on some items in our trolleys – with price cuts on milk, butter and bread. However, unfortunately, for the rest of your weekly shop, it can take 3-9 months for wholesale price cuts to feed into prices on the shelves. It means we’re going to have a tough few months before we see the pressure really ease at the tills.
Head of Personal Finance and Podcast Host for Switch Your Money OnHargreaves Lansdown