Ed Dymott, head of business development at Fidelity Worldwide Investment, assesses plans to teach finance in schools.
Like many of you, I read with interest the parliamentary group comments issued late last year about the desire to embed financial education within the national curriculum. This is a subject that raises its head on a regular basis and always receives mixed opinion.
With the twin-track regulatory reforms held within the Retail Distribution Review (RDR) and auto-enrolment now in implementation, it is refreshing to hear that the government does not feel that these will be silver bullets that change our savings culture. Instead, the issue is deep-rooted, which requires long-term sustained investment to really make a change.
Improving financial education would provide a major boost for our industry, but more importantly provide significant economic benefits. The Centre for Economics and Business Research found a lack of financial education costs the taxpayer £3.4bn a year in debt, mis-sold financial products and issues such as failure to plan for retirement.
We don’t need no education?
It also believes that improving financial education could reduce unemployment by 10%. With benefits this big, it would be foolish to ignore any proposal which could make a difference to levels of financial education standards. The big question is: could the government be doing more?
The major concern that was raised is that the recommendations suggested that retail banks could play a major role in delivering the programme. To some people, this may seem inappropriate; to others, it feels like it is a form of community service for the impact of the global financial crisis.
Personally, I don’t have an issue with banks – or other financial institutions – providing sponsorship and funding, provided it is under clear guidelines. I could also see a role for financial advisers in this model.
In Australia, the Commonwealth Bank has an A$40m initiative that aims to make one million children financially literate by 2015. The quality of the material produced by this programme is fantastic and I would question anyone who would take issue with a financial firm undertaking similar endeavour with the same standard and commitment.
The idea of making this an embedded approach is sensible. This will mean that, rather than a man in a pin-striped suit turning up to lecture on budgeting from time to time, financial education will be entrenched in the learning curriculum.
On a recent trip to Australia, I ended up talking about how it deals with this issue. Superannuation has arguably had the biggest impact on the savings culture. Everyone talks about their “super” and, having been in force for more than 20 years, this has become part of the culture.
However, the Australian government has also recognised a need for grassroots investment and has added financial education to the national curriculum. The biggest difference is the 20-year headstart the Australians have in enforced pension savings. I’m not sure if we can afford to wait 20 years.
Overall, I am a big fan of investing in grassroots education around financial planning. The question is: do the proposals go far enough? Like auto-enrolment – and to a certain extent the RDR – it may take a number of years before we see the benefits of financial education in schools.
Clearly the government has initiatives in train to try and deal with this issue. The Money Advice Service has seen significant investment at addressing any advice gap. However, the reach of this service is potentially not great enough and doesn’t give individuals the necessary nudge to engage with their finances. More needs to be done to raise awareness.
Studies in the US suggest that workplace-sponsored financial education positively affects household savings. Though auto-enrolment encourages elements of this, I believe employers must be incentivised to provide broader financial education to their workforce, and this should become a fundamental part of raising financial education standards. To make this happen, the government should offer further tax incentives to companies who provide these services.
What does it mean for you?
But what does this all mean for financial advisers? Ultimately, broadening financial understanding has to be a good thing for them. Improving levels of financial awareness cannot be the sole responsibility of the advisory community, and I am not sure I agree that a greater proportion of self-directed investors should be seen as a threat to advisers.
If we increase the number of individuals saving, it increases the accessible market for advice. Raising education standards will also improve knowledge around how and why one seeks professional support. I also feel there is an opportunity for advisers to engage in these proposals.
If the government actively looks to implement changes in the curriculum and provide funding, why shouldn’t this be a role for financial advisers and not just the banks? If employers also took greater responsibility for providing financial education, this could also provide an opportunity for advisers to develop stronger relationships through the workplace. It is time to get behind these proposals.
What’s 3 x 1,000%?
The All Party Parliamentary Group on Financial Education, which includes 225 MPs, is campaigning to include finance lessons within maths or personal, social and health education.
Tasks would include calculating the cost of a loan. The Royal Bank of Scotland, Barclays and Lloyds TSB are being considered for the scheme and could be allowed to use branded materials in presentations.
Campaigners have warned that banks could use the lessons to promote their services.
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected