Financial Literacy

It’s April, and that means it's Financial Literacy Month over in the US. What a great idea that is.

Here in the UK we are used to being bombarded with stories about school-leavers coming out of the British educational system with woefully inadequate reading writing and numeracy skills, but I haven’t heard much about any widespread concerns for the financial literacy of our young people.




Schoolboys learn about finance by playing Stockmarket Challenge
They look strangely familiar.... 
 From the PFEG website

 

We are fortunate to be blessed with a wonderful system of free education for all up to the age of 18 here, but nevertheless there are concerns about the adequacy of the educational provision.  In a civilised society continually striving to progress and improve standards it is right that questions are raised about the quality of our schools, and that there is public debate about the right way to educate our children and young people.  Times change, and what was right back in the 20th century is not necessarily right today.

 I am old enough to remember when a knowledge of ancient Greek and Latin were a basic requirement for undergraduate entry to Oxford or Cambridge.  I’ve got an A Level in Latin myself; I enjoyed it and learned a lot from it, including a good grasp of the basic principles of grammar and syntax, and an introduction to the Roman literature and culture upon which much of modern Western civilisation is founded. 

Latin is out of fashion these days, and most people think that Information Technology is more important. I wouldn’t argue with that, but what should we be teaching in our schools in the second decade of the 21^st Century?  Resources are not limitless and no doubt there isn’t time to teach everything.

We have a National Curriculum to which UK schools are obliged to adhere, and over the years the UK government has tried to address public concerns about educational standards with a number of improvement drives.  When the Labour Party came to power back in 1997, one of their first acts was to introduce nationwide strategies for numeracy and literacy.

Although these strategies have never been compulsory they are strongly recommended, and nearly all primary schools brought in the now-familiar daily ‘Literacy Hour’.  I don’t think there has ever been a ‘Numeracy Hour’ as such, but there was a similar push to improve standards of numeracy and the quality of maths lessons in primary schools which was closely monitored and enforced by the Ofsted school inspection system.

So far so good.  This is all very laudable, and a system which has been successful in driving up standards in our schools. So what about taking the idea further and extending it to understanding finance?  That might sound like an expensive irrelevance in today’s gloomy economic climate.  2 out of 10 school-leavers have no job to go to, and most recent University graduates I know are working in pizza parlours and sandwich shops on minimum wage.  And those are the fortunate ones who are lucky enough to have jobs!

Since the Credit Crunch of 2007 it has been hard for anyone to get a bank loan or a mortgage.  In the wake of the Sub-Prime mortgage scandal and the subsequent housing market crash, it is understandable that the banks want to be seen to be promoting responsible lending.  But it makes things tough for the new generation of would-be home-buyers.

Prospects are harder still for the unemployed and those struggling to survive on minimum wage.  At the end of March this year I learned that young couples who are customers of NatWest and the RBS group will not even qualify for a cheap interest-only mortgage unless they have a combined salary of at least £50,000.  Our brightest young people can now expect to come out of university with a debt of between £30,000 – £40,000 as well as a degree.

Faced with all these obstacles it would be all too easy to give up on promoting Financial Literacy and say ‘What’s the point?  I haven’t got any money to look after so why worry about it?’  I say that there is every point, and all the more reason to look after whatever hard-earned resources you do have all the more carefully.  Getting a job and carving out a career is hard and tough, especially these days, but we all have to do it.  We all have to struggle to survive, provide a home and feed ourselves and our families. In tough economic times when traditional jobs are hard to come by, more and more young people are considering starting their own businesses, and have to find out the hard way how to get started with the necessary funding.

 In the battle of life in the 21^st Century Financial Literacy is an important tool in our armoury, as basic and as necessary as reading and writing and learning to cook a simple meal. I’m not talking about anything complicated, most of us don’t need to know about the finer points of high-finance, but we should at least all know the basics. Why work hard for a living and then waste money on bad financial deals?

 Banking is an increasingly essential part of life nowadays, with most employers paying salaries directly into their employees’ bank accounts, students having to take on board starting their working lives with the enormous debt of a student loan, and even state benefits now paid by direct debit.  Nobody should leave school without a basic understanding of how to run a current account, find the best rate of interest for their hard-earned savings, manage their credit and debit cards, and how to obtain and run a mortgage.

In the US the idea of promoting financial literacy has been around for some time, with Financial Literacy Month first appearing in 2000, and with the US Senate officially recognising April as Financial Literacy Month in 2004.  In spite of an ongoing government backed program of financial education for the young, a recent survey by researchers from five US universities revealed a worrying lack of financial awareness.  It highlighted a disturbing level of ignorance about credit card interest rates, charges and fees, and found that 90% of college students with credit cards using them to rack up unsustainable levels of debt. The report concluded

"Our students lacked even basic financial knowledge of a common credit tool that many of our students used every day…..There is no way to describe these results as a success in education of financial literacy."

While the UK has no direct equivalent of the Financial Literacy Month, since 2006 there has been a ‘national strategy on financial capability’.  An important strand of the strategy was a schools programme known as Learning Money Matters.  This ran between 2006 and 2011; it was delivered by the Personal Finance Education Group (PFEG), and aimed to equip youngsters with a good knowledge of financial matters and to improve standards of teaching by providing schools with additional resources and support.  By the end of this initiative finance education was being taught in 4,250 British secondary schools, reaching out to around 1.8 million students.

The Learning Money Matters programme has finished, but the work of PFEG continues.

To find out more, check out their website.

http://www.pfeg.org/about_pfeg/index.html