Is Teaching Financial Capability Possible?

The government has produced a consultation document on how to enable the public to manage their finances better. Get them young seems to be the key solution.

About five years ago, the Government decided that perhaps children ought to be taught how to manage their finances in preparation for living in the world of grown-ups. So they issued a circular to schools with guidelines about how pupils over the age of 14 could learn how to budget and save as well as assess the risks and benefits of saving and investing.

All well and good you might say -- except that it wasn't a compulsory part of the curriculum and, anyway, as one teacher remarked to me, how can you tutor children in money management when you're not very good at handling your own finances!

And there in a nutshell is the Government's dilemma. As a nation we're not very good at managing our finances or, as the Financial Services Authority describes it, there are 'low levels of financial capability' across the UK, especially among young people. We're particularly bad at planning ahead and choosing the right financial products even though the average person spends nearly £33 a week on them.

The fact that we're much wealthier these days -- total household assets are now worth more than £7 trillion -- makes it all the more important that we're sensible with our money. According to the newly-published consultation document -- Financial Capability: the Government's long-term approach -- there are currently over 8,500 different mortgages (including buy-to-let products), 300 major credit cards, over 4,000 separate savings accounts, and over 2,000 different retail investment funds for us to choose from!

Crikey! They've got their work cut out to ensure the general public has a fighting chance of making the right financial choices from that little lot!

So, yes, as the document suggests, let's introduce the compulsory teaching of financial management into the classroom and, yes, let's promote the Child Trust Fund as a learning tool. That way, the beneficiaries of the trusts can have a hand in enabling their funds to grow and have an idea of what to do with the money when they get their hands on it at 18.

But that just leaves the question -- what do we do about educating the adults who badly need it -- those who are continually in debt for example or who haven't thought about financing their retirement?

The Financial Services Authority has been taking a tougher stance with the industry, which clearly has an obligation to ensure that their products are simple and easy to understand and that financial advisers genuinely offer high-quality, unbiased advice to a public that has little financial nous. And, of course, the Office of Fair Trading has been tasked with clamping down on the miscreants who take advantage of that lack of nous. The sale of Payment Protection Insurance and unfair credit card charges are two good examples.

The Government is hoping that by piloting schemes like the Savings Gateway -- a savings account for lower-income households to which the Government contributes -- and the introduction of low-cost, portable workplace pension schemes will encourage people to learn more about saving and investing.

However, while such schemes may broaden consumer knowledge, people cannot be forced to save. And although regulation may protect consumers from making some bad decisions, it cannot empower them to make good ones!