Financial Education Matters - who should do it and who should pay?
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Speech by Dame Deirdre Hutton CBE
Deputy Chair, FSA
David Hume Institute seminar
25 June 2007
The title of this event is 'Preparing for the modern world – why financial education matters' so I'd like to be wide ranging in my comments, covering why financial education matters as well as who should deliver that education and who should pay for it.
But coming here to talk about how much financial education matters seems a little like bringing shortbread to the Scottish rather than coals to Newcastle. Delivering financial education is certainly not a new concept here. In fact, Scotland became the first part of the UK to publish guidance for schools on financial education back in 1999.
Since then, the momentum to encourage practitioners to deliver financial education has grown quickly and, as today's event shows, is building. There is, I'm glad to say, now widespread recognition among politicians, the financial services industry, and regulators that this is a priority issue, that goes to the heart of equipping people to take greater control of their financial decisions.
The realisation has spread that it wouldn't be uncommon to come across perhaps an elderly widow, for example, in any town in Scotland or elsewhere in the UK either fearful of confronting, or finding it extremely stressful to try and sort out, tangled finances that may once have been organised by her late husband. This confusion, together with low or no savings and just a State Pension could easily lead her to avoid turning up the heating for fear of big bills, not eating properly or not socialising with friends.
As for our younger generation, we are all familiar with the cliché that many students use up their student loans on socialising and then find themselves living on baked beans for the rest of the year. However, many young people facing independent living for the first time discover that the reality of coping with mounting debts and unhappy creditors does not make for care-free living.
These examples may seem theoretical, but they are based on fact: according to our Financial Capability Baseline Survey, published in March last year, 82% of Scots have not considered making financial provision for retirement, and 74% have not considered making financial provision in case of an unexpected drop in income. That ground breaking research helped us to make informed decisions about which groups of consumers our National Strategy for Financial Capability should target, when and with what. We surveyed over 5,000 people, UK-wide to establish current levels of knowledge and understanding of personal finance and financial services products, to guide our work and help us reach at least 10 million consumers in the period to 2011.
The Baseline survey confirmed that we are storing up big trouble for the future unless we take urgent steps to put things right. Too few of us plan ahead, too few of us understand financial products or bother to shop around and the under 40's are required to take much greater personal responsibility for their financial decisions but are less capable to do so than their elders.
In Scotland, it found that 64% of people agreed that they didn’t know enough about pensions and investments. And 44% of Scottish equity ISA holders did not understand that the performance of their investment depended on the performance of the stock market. Sobering statistics.
So, according to the stats, financial education matters now more than ever, particularly in that we are now all expected to take greater personal responsibility for our financial wellbeing. And that responsibility is only set to increase in the 'modern world'.
We can all access credit cards and debt more easily; young people have to fund themselves through university; and, when the time comes to start work they will need to take some difficult decisions on taking out a pension, and taking out a mortgage, at a time when they are also struggling to pay off debt or to establish some savings.
A recent and particularly worrying survey of one thousand 14-18 years olds across the country showed that more than 50% of the young people surveyed had been, or were in debt by the time they were 17, and a further 26% regarded credit cards and overdrafts as being a good opportunity to extend their spending power.
But before I delve further into the this issue, I should quickly set out why this is so important to me and to the FSA - where our leadership of the National Strategy for Financial Capability fits in relation to our overall strategic aim of helping consumers to achieve a fair deal.
We think that there are a number of weaknesses in the effectiveness and efficiency of the market in retail financial services. In our view, we need to do four things to bring about improvements:
- help consumers to become more capable and confident in the decisions they have to make;
- ensure that those consumers receive, and use, clear, simple and understandable information from banks, insurers and so on, and have access to clear and impartial information from the FSA;
- ensure that firms are soundly managed and that they treat their customers fairly; and
- ensure that we deliver a proportionate and risk-based regulatory regime.
Tackling low levels of financial capability among the population is absolutely central to the first and second of these – today and tomorrow's consumers must be capable, confident and aided by clear, simple and understandable information that they can, and will, actually use. So, addressing financial capability sits firmly alongside our other interventions in the retail market - such as the supervision of specific firms and our review of the current model for how investment products are distributed – as part of a coherent strategy designed to bring about long-term and sustainable change.
The entire National Strategy for Financial Capability, takes into account the results of the Baseline Survey I mentioned earlier and of our Benchmark Survey into personal finance education in schools. These have helped guide our work with all age groups and ensure that we target the right groups, with the right information.
Everyone involved in the National Strategy is working hard to deliver a real change in financial capability all over the UK. The FSA will spend around £90mn over the five year period ending 2010/11, and we are planning to keep up that work for many years thereafter.
The strategy is broader than just personal finance education in schools though, it extends to further and higher education, as well as to young people outside of education, employment and training, to adults through workplaces and at life points where money becomes a particularly big issue, such as when expecting a child.
We recognise that, to make a real difference across the UK, it is imperative to work closely with the organisations in Scotland, Wales, Northern Ireland and England, who know their clients best. This means genuine partnership with devolved administrations as well as with existing voluntary and advisory networks who know what it is like at the coal face. Indeed, the FSA in its other role as a regulator has always seen the business need to have an office in Scotland as well as in London.
Right from the start, Scottish organisations have been instrumental in designing the National Strategy. For example, the Scottish Centre for Financial Education, as part of Learning and Teaching Scotland, and major Scottish financial services firms such as RBS and Standard Life, have played a key part in our Schools Project Working Group from day one. And now they are helping to deliver the tools and resources created to make a real difference on the ground.
The National Strategy also works alongside other initiatives – for example, the contribution the Stewart Ivory Foundation is making to the provision of financial education in schools through funding seminars for post 16 year old students on a range of financial topics.
The FSA is also funding posts in Scotland, Wales and Northern Ireland to provide financial education training for teachers and support for schools in each country. In Scotland we will provide two development officers to work with the Scottish Centre for Financial Education, and we anticipate funding a third post from April 2008. The SCFE is working as champion for financial education in Scotland, helping us to co-ordinate a coherent programme, including the excellent projects and resources offered by organisations such as the Stewart Ivory Foundation, the Royal Bank of Scotland's Face2Face with Finance programme, and the Financial Education Partnership led by the Chartered Institute of Bankers in Scotland.
We plan to help translate the Scottish Executive's intention, outlined in a Curriculum for Excellence, that the new curriculum should contain high quality and comprehensive personal financial education, into real change in the classroom. But, to create that step change, first we need to raise the profile and status of financial education; and then we must provide comprehensive support to teachers to ensure they are confident and competent in delivering it in the classroom.
This Scottish support for, and commitment to, the strategy isn't confined to our work through schools though. Excellent work is already underway with other partners too.
For example, we have worked closely with Young Scot to develop exciting and effective methods of engaging their target audience, including a ground-breaking telephone helpline. Young Scot recently ran an excellent programme in collaboration with Lloyds/TSB which clearly demonstrated that not only are young people here looking for help in managing their money, they also have some brilliant ideas for how banks can adapt their services to meet their needs.
And St Andrews University is one of our early developers of the Money Doctors initiative which is aimed at young people in higher education. This initiative provides a toolkit and resources for student advisers, helping students to face money issues, plan ahead and avoid the tendency to drop out of HE due to money problems. In fact, Money Doctor roadshows are underway this month at universities across the UK, aiming to sign up another 31 institutions to the initiative and the last roadshow will take place at the University of Edinburgh in July.
Looking to adult education, we have also been working closely with Scottish Power, who were one of the first organisations to sign up to pilot our Make the Most of Your Money seminars in workplaces.
The government has already stated its long-term approach to financial capability of course, which confirms its aspirations for the UK as a whole. As part of their plan, they aim to ensure that, all children and young people in the UK will have access to a planned and coherent programme of personal finance education so that they leave school with the skills and confidence to manage their money well.
Importantly, these issues are beginning to find their way onto the political and social agenda. I very much welcome the government's document on their long their long-term approach to financial capability, which stated that this will be complementary to our strategy and announced a cross-departmental Ministerial Group on Financial Capability, to be chaired by Ed Balls. Ed is a member of our Financial Capability Steering Group, so is ideally placed to act as a conduit between the two. That document also announced an independent feasibility study, led by Otto Thoresen, Chief Executive of AEGON UK, to deliver a national approach to generic financial advice. This too was encouraging as I believe the provision of generic money advice is a key missing component in helping consumers become more financially capable – and am are delighted that Otto has been appointed by the government to do this work.
Actually, at the SCFE conference in March, it was particularly interesting to hear how Otto clearly recognises the link between personal finance education in schools and the work of his group on the delivery of a national approach to generic advice. He saw financial education in school as essential preparation for children so that they will make full use of a generic advice service in adulthood.
So, a question often raised when discussing financial education is - Who should do it? To which I'd simply answer - all of us.
Just as the National Strategy for Financial Capability is a partnership of regulator, Government, industry and voluntary sectors, the delivery and promotion of financial education in the UK is something we all stand to benefit from so we should all play our part. After all, the issues raised by a lack of financial education are the same wherever you are in the UK.
The National Strategy is laying the groundwork for the government's plans, forging links, raising awareness and getting things started with our partnerships with the SCFE in Scotland and with pfeg in England among others. But there remains huge scope for others too.
But who then should pay?
Well, the money the FSA has already spent and plans to spend on financial capability and education for all age groups, is helping to draw out priorities, highlight where the work must focus, create initiatives and enable the working in partnership that's crucial to developing a coherent programme of personal finance education for all age groups, across the UK.
As far as the future of financial education in schools is concerned, this decision sits firmly with the government: it is certainly not a regulator's place to pay for the formal education system or to decide who should do so. It is for central governments to fund the education system - however, as the regulator we can take the role of preparing the ground – such as through our work in schools as I've already mentioned.
However, I feel that it is vital that, in these discussions about who should provide and who should pay, we should bear in mind who it is that stands to benefit. Because, wherever you live in the UK, whatever your age or aspirations – whether you're 81 and living alone in Exeter or 21 and living it up in Edinburgh - improved financial capability through financial education brings real benefits to you as an individual and to society as a whole.
I'd like to leave you with a question. I think we all agree that financial education does matter. I have talked about the excellent range of initiatives already available to help provide personal finance education, and we have heard the government's aspirations for financial capability in the UK. We now have a challenge to solve. How will we further develop the National Strategy for Financial Capability's work to build links and move from individual initiatives, to identifying and aligning synergies and co-ordinating these initiatives into one coherent, structured and planned approach to personal finance education?
And the next question will be, besides the baseline survey work to measure changes in behaviour, how are we going to measure the impact of this work in terms of changing people's attitudes to money and managing money?
So at this point I'd like to thank the David Hume Institute for inviting me to speak today and the Stuart Ivory Foundation for funding this useful event which promises to be a great opportunity to debate issues fundamental to improving the nation's financial capability.