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Industry in depth
Setting the target
28 April 2007
Paul Hunt looks at the emergence of financial eduation for consumers as a priority goal of the FSA
Financial education has become a hot topic – and it is about time. There is no doubt that many people of all ages are confused by finance whether it is how to obtain a good deal or cope with debt.
This is an issue which is gaining momentum and various initiatives are now on the agenda. But it is also massive in the reach needed. At one end of the scale, children in primary schools would benefit from understanding the basics of money and secondary school pupils on how to manage their finances.
Beyond this, there are millions of adults who are lacking in knowledge. According to the Citizens Advice Bureau, it dealt with 1.25 million new cases of debt-related problems last year. Plenty of people simply lack confidence about managing their money – they may not feel sure about how to switch bank accounts, for example, or remain stuck with an uncompetitive mortgage.
National strategy
There is now a National Strategy for Financial Capability in the UK, led by the Financial Services Authority (FSA), which brings together the financial services industry, consumer groups, voluntary organisations, the media and government.
The seven-point plan sets out how the National Strategy for Financial Capability will help to provide financial education and advice in UK schools, universities, colleges, the workplace and organisations that help young adults.
A taskforce to research and design a national generic financial advice service – ensuring that every person, including those on the lowest incomes, can get access to good quality financial advice has also been set up. The government will publish an action plan by the end of 2007 setting out how financial capability will be integrated into existing services, particularly for those most vulnerable to the consequences of poor financial skills.
This is a campaign which is gathering pace and both the Building Societies Association and Council of Mortgage Lenders have spoken out in favour of raising standards and making personal finance a compulsory subject in schools.
Certainly here though, initiatives have been piecemeal. Back in 2000, the FSA launched a teaching aid, Money Counts, aimed at teaching personal finance in primary schools – this could be used with children from reception classes to year six.
Further materials have been produced for secondary school children who should now be given personal finance education as part of personal, social and health education classes.
However, not all schools will be using the materials and teachers themselves will have differing levels of experience in the topic.
In 2005, the Department of Work and Pensions conducted a review of existing provision. It was found that take up and effectiveness of financial education was patchy because it is a non-statutory subject.
But, pressure has grown and from last September financial capability became a part of enterprise education – aimed at helping young people to be more enterprising and develop economic and business understanding.
Schools now receive funding to provide such education to pupils aged 14-16, but while it is progress, there is no doubt more could be done to help make finance seem more relevant.
The FSA is aware of this and last June conducted a benchmarking study – Personal Finance Education in Schools.
This was critical of existing provision and stated the topic had a low profile on the curriculum. It also said that there was a narrow range of personal finance topics covered, and that these were delivered infrequently and with inconsistency. Unsurprisingly, the FSA concluded ‘there is a need to engage with and enthuse schools to carry out personal finance work’.
No room for complacency
Clearly, no one can be complacent. Training body, the ifs School of Finance, has said personal finance education in the UK is currently ‘chaotic’ and it conducted a survey which showed in more than 70 per cent of schools, personal financial education was in the form of ‘occasional lessons’ and happening ‘once or twice a term or less’.
It also wants personal finance education to go beyond simply being provided in maths lessons, saying it should be viewed in a wider context.
So, a growing number of financial services providers have been looking at how they can offer help. We do, after all, develop the products that people buy.
Teachers will not necessarily have a full understanding of how financial products are best used and so useful back-up can be provided by those who have made a career in the industry.
By working together, hopefully people in the industry can pass on their experience – and importantly enthusiasm – for the subject to both teachers and students of all ages.
For example, Platform’s parent company Britannia Building Society has recently launched a financial education programme which will be delivered by its staff to school pupils.
It is currently being rolled out to schools across Staffordshire, Derbyshire and Cheshire and consists of 30 minute workshops and activities designed for 14 to 16 year olds. The aim is to make the topic fun and informative and it is delivered by 86 of our employees – they do this voluntarily and have been given training. Topics include:
• Financial jargon
• Opening an account
• Banks, building societies and interest
• Budgeting
• Planning for bigger purchases
• Credit
Claire Irons, Britannia’s Programme Coordinator, comments: "This is going to be an ongoing programme and we want to do more. Everyone finds it really rewarding – certainly the need is there - a survey published by the FSA revealed more than 40 per cent of 18 - 20-year-olds were unable to answer a question about interest rates, compared to just 14 per cent of people aged 50 and above.”
Britannia employees are also involved in Number Partners, a national independent volunteering scheme.
Volunteers from a range of businesses and the local community play specially designed board games, videos and other resources with children aged seven to 14 and this takes place typically for around half an hour a week. Those children taking part typically are under confident in their ability to do maths and find it harder to communicate using numbers.
The savings game involves players saving up for a major purchase, working their way around the board by picking up cards for expenditure and income. They will get jobs – and lose them – and have to make routine purchases along the way.
The aim is to see what can be achieved by saving carefully enough. Players must juggle money between cash and different bank accounts.
Industry involvement
There is plenty of scope for more of us in the mortgage industry to get involved. Allowing employees to take part in community projects does mean they need to take time out of the office – but it also brings benefits to both employees and students.
The vast majority of those working in financial services have learned about our industry because we had good training and often, excellent mentors. We attend workshops as well as learning through experience – but we may not be good at getting across what we do to others. We are all probably guilty of using too much jargon that is baffling to outsiders and we constantly need to look at the way we communicate our services.
In the specialist sector, we may be providing products for those with credit problems. Certainly here there is a wider role for the broker in particular to look at longer term solutions and explaining these in a way which is clear and accessible. There is a lot of information out there – some of which may be conflicting and confusing – whether on the high street, on the internet or in the media
generally.
There remains a vital role for experienced brokers to explain options and give detailed advice to those who may have been rejected in the past and perhaps found direct staff unhelpful or even patronising.
It is good to see that progress is happening. For example, the Citizens Advice Bureau was recently awarded grants for financial capability programmes to help more people to learn to budget, save and borrow wisely.
But, people need to feel empowered to understand what is available and to ask questions. There is scope for more of us to help our existing customers and the next generation to be financially literate.
There is no doubt that if we look back at product literature for example, from years ago, it is now far clearer and mortgage intermediaries too are far more focused on transparency. Let us be upbeat about the progress made, and the fact that financial education is becoming high profile – and where possible there is also a role for many of us to play in ensuring this remains high on the agenda.
Simon Burgess, managing director at Britishinsurance.com
There has been a concerted drive to improve the level of financial education in the UK and in many ways it has been a success. However a new direction needs to be taken as we move forward.
At the moment there are plans afoot to have financial education introduced to the national curriculum and in certain areas the subject is already finding its way into the classroom.
This is excellent news for the UK and the better educated we are as a population, the better we will be able to manage our finances and avoid floundering in the future.
However it is not only in schools that educational materials are being developed and there are innumerable associations and websites, which all have financial sections detailing how products work, what to look out for and things to ask before a purchase is made.
The media has brought financial scandals to light faster than ever before and there are better warnings for consumers of potential problems as they arise.
However learning about financial matters is still driven by necessity rather than passion. There are other things people would rather do with their time and despite the glut of information available, consumers are often too ready to simply sit back and do nothing.
Given that it is people’s financial well being that is in question this lethargy is difficult to understand. When one considers the energy that has been put into complaining against bank charges, the volumes of people that seek to remortgage on a regular basis or the amount of people that continually swap credit card and utility providers, the assumption must be that personal financial gain drives their actions.
Therefore unless there is a particular financial gain to be had from learning about financial matters, the public is generally not going to make the effort. It seems that preventing future financial calamity is not enough and people want to see immediate results on the balance sheet.
This attitude may be all very well in what is now a well regulated industry against a backdrop of low interest rates and high employment. However interest rates look set to rise further and employment levels are wobbling. It also looks certain that prices in the housing market will cool and equity will not be so readily available to bolster existing incomes.
These extra pressures will force individuals to reappraise their financial positions more closely than they have had to in the recent past and the hope must be that few find they have really over stretched themselves.
From an educational point of view there is enough material to help people get the information, advice and guidance they need, but we must be more proactive, forceful and effective in getting consumers to take a genuine interest in their finances.
Rather than seek to over simplify matters and lean towards a tendency to spoon feed consumers, perhaps it is time to take a more direct approach and begin to really highlight the dangers that lie ahead for people refusing to take responsibility for their own financial situation.
We need to make the threat of financial hardship through ignorance more real than it has been to date and without necessarily frightening people, cajole them into taking a more active interest in their finances.
David Copland, Deputy Managing Director – Pink Home Loans
Recent research indicates that consumers’ knowledge of the mortgage market is still not as good as it should be. An online survey carried out by Stroud & Swindon illustrated that although most consumers had a basic understanding of personal finance, for example, they knew APR stands for annual percentage rate, more complex financial concepts were still confusing. Only sixty percent of respondents knew that you only pay Stamp Duty on a house purchase and many did not believe that ‘current account mortgages’ existed. Furthermore, according to a survey carried out by Beacon Homeloans, only nineteen percent of consumers have heard of the non-conforming market.
It looks like this lack of knowledge could also be having an impact on the financial circumstances of England’s teenage population, as recent research carried out by Personal Finance Education Group (PFEG) revealed that over half of teenagers have been in or are in debt by the age of seventeen.
So, what is being done about this apparent knowledge gap and how is the market helping consumers become educated in the world of financial services? Well, a spokesman from PFEG believes that financial education from an early age will improve the situation and that the ability to manage one’s own personal finances is a crucial life skill. He believes that if future generations are better educated about personal finance, then problems such as teenage debt would be significantly reduced.
Following the PFEG’s research, the Financial Services Authority (FSA) has published a seven-point programme; its National Strategy for Financial Capability, and developed its own study to pinpoint where resources need to be focused. They established that the eighteen to forty age group were less financially capable than older people and that those with lower incomes and limited experience were also areas that needed more attention. To make consumers more capable they have worked in conjunction with PFEG to launch The Learning Money Matters programme, giving free advice, support and resources to state, independent and special schools in England. In addition, they have provided £15 million to PFEG, spread over 5 years, to assist with implementing a financial education programme in secondary schools and vow to continue to back projects to improve relations between the industry and its consumers.
Chancellor Gordon Brown announced in last year’s budget that the Government will be liaising with financial education groups to identify opportunities to develop financial education. The Government has already made plans to incorporate Personal Finance into the Maths GCSE from 2010. However these plans have been met with some criticism as they are not going far enough and The Conservatives have vowed to take the programme further and make the subject standalone for eleven to eighteen year olds if they get into power.
The Treasury will also be providing Child Trust fund top-ups at various stages of a child’s life, which will be used for the basis of financial education in schools. They have also announced the launch of a new taskforce which intends to fill in the gap that exists between regulated advice and debt counselling services that offer damage limitation advice provided by debt-counselling services.
Companies such as Dunfermline Building Society, Royal Bank of Scotland and Standard Life, have been doing their bit to increase awareness in both schools and housing associations in England. More recently Mortgage Talk has launched its Financial Coaching service, which runs over 2 years and costs £1,495. It aims to educate clients about how best to manage finances and give them the knowledge to get the best deals for the rest of their life.
Qualifications in personal finance are also available from IFS School of Finance, including Certificates in Personal Finance at GCSE, AS-level and A-level equivalent and a Diploma in Financial Studies.
So, on the whole there seems to be lots of activity in the market with the ultimate aim of improving financial education. However, it is up to all contributors in the sales process; lenders, distributors and intermediaries, to accept their role in this important process and ensure that the client is educated to help them avoid making poor financial decisions in the future.
Simon Biddle, sales and marketing at Infinity Mortgages
Let’s be clear, this week’s Government buzz word, flavour of the month call it financial literacy or financial education all amount to the same thing, a huge mountain to climb. Frankly it’s difficult to find a suitable adjective. It is a journey that will not only be worth taking but is essential.
The FSA has quite rightly realised that part of their remit is the education of the average British financial consumer. It’s a start but the FSA can’t do it alone, we will excuse them for the valiant effort but flawed ‘mortgages laid bare’, ‘money made clear’ is a much better approach. This does of course assume that all parties have access to the internet, the digital ‘divide’ is very important in the area of financial education. We simply have to get at those people who are the most vulnerable.
For the much bigger fix the way to do this is via the formal education systems. The education has to start early and has to be part of the national curriculum, it’s that simple. The desired level of education has to be clearly set out with reasonable objectives, let’s be clear we are not talking about G60 level knowledge. In many respects a reasonable level of understanding by the customer will manifest itself in the asking of the right questions being asked. Clearly in borrowing and investing the percentage charged or received are fundamental. How is interest calculated and any essential restrictions within the terms and conditions are all essentials. This is particularly pertinent with younger people and the effect of compound interest on credit card type debts. Would some people be as reckless as they are with credit card borrowing if they new the facts?
That’s where we are now but it is a fact of life that modern financial services become more complex and do need a higher level of understanding. One of the cornerstones of the FSA’s approach to regulation is transparency. For the mortgage industry in particular this been most obvious in the lay out of the KFI and the information contained. The KFI is already quite a long document but surely this information must be getting across to the customer. Are the customers receiving the information they need in the format that they can understand? Assumption is pointless the effect of all information provided needs to be measured via customer surveys.
There are real benefits of financial education to the wider industry. Better informed customers make easier sales and fewer complaints. Simply if the customer has a level of confidence in their knowledge and understands what they are buying will also aid product retention.
The cynics amongst us will always say, you can ‘take a horse to water but you can’t make it drink’. Time will have demonstrate how outmoded those views have become. I do agree that it may be difficult to get to everybody but we must make a significant investment in both terms of time and money to achieve the bigger objective of much higher levels of literacy from our current position.