Cameron, Debt and why we MUST Teach our Children about Money

This week we hear that David Cameron changed his speech  from “The only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills,”  to, “The only way out of a debt crisis is to deal with your debts. That’s why households are paying down their credit card and store card bills." An interestingly subtle change as a result of pressure from retailers, with political implications I will return to in another blog!

Joanna Elson from the Money Advice Trust has rightly pointed out, paying off debt too quickly can lead to people getting themselves into deeper financial trouble in the long run. However, as Martin Lewis of Money Saving Expert is constantly pointing out - we have educated our children into debt but not about debt. And with UK personal debt levels now topping £1.6 trillion - that lack of understanding and education is surely something that should concern us all.

In all my years of blogging I've never really said much about my work as Youth Policy Adviser at the Money Advice Service and what follows is written in a personal capacity and as a result of a recent debate on Twitter I have been having with Andrew Smith.



I am a strong supporter of Martin Lewis's campaign to get financial education on a statutory footing and he deserves much respect for the way he has mobilised cross party support - an object lesson to us all in how to campaign! The APPG he helped found is now the best supported in parliament, not least because of the equally passionate support for financial education from the APPG's chair, Justin Tomlinson (MP for North Swindon) and financial education charity pfeg. At its launch, it wasn't even standing room only, some MPs, our own Stephen Williams among them, couldn't even get in!

But some people, Andrew Smith among them, clearly don't support Martin's campaign. Andrew and I both left comments on a recent Love Money blog and while I don't like their choice of words (young people should be forced to learn about money) the argument is valid.


It is 7 years now since I took up the role of Youth Policy Adviser at the FSA as part of the Financial Capability Strategy - and it has been a real privilege to work with youth organisations, the financial services industry and government across the UK to work to ensure that young people are supported to manage their money effectively. Now we are the Money Advice Service with a statutory responsibility to help people make sense of their money, helping them not only to make the most of their money, but also to help to prevent them get into situations of unmanageable debt.


We know as a nation that debt is a huge problem - only recently we heard that families are being forced into debt because of the cost of childcare, others are borrowing just to stay on top of their mortgage repayments or rent. So while some of this debt may be seen as inevitable, for some, an inability to manage their money effectively can make matters far worse.

 Education is a hot topic at the moment, particularly for those of us as Lib Dems who find ourselves in bed with a coalition partner who has a very different view of what education should be about, Nick Gibb and Michael Gove in particular, pushing for a focus on academic subjects and the English Baccalaureate, unconvinced about subjects like PHSE. But thankfully, there are some enlightened Tory MPs like Justin Tomlinson who understand the importance of schools not only equipping our children with academic skills and knowledge but also the life skills and attitudes to enable them to succeed.


So where I disagree with Andrew Smith? Well I absolutely agree with him that numeracy and literary are essential and it is scandalous that so many of our young people are coming out of school functionally illiterate - it has to be the first priority of any education system to ensure our children can read, write and add up. But, it surely it also has to be part of a rounded education that our children leave school socially functional too? Many employers as well as complaining about young people's illiteracy, complain about their lack of soft skills too. Now Andrew isn't arguing school should just be about the 3 Rs so presumably accepts the curriculum needs to be wider. And actually, the numeracy aspects of Financial Education sit well in Maths - learning how to calculate percentages, add, divide etc becomes much more alive if it is related to the real circumstances in which those skills are needed. But the most important thing a young person needs to know in relation to APR is not how to work it out (almost impossible!) but more importantly that a loan with a HIGH APR costs more than a loan with a LOW APR and that taking out a loan in the first place isn't always the best solution!

And actually, relating learning to real life is proven to increase engagement. At the FSA we did some work on functional skills with some FE colleges and found that where Maths included financial education elements the young people were more successful, more engaged and there was a lower drop out rate. It's not rocket science. Young people, especially those Andrew is concerned about with low levels of literacy, learn best when they can relate that learning to their own experiences. Yes, the curriculum is crowded but frankly if school is not about preparing our children and young people to be effective, engaged and productive citizens I wonder what it is for? You may well learn about the Magna Carta, be able to explain what tectonic plates are, calculate the square root of 9, dissect a mouse, quote Shakespeare.............but all this will fade into insignificance if your lack of ability to manage your money leads you to experience a serious mental health condition, lose your home, causes the break up of your family, or ultimately, in the most extreme circumstances, take your own life.

As is clear - I could bang on about this issue for ever (!) but I just want to leave you with a story and a small task.

A couple of weeks ago I was visiting a supported housing project in Northern Ireland where we have trained the staff to work with young people around money issues. They introduced me to a young man who had joined them with serious debt problems a few months ago. They worked with him to help him understand his attitudes to money that had lead him to get into debt and helped him draw up and manage a budget. He proudly told me that he had cleared his debts, was saving to visit Scotland for a family party - and had £500 in an ISA! The staff also commented on how much better his mental health was. Now tell me this isn't an important life skill?

And finally, if Cameron is serious about getting the country and individuals out of debt - let's demonstrate to him that we as a nation care more about the financial wellbeing of our children than whether or not we should remove benefits from rioters..........please join the 80,658 of us who support Martin Lewis's epetion calling for compulsory financial education - and please do it now!

The Sharks are circling - but is it the Lib Dems they will ultimately devour?

OK….I have good days and bad days…..today happens to be a bit of a bad day……to be a Lib Dem.

I understand that coalition is about compromise and the art of the possible – honest – I do. What I don't understand is when we sign up to stuff that is totally contrary to what we say are our values. Does the preamble to our constitution count for absolutely nothing now? Er……."no one should be enslaved by poverty" was the bit I was particularly thinking about. So can someone explain to me why we think it is OK, at a time when our coalition policies are pushing more and more people into debt – we are cutting the Financial Inclusion Fund that pays for debt advisers and access to affordable credit? Why oh why is our parliamentary party apparently not supporting Stella Creasy's Credit Regulation motion on Thursday morning when it is absolutely in line with both the Coalition Agreement and party policy?

I quote: "The Government believes that action is needed to protect consumers, particularly the most vulnerable, and to promote greater competition across the economy. We need to promote more responsible corporate and consumer behaviour through greater transparency and by harnessing the insights from behavioural economics and social psychology.

• We will give regulators new powers to define and ban excessive interest rates on credit and store cards; "
  

and also

"We will introduce stronger consumer protections, including measures to end unfair bank and financial transaction charges."

Coalition Agreement 2010

And our own policy:

"....A statutory duty to be imposed on all lenders to lend responsibly, giving borrowers a statutory right of action in cases where there has been irresponsible lending.
Consumer protection to be strengthened with stronger penalties for those who mis-sell financial products using aggressive selling practices; with a statutory maximum interest rate to protect vulnerable groups from predatory loan sharks and doorstep lending."

Reforming the Financial Sector - Policy Motion Spring '10

And then there is our Consumer Manifesto:

"Credit and store cards can be similarly harmful with high interest rates and hidden fees. Average
credit card rates are currently at a high of 18.8% and for some people they are as high as 60% or
70%. Extortionate rates are charged to those who can least afford it, putting people already
struggling into a spiral of debt. While it is fair that card providers should be able to adjust their
rates to reflect who they are lending to, many credit cards go well beyond this.

The Liberal Democrats believe that these charges are unfair and would address the situation by:

• Putting a cap on interest rates credit and store card providers are able to charge. In
order to define what this rate should be we will consult with industry and consumer
groups"

And what does Stella's motion say?

"That this House notes with alarm recent evidence showing a fourfold increase in the use of payday lending since the beginning of the recession and that high cost credit lenders advanced approximately £7.5 billion to low and middle income consumers in 2008 alone; recognises the problems of financial exclusion, lack of financial and debt management education, lack of price competitiveness in the unsecured lending market and the near monopoly positions of many large lenders which contribute to the high costs of borrowing; considers that without action these factors could worsen family debt, poverty and financial difficulties to the detriment of the economic recovery; therefore calls upon the Government to introduce, alongside measures to increase access to affordable credit, regulatory powers that put in place a range of caps on prices in areas of the market in unsecured lending which are non price-competitive, likely to cause detriment to consumers or where there is evidence of irresponsible practice; and believes that such caps should take account of the desirability of maintaining access to affordable and responsible credit, the likely impact on the supply of credit and the cost of enforcement, that they should be regularly reviewed and that they should use the total cost of credit, calculated on a yearly basis, to ensure that lender avoidance and distortions in price are prevented."

Really.........what's not to like? What is out of kilter with our own and coalition policy? Who's playing games here? Or have we been got at by those in the industry who stand to lose out from this? Are we being lead by the nose to become a party of the haves rather than the have nots? Will our party election broadcast next year feature Nick Clegg walking through ripped up copies of the preamble to our constitution? Seriously, please my fellow Lib Dems, get a grip, continue to fight for what you say you believe in. Simon Hughes told the Fabian Society a couple of weeks ago that the progressives were "alive and kicking" in the party.........well some of us are feeling decidedly unwell at the moment and we need the medicine of seeing our parliamentary party fight for party policy, especially if it is in the Coalition Agreement, if we are to pull round!

Monday evening I attended a fantastic event – the launch of the All Party Parliamentary Group on Financial Education. It wasn't standing room only, there wasn't standing room - even Stephen Williams couldn't get in! And the attraction? One Martin Lewis of Money Saving Expert. I've never seen so many MPs in such awe – all queuing up to have their pix taken with him . And the word is that this is the biggest APPG ever, with 141 parliamentarians already signed up. Martin Lewis was clear and unequivocal – debt is a killer. People commit suicide because of debt. We have to educate our children and young people to be able to understand and manage their money and as he said "It's a national disgrace that in the 20 years since student loans launched we've educated our youth into debt, but never about debt. Now as tuition fees are getting bigger and some will pay commercial rates of interest for them, we simply can't let students take this debt out unless they know how it works."

This genuinely cross party group has Justin Tomlinson, Stella Creasy and our own Duncan Hames as co-chairs. All have been rightly working together to support Stella's motion. Surely this is not a party political issue? Surely all of us baulk at the idea of people paying ridiculous rates of interest of 444% apr? And what about Wonga – at over 2000%apr????! Surely, in times of austerity, more than ever, we need to be doing all we can to prevent people getting into unmanageable debt? Am I being unreasonable? So WHY in the name of everything decent and true, can't our MPs support this sensible motion as is?

I trust like me you will be horrified. If you are and have one of our esteemed Lib Dems as your MP – please, please contact them now to ask them to support this motion. If we are to escape from this coalition with even a shred of credibility then this is one of the shreds I would hope to escape with.

.......PS, if you want a less ranty perspective? SLF supports the motion!