Friday, October 07, 2011

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!