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Financial Education

Volume 459: debated on Tuesday 17 April 2007

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Cawsey.]

I expect that you, Mr. Speaker, and I were fortunate when we were growing up some 50 years ago—when we were both teenagers—in that the need for financial education was limited. The only problem that my family had with finance was managing until the next pay day. Credit cards, individual savings accounts, overdrafts, student loans, annual percentage rates or even mortgages were as remote as they were irrelevant. I am glad to see that the hon. Member for Dewsbury (Mr. Malik) is in his place, as he is from Burnley, where I grew up.

Financial education, as taught by my father, consisted of the simple philosophy of Mr. Micawber:

“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Today’s young people face a more complex financial picture. They live in a country where last year 107,000 people became insolvent, 5,300 people a day went to Citizens Advice for debt advice and our combined consumer debt reached £1.3 trillion—more than our GDP.

It appears that as we have become more affluent we have abandoned not only the philosophy of Mr. Micawber, but our senses when it comes to finance. Right hon. and hon. Members will have dozens of examples of constituents who are in dire financial situations, often through an inability to budget or to understand financial products, and a failure to comprehend financial terminology. That is hardly surprising. An Institute of Financial Services School of Finance survey in 2004 revealed that 79 per cent. of people did not know what APR meant, 30 per cent. did not know what a standing order was, 20 per cent. could not understand the concept of inflation, and 50 per cent. did not know what 50 per cent. was.

Inevitably, that lack of financial knowledge is especially prevalent in the young. A Finance Society survey in January 2007 found that most youngsters thought that an ISA—an individual savings account—was an iPod accessory, and that winning the lottery was the best way to fund retirement.

I am sure that no one in the House would dispute that people need to be better educated financially, or that that education should start in our schools and colleges.

The hon. Gentleman has mentioned credit cards, but is he aware that a survey found that young people thought that the credit card with the highest APR was the best one to have?

The hon. Gentleman makes my point exactly—that young people’s inability to understand simple terminology is a serious problem. To be fair, the Government’s 2007 publication entitled “Financial Capability: the Government’s long-term approach” said that all children and young people should

“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”.

Most people would agree with that, but the reality is that financial education is a lottery for the vast majority of our young people. Until it is recognised that financial education is a key skill that should sit alongside literacy, numeracy and ICT as a stand-alone element in the national curriculum, it will remain a lottery, and the nation will continue to regard financial illiteracy as the norm.

Sadly, the Department for Education and Skills does not agree that a stand-alone element is needed. Indeed, on 17 February my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy) asked the Minister for Schools whether he intended to bring forward proposals to introduce a compulsory study of financial literacy in the national curriculum. The Minister said that he had no such plans, and I want to ask him why. The Government have stated that they are already delivering personal financial education through personal, social and health education, enterprise education, citizenship education and, from 2010, GCSE functional mathematics. However, like many others interested in these matters, I remain unconvinced that those initiatives, either alone or combined, are sufficient to equip our young people with the skills needed to manage their finances. I shall explain why.

First, Ofsted says that many secondary schools are failing to teach PSHE at all, and that only a handful of the ones that do include personal finance. Even then, the amount of time devoted to the subject is minute. The Government are considering adding an element of economic well being—another “E”—to the PSHE course, yet that will not improve matters. The new programme will be known as PSHEE but, like the existing programme, it will be non-statutory and non-examinable. In other words, it will simply be optional.

What about enterprise education, which is supposed to ensure that all 14 to 16-year-olds have five days enterprise activity? I welcome wholeheartedly the commitment to work-related learning, but it is related only tenuously to personal finance skills. Again, the amount of time allocated specifically to personal finance education will be very limited and—crucially—will also be optional and non-examinable.

So what about the citizenship programme? The Government claim that that includes financial education, but once more there is little evidence that schools are offering any form of financial education in the citizenship programme. I welcome the fact that financial capability appears in the suggested syllabus, but many schools do not teach it at all. The citizenship programme may be compulsory, but financial education is not a compulsory part of it, as it clearly needs to be. Even the examinable GCSE short course in citizenship contains no questions even vaguely related to personal finance.

Earlier today, I double-checked this by reading the specimen exam papers from OCR and Edexcel, neither of which contains this year a single question relating to personal finance. That cannot be right. The Education and Skills Committee concluded last month in an excellent report on citizenship that it is poorly taught and “patchy at best”. With ever-increasing pressure to deliver greater concentration on elements of identity, diversity and belonging, I fear that citizenship will fail to provide a sound vehicle to deliver core financial skills.

So what about functional maths? Ministers have stated that the new functional maths GCSE, to be introduced in 2010 will include elements of financial capability. In evidence to the Treasury Committee published in November 2006, the ifs School of Finance expressed its concerns that the standards for functional mathematics published by the Qualifications and Curriculum Authority were inadequate. The Select Committee concluded:

“What is being masqueraded as financial capability is confined to recognising notes and coins and simple calculations using money.”

That is not financial education. Regrettably, it would appear that this latest Government initiative offers little other than a tasty soundbite but no real substance. Indeed, if I could make one plea to the Minister tonight, it would be to move away from the idea that maths is a natural home for anything relating to personal finance. Financial capability is first and foremost about behaviours, not about numeracy.

Does the hon. Gentleman agree that one of the problems is that we do not have a cohort of teachers trained to teach personal finance as a specific subject?

I certainly do agree. I will come on to that point in just a second.

Of course, in looking at all the Government’s financial education policies in the round, I am concerned that there is little if any evaluation of financial education programmes in our schools. Unfortunately, time will not permit me to elaborate, but I wish to alert the Minister to concerns raised in the Government’s own report “Financial education: a review of existing provision in the UK” published by the Department for Work and Pensions in 2005. The report stated:

“Our review found that little formal measurement of the quality of financial education teaching”—

a point that the hon. Gentleman made—

“is taking place through Ofsted or any other inspection mechanism. Formal measurement is likely to reduce further with the new Ofsted inspection regime starting in September 2005.”

That is quite a damning comment.

Sprinkling personal finance across the curriculum has done little to improve financial capability and there is little evidence to suggest otherwise, so it is time for a different approach. Academic evidence from Tennyson and Nguyen published in 2001 and from the university of Manchester in 2006 suggested that a specifically designated course in which students know that its total aims relate to areas of financial management is more effective than courses that cover a wide range of areas.

The Manchester university report provides powerful evidence of the effect that financial education can have on behaviour and young people’s lives. It found that the majority of young people taking a stand-alone financial educational qualification had made positive changes in the way in which they managed their money. Many changed to a different bank account; many looked for additional, non-traditional products such as mini cash ISAs and were fully equipped to handle their money when they went off to college or university. Ninety-five per cent. of students said that they were better able to manage their finances as a result of taking a dedicated stand-alone personal course.

A further benefit of stand-alone qualifications is that we know whether any learning has taken place and thus whether changes in financial behaviour have occurred as a result. I cannot emphasise enough to the Minister that it is essential that any actions to improve financial capability are measurable. The simplest, most cost-effective way of doing so, which is most informative in terms of the data produced, is to offer a course that requires accreditation. I accept that schools will say that it is yet more to fit into a crowded curriculum, yet more than 100 schools are already doing the equivalent of a GCSE course sponsored by ifs School of Finance. If they can do it, we need to be able to do it in the schools where students will benefit the most.

Almost every aspect of modern life in the UK involves some form of financial transaction, irrespective of our income, class, background or academic ability. Finance impinges on everything we do so it should be taught as a stand-alone component of the curriculum. I acknowledge that there are some excellent initiatives in financial education that deserve the highest praise. I fully accept that some schools are working within the Government’s overall programme and delivering high quality. Initiatives such as the learning money matters programme funded by the Financial Services Authority, in which Personal Finance Education Group employees offer teachers support via e-mail, telephone and personal visits, are super.

I welcome those small steps, but it is really the role of the DFES to equip teachers with the skills and confidence to teach the subject by introducing a personal finance element in teacher training programmes. At present, there is no such element in any of those programmes. Maintaining the current approach and pursuing the path set by the Government for the next 10 years will not deliver the objective we seek—a financially literate society. I hope, however, that the Minister will at least reconsider functional maths in relation to personal finance. I hope that he will carefully consider the Select Committee report on citizenship in relation to financial education and that he will examine the possibility of incorporating an element of financial education in all teacher training programmes.

Finally, I make a simple plea to the Minister. Will he look again at the evidence that supports making financial education a compulsory part of the national curriculum? Will he talk to the FSA, the School of Finance, the Institute of Chartered Accountants, the Finance and Leasing Association and the Council of Mortgage Lenders? Look at the evidence, Minister, and make new plans.

I congratulate the hon. Member for Harrogate and Knaresborough (Mr. Willis) on securing this debate and on bringing an important subject to the attention of the House. Clearly he and I, and my hon. Friend the Member for West Bromwich, West (Mr. Bailey), agree that schools and colleges have an important role to play in ensuring that young people go out into the workplace with the skills they need to plan and manage their finances.

Education has to prepare children and young people for the real world beyond the school gates, and financial literacy is a skill that every citizen needs to function effectively in society. As the hon. Gentleman said in his opening remarks, social, economic and demographic changes over the next few years will make that increasingly important. Young people in school or college today are likely to make several major career changes over their working lives. They will need constantly to develop their skills to stay ahead, through lifelong learning and more opportunities for flexible working. Meanwhile, increasing life expectancy means that people will need to plan for longer retirement. All that is alongside issues people already need to understand, such as student loans, mortgages and pensions.

Many adults already struggle with those skills. About 15 million adults lack the numeracy skills to make appropriate decisions about saving; they find it difficult to make comparisons and weigh up different choices. With that in mind, my colleagues at the Treasury recently published a long-term strategy to develop financial capability for all, to which the hon. Gentleman referred. By coincidence I met Treasury colleagues today to discuss taking the strategy forward, with enterprise education.

Over the long term, we want to ensure that all children and young people can access a planned and coherent programme of personal finance education, so that they leave school with the skills and confidence to manage their money well. What does that mean in practice? What will schools and colleges need to have in place? What do the Government and their partners need to do to offer schools the right support and resources?

First, there is already considerable scope for schools to address those issues. The hon. Gentleman referred to some good examples, although he expressed impatience that they are not universal. There is scope not only within personal, social and health education, but also in citizenship—however flawed the hon. Gentleman may think it is—maths, business studies and careers and enterprise education. Within PSHE, pupils develop their financial skills through age-appropriate activities. Younger children are introduced to ideas such as saving and planning, whereas older pupils study more complex concepts, such as influences on saving and how to budget.

Within citizenship studies, older pupils must study broader financial issues such as how the economy functions. I accept that that is not directly personal finance, but it provides an important context in which to judge personal financial decisions.

The Government are spending £60 million each year until 2011 to help schools embed enterprise across the curriculum, helping young people to develop creativity, innovation and risk-management skills. The focus on enterprise will, I hope, help pupils to develop financial literacy and business understanding. Clearly, they are not the same thing, but there is a good relationship between the two. If young people are developing enterprises in schools, as many are, they are learning about budgetary processes and financial management for those small business that they are developing. They can then, in time, apply some of those principles to their own finances.

We think that we could do more to help young people develop their financial capability—hence our proposed changes, outlined within the Treasury document. For example, we will introduce a new child trust fund payment for seven-year-olds from 2009. We think that that is an important opportunity for children to start to think about finance, so we will explore ways of making the most of that with appropriate resources in schools.

The current review of the secondary curriculum provides an opportunity to consolidate financial capability within the curriculum for older pupils. The review is designed to reduce prescription and increase flexibility, offering the kind of personalised learning that we think is essential if we are to continue to drive up standards.

The proposed new curriculum, which is out for consultation until the end of this month, revises the PSHE curriculum, so pupils will study economic well-being as a discrete strand of work. Personal, social and health education will then become, as the hon. Member for Harrogate and Knaresborough said, PSHEE, standing for personal, social, health and economic education. That would include learning how to manage money, addressing concepts such as savings, investment and trade, and understanding financial terms relevant to pupils’ everyday lives.

The development of functional maths is important: it will be an essential component of GCSE maths from 2010. I accept that it will not address behaviour, which should be addressed in another context, but no one will be able to pass GCSE maths without demonstrating that they are able to apply their theoretical knowledge of maths to real-life situations. For example, students may be asked to calculate interest repayments on a mortgage or think about the cost-effectiveness of various mobile phone tariffs. As those examples show, financial literacy is an important element of functional skills and students will need to demonstrate that they have a solid grasp of those issues as they study the fundamental subject of GCSE maths.

Functional maths—alongside literacy—will also be part of the new diplomas. Those enthused by concepts of financial literacy who want to develop their skills further may want to pursue the new diploma in finance and business administration, which will be available in some areas from September 2009 and will be an entitlement for all pupils from 2013. The financial services sector skills council will be leading the development of this diploma, ensuring the content will effectively prepare young people for careers in the sector or for further study.

Colleges in particular have a critical role to play in helping those adults whom I mentioned earlier who struggle to make sense of the financial world. As part of our overall skills for life strategy, the Basic Skills Agency has had £3 million of funding to invest in a financial literacy project. It has developed materials and learning programmes for use in FE colleges. York college, for example, has used those resources to embed financial literacy within different vocational courses.

It is also critical, as both hon. Members have mentioned, that teachers in schools and colleges have the support and training they need, so that they are confident in helping young people to develop their own skills and knowledge. There is a newly formed professional subject association for PSHE, which will support teachers to plan, deliver and evaluate better PSHE provision, including personal finance education.

We are updating the curriculum guidance for personal finance education this year. The Qualifications and Curriculum Authority has also recently published guidance for PSHE, which covers financial education, and from September, the functional mathematics element of the new diplomas will become part of the curriculum for trainee teachers of the relevant age group. We will also be examining whether more support is needed for PSHE teachers—perhaps, for example, by developing a new module in financial capability in their continuous professional development programme.

I must also mention, as the hon. Member for Harrogate and Knaresborough did, the excellent support made available by the Personal Finance Education Group, an educational charity primarily funded by the Financial Services Authority, whose learning money matters programme offers a one-stop-shop for schools to get advice on planning their provision for financial education. It aims to reach 4,000 secondary schools directly by 2010. Because of its significant expertise in this area, we have asked it to redevelop the guidance on teaching financial capability that I referred to before. Finally on this point, the new national centre for excellence in maths teaching will play an important role in supporting better teaching and sharing good practice in financial literacy in respect of functional maths.

I have talked about the range of activities that we are undertaking in this area, but I should comment on the principal point that the hon. Gentleman made about compulsion. We do not believe that it is necessary or desirable to make financial capability a separate statutory area of the curriculum. In fact, we do not think that making all elements of the PSHE statutory for secondary school pupils is necessary, although all are required to cover sex, drugs and, not rock and roll, but careers education. In essence, we are trying to reduce the level of prescription from Whitehall and offer more flexibility on the ground for schools.

Making the subject compulsory will not necessarily improve the way in which it is taught, and we think that that is the crucial factor that we need to focus on. We need to concentrate on improving delivery in the classroom. That means a focus on ensuring that teachers have the skills and confidence to teach those subjects effectively. We think that it is more important that we invest in the work force and ensure that the appropriate resources are available to them. Teachers themselves agree with that approach. An FSA survey of teachers showed that there is little support for personal finance to be made statutory and that what schools need is flexibility within the curriculum.

Moreover, PSHE and citizenship already covers some elements of financial literacy, and that will be enhanced by the proposed changes in the secondary curriculum review, which, as I have said, will free up time. I hope that freeing up time, particularly in key stage 3, will mean that schools will opt to develop further their enterprise and financial education, alongside other things such as learning outside the classroom and some of the other skills for life that can make school more engaging during those critical first three years of secondary school—where there is a secondary system, rather than a middle school system, in place. That will mean that pupils can continue to be engaged in those areas, but also in their academic learning, as they go on.

For similar reasons, we do not believe that it is appropriate to make it compulsory for every pupil to have a qualification demonstrating their financial capability. The qualifications are available to the schools that wish to provide them. Some may choose to use the time that they will have in key stage 3 for that purpose. But it is more important that young people acquire the relevant skills.

I hope that I have reassured the hon. Gentleman that I have listened to his argument. I will, of course, reflect on what he said. I hope that he is persuaded that the Government and I are determined that financial education must be part of our education system and that we are implementing changes to ensure that financial literacy is embedded at every stage. We might disagree about some of the practical measures to be taken, but the commitment is certainly there and we want to be judged on our success in delivering that commitment. I am confident that we are offering teachers the right support to teach those vital skills.

Question put and agreed to.

Adjourned accordingly at two minutes to Eleven o’clock.