Earlier this year, Gordon Brown was asked by the Observer if there should be financial education in schools. He responded, ‘Yes absolutely. And I would favour more education in financial management and in financial budgeting generally at school. I’d like to see financial literacy extended particularly through schools and colleges…’
So, what’s the government’s approach been to date? There is still no statutory requirement for schools to teach financial education and similarly no requirement for the evaluation or testing of students’ understanding in this area. Instead, small amounts of ‘financial education’ – much of which has nothing to do with personal financial management – are being sprinkled into a number of different subjects such as personal and social education, citizenship and enterprise education.
There is no evidence to suggest that such interventions, either alone or combined, are equipping young people with the necessary skills to manage their own finances.
There are plans to incorporate personal finance into the new ‘functional’ maths GCSE from 2010. However, this amounts to barely a couple of hours over a two year GCSE programme! More worryingly, Labour doesn’t appear to have recognised that personal finance and maths are two very different subjects. As Ofsted recently highlighted, ‘financial capability is about more than numerical competence. It is also about developing an understanding of financial services and key ideas, the skills to apply this understanding to managing money, and acquiring particular attitudes towards personal finance.’
Schools minister Jim Knight has accepted that the financial education aspects of functional maths will do nothing to change financial behaviour, ‘…which should be addressed in another context’ – so why continue down this route?
There is an alternative, proven to achieve the right results: young people leaving school with the skills and confidence to make informed financial decisions. Over 10,000 students have taken a GCSE, AS or A level equivalent qualification in personal finance from the ifs School of Finance this year alone.
The QCA-accredited, GCSE-equivalent qualifications, called Foundation & Intermediate Certificates in Personal Finance, cover topics such as distinguishing between wants and needs, budgeting, opening and accessing accounts, and understanding different methods of payment and their implications.
Research by the University of Manchester suggests that such qualifications make a very positive difference to the financial behaviour of young people, with 95 per cent of students who have taken such a course able to manage their own finances effectively.
The Ofsted report into financial education found that spreading personal finance thinly across the curriculum is far less effective than a stand-alone course, as did research from the University of Cornell (2001) and the University of Manchester (2006). Ofsted also found that maths is not the right place for personal finance to be taught and that a great deal more needs to be done to equip teachers with the skills and confidence to teach personal finance. So, given that the schools inspectorate has found the current system so wanting, what should Labour do?
The answer seems obvious. Government should add a stand-alone qualification in personal finance to the core school curriculum. This would put personal finance on an equal footing with other subjects such as geography, history and modern foreign languages and would make it compulsory for schools to offer personal finance as a GCSE or equivalent option.
Doing so would lead to a marked improvement in the number of young people leaving school with the necessary skills to manage their own finances. And by having to offer a qualification to students as a GCSE option, it is likely that many schools would choose to offer younger students an introduction to personal finance before they reach 14, even if they don’t then choose it as an exam subject.
Furthermore, having an examinable subject enables schools, parents and policymakers to determine how effective the teaching and learning of personal finance has been.
Howls about a crowded curriculum would no doubt be made but as the 250-plus schools already offering such a GCSE option will testify, whether or not sufficient time is given to financial education simply depends on the importance attached to the subject. If equipping future generations with the skills to properly manage their own finances is deemed to be a high priority then there is no real barrier to making the necessary provision.
The government is due to publish a national strategy for financial capability in the next few weeks. Let’s hope it doesn’t prove to be yet another missed opportunity.
Phil Hall is head of media and public affairs at the ifs School of Finance, a registered charity that is incorporated by royal charter and provides financial education