I was delighted to read that the crackdown on payday lending continues with announcement of a plan to re-introduce the habit of savings at an early age. No matter how much we regulated the low end loans market, poor financial decision-making (the underlying cause) will only be reduced through improved financial education. And that needs to start young.
When I was at primary school – many moons ago –I was encouraged to save at an early age by taking in 6d or 2/6d to buy National Savings stamps (now NS&I). These stamps were then used to pay into a Post Office savings account which I continued to deposit money in throughout my years at secondary school (from my pocket money, Christmas and birthday presents etc) up until I started to earn ‘real money’ as a Saturday assistant at Boots.
This quickly instilled in me the habit and importance of savings, something I’ve tried to stick to throughout my life – even through the many challenges of raising a family. Unfortunately it became too expensive for National Savings to operate and savings stamps were abolished at the end of 1976.
Former CEO of the FSA (now FCA) Hector Sants is working with the Church of England to open credit union ‘branches’ in primary schools to help the next generation to understand the importance of savings and not running to high-interest lenders when things get tight financially. Sir Hector is heading up a special task force group to encourage responsible lending and which will include this initiative to enable credit unions and building societies to set up branches inside primary schools with the aim of instilling children with the habits and financial awareness from an early age. His aim is to bring a new level of financial awareness to children and make a significant difference to the financial capability of society over time.
Currently less than a third of all primary schools offer any financial education; the plan is to increase these levels through learning in the classroom combined with the practical experience of opening and running an account. This, in turn, creates a society that has an awareness of the need to save and, hopefully, to manage finances prudently in later life when they have an income through working. I feel so strongly that this initiative is supported in any way possible to alleviate, if not avoid, financial stress. Here is some sobering data which speak for itself.
- The debt of the average UK household, excluding mortgages, is now almost £13,000
- 7 million people are using high cost credit providers
- 67% have visited their GP due to the negative effects of debt
The BIS (Department for Business Innovation & Skills) Skills for Life Survey found that, in 2011, 43% of adults in England have literacy levels below level 2 i.e. may not be able to compare products and services for the best buy or work out a household budget. They also found out that people with weak literacy skills are aware of this fact and one consequence of this is that they avoid checking their bills and bank statements.
This naturally extends to taking out a pension and deciding what to do with the time comes to retire. With the increased flexibility being offered around pensions taking effect in April next year, there is a danger that people may be tempted to take some or all of their pension pot in the belief they can provide themselves with a suitable income in retirement – not realising the consequence of their actions.
I wholly endorse any initiatives to improve financial capability. An introduction to understanding financial matters should begin at an early age and continue throughout the education system. Although it may be a long-term project, it’s crucial we start to prepare society better for all the financial challenges that lay ahead, and we need to start today.