Written Evidence Submitted by Gabriella Bedford

Summary

Financial Education in the UK is failing our young people, we live in a society in which we practically educate young people into debt through the student loans system yet never about debt as the provision of financial education is severely lacking. My research has found that 38% of secondary school students say they have never been taught about personal finances and 64% say that what they have been taught will not set them up for life. The current financial education provision is deeply inadequate and will not lead to financially prosperous futures that our young people deserve.

I believe that mathematics should be an integral part of our financial education provision as the UK’s shortcomings in financial literacy and numeracy go hand in hand and improving young people's confidence with numbers is likely to lead to better outcomes when dealing with personal finances. In addition, there should be greater focus on debt as it now underpins our society through the growing number of situations in which debt is unavoidable. Understanding tax should also be a priority as the vast majority of the population do not understand how tax and their tax code works and financial decision making should be included in order to ensure that young people are equipped for the challenges they will face and to future-proof our financial education for whatever the future holds.

Furthermore, I believe that financial education should be extended to primary skills as research from Cambridge University shows that our money mindset is formed between the ages of zero and seven meaning that primary school is the most crucial time to impress on people the importance of managing money effectively as educating children from a young age will build the strongest foundations for a financially capable future.

Introduction

I am a current UK sixth form student who is passionate about personal finance and financial education. I have been interested in personal finance since I was seven years old and have developed a strong knowledge of the subject which I am now sharing with others by teaching financial education at my school and on social media. I am also a financial education campaigner and my report earlier this year on the topic was featured in The Times.

Financial Education in the UK is failing our young people. Most secondary school students have little awareness of the financial system they are forced into with the 2018 Financial Capability Survey finding that only 52% of 7–17-year-olds receive a meaningful financial education. In the economic climate we live in, a high level of awareness of the financial products and consumer services that we use on a day-to-day basis is necessary for people to thrive and maximise their potential as a lack of awareness of personal finances is proven to lead to a miserable adulthood. The higher education system and other fundamental parts of our consumer economy practically necessitate a form of borrowing yet swathes of young people in society are inadequately educated about borrowing and are doomed to be beset by financial issues later in life. A lack of proper financial education is already having an adverse impact on our society with 47% of adults in the UK admitting they do not feel confident with money – something teaching in schools would improve.

Issues with the current teaching of Financial Education

The current provision of Financial Education in the UK is deeply inadequate as it is massively underprovided by schools and colleges and in the instances, it is taught it rarely goes far enough to have a meaningful impact on young people’s financial futures.

Earlier this year I conducted a survey of UK secondary school students to gather their opinions on Financial Education As I believed that (mostly from personal experience) that the teaching my peers and I had received was disappointing to the extent that I knew GCSE students who were totally unaware that if they borrowed money – a complete failure of the system in my book.

In the most part, the responses I gathered paint a rather damming picture about the state of financial education in the UK with 64% of students surveyed responding that they do not feel the education their school has provided will set them up sufficiently well for life as an independent adult. A further 18% were ambivalent as to whether the information they had learnt would set them up well for life implying a high degree of uncertainty among young people today which feeds into the fact only 47% of adults feel confident with money. As a society, we have a serious problem with financial capability, and this is entrenched since secondary school age if not before.

However, it should be noted that there is a genuine interest in learning about personal finance. Anecdotal evidence suggests that students are identifying the need to be taught about managing their money: Josh, a sixth form student in England said, “I believe it’s a school’s duty to prepare students for the real world, whether that’s preparation for employment or financially.”. This conclusion is also supported in my research as 74% of the students surveyed said that the majority of their financial education has come from personal research, something I wholeheartedly agree with as it is solely through my own research, learning and passion that I have amassed such a level of financial knowledge which has put me in a position where I can educate others. There is a clear demand for financial education in schools (to the extent that private enterprises have sprung up to provide this service) yet as an education system we are doing nothing about it. A further point from this chart is that only 4% of young people surveyed said that they had learnt the most about personal finance from dedicated lessons providing further indication that there are serious shortcomings in the fiscal education we are providing. Also, having young people rely on external sources to provide information is all well and good however these may be wildly inaccurate or lead students to making unwise decisions due to misinformation – we cannot leave teaching financial education to the wild west of social media and the internet.

It is also evident that schools are not taking steps to rectify the lack of financial education young people receive as based on my research many students are reporting a dearth of teaching about personal finance. This makes it obvious to me that schools do not place the requisite importance on financial education that is required: of course, examined subjects need to take educational priority however as finance will eventually touch every aspect of young people’s lives meaning that the impact of teaching financial education will be profound. Despite this, 53% of secondary school students said that financial education was rarely mentioned. Worse still, 38% said that financial education has never been taught at their school. That could potentially mean almost two-fifths of our population being financially inept leading to disastrous consequences for their adult life. This is also backed up by my personal experience as during my entire time at secondary school I only received two lessons of financial education which in my opinion barely scratched the surface as they were taught by people who were not experts meaning that the lessons were not massively productive and did not advance students’ financial knowledge to great extent.

Financial Education and Maths

Financial Education and Maths are intrinsically linked as a lot of our financial literacy rests on our numeracy skills, something that we, as a nation, struggle with. Many studies and reports have shown that financial capability and numerical literacy are heavily interdependent yet the teaching of both maths and financial education in schools seem to disregard that fact. In my personal experience, the only financial content delivered in maths lessons was simple and compound interest which while undoubtedly useful (Einstein reportedly called compound interest the ‘eighth wonder of the world’) the links to your personal finances were not emphasised and as a result many students perceived it as another skill they needed to learn for the sake of GCSE Maths and not something which will have real-world implications. In my opinion, this is a massive missed opportunity as this government is heavily focused on improving mathematical skills yet fails to notice the chance to massively improve our financial skills, something that will have an equally profound impact on people’s lives.

The government recently proposed that they will ensure all students study some form of maths up to the age of 18 and that absolutely has to include some sort of financial education. The vast majority of students will not have use for some of the more abstract parts of mathematics (such as calculus, integration and vectors) which are normally taught up to 18 in A-Level Maths yet there are swathes of the secondary school population who do not know basic fiscal mathematics such as how to calculate interest payments, tax bills or what is the best deal when out shopping – both day-to-day skills. These topics are currently covered in GCSE Maths (“Knowledge and understanding of terms used in household finance, for example profit, loss, cost price, selling price, debit, credit, balance, income tax, VAT and interest rate.” AQA GCSE Maths Specification) however in my experience it is in such a cursory way that there is definitely scope to recap or develop this knowledge at post-16 level in order to improve financial literacy overall.

However, there is a noticeable group of the population whose mathematical proficiency is of a level that most financial documentation and calculations seem daunting. The United Kingdom has an innumeracy problem with the OECD saying that “England and Northern Ireland have some of the highest proportions of adults scoring at or below Level 1 in numeracy. In fact, 24.1% of adults, around 8.5 million people, score at that level compared to the average of 19.0%.” showing that teaching people seemingly ‘basic’ financial numeracy at post-16 level would have a considerable benefit. For the around 175,000 each year that fail their maths GCSE, tackling financial mathematics is a frightening prospect which brings back memories of failing to understand Pythagoras’ theorem and other numerical concepts, for these people, a mathematical education that is based upon learning the practical financial skills needed to function in life (such as how interest works) rather than the more abstract, less useful elements of mathematics.

Despite this, the financial education taught in mathematics is effective. As part of my research, I asked secondary school students a series of personal finance questions and one of those which they were more successful at answering regarded compound interest – a topic covered in both the foundation and higher GCSE maths syllabus. 81% of those I asked correctly answered a question which required them to calculate compound interest with relation to savings earnings (If you left £100 in a savings account for 6 years at 3% interest, how much would you have at the end of the 6 years?) showing that financial education through maths lessons is effective not only in conveying the information but also in students retaining how to do financial calculations.

What should financial education include?

Despite the benefits of teaching financial education in a mathematical manner, personal finance is not exclusively maths and treating it as such would be a disservice to young people. Although the mathematical elements of personal finance are important, there are equally important areas of personal finance which do not require calculations. One of the key parts of personal finance is understanding the psychology behind decision making, being rational about finance and also knowing that there is always uncertainty in making long-term financial choices. Although this is not teaching that can be easily done or tested, it is crucial in making people responsible fiscal citizens who can make wise decisions about their money. As far as I am aware, the rationale behind making sound financial decisions is not currently taught as part of financial education yet I think it is just as crucial as the knowledge which allows you to evaluate choices with full awareness of the positives and negatives.

Besides the more theoretical side of fiscal decision-making, there is also a considerable amount of practical information which we need to equip young people with before they enter the independent, working world. According to government statistics about tax liabilities, the total number of Income Tax payers is projected to rise to 35.9 million in 2023 to 2024 yet there is minimal education in schools about how tax actually works. The current system is that the taxpayer is responsible for their tax affairs and checking whether their tax code is accurate however there are swathes of the population who are not aware how this works and could be over or underpaying tax, something financial education could rectify which would bring benefits not only to the taxpayers but also to HMRC themselves in increased efficiencies.

Another aspect of personal finances which needs to be taught more readily is debt. Although most schools are teaching the practicalities of what is a credit card, overdraft, mortgage, etc, there is little education on which debt to choose and when including how different products are appropriate for different circumstances (or not appropriate at all in the case of payday loans). This is particularly pertinent in that we live in a society in which the systems we have in place practically educate people into a form of debt through the student loans system yet there is minimal education about which types of debt are appropriate when. As a result, a situation is created in which people are already indebted before they start their financial lives which normalises the idea of being in debt. This is not inherently bad however with the increased prevalence of almost dangerous debt products (such as payday loans) young people may see all debt as a necessary part of life and not delineate between the ‘good debt’ and ‘bad debt’. Added to the fact that debt is all but commonplace in today’s society, with 17% of adults saying that they are overly indebted it is reasonable to expect that debt will pay a key role in the next generation’s lives and they need financial education to prepare them for that. I know of sixth form students who are already borrowing through Buy Now Pay Later schemes (which are broadly unregulated) evidencing the fact that debt is a pressing issue of today and a matter that needs to be dealt with through educating people about the dangers of their financial actions. In my opinion, I think that debt is the most pertinent issue within the remit of financial education and is something that needs to be at the forefront of young people’s minds when they enter the financial world.

Every day people make spending decisions and purchases yet the financial education we teach seems to neglect shopping and spending safely and in a savvy manner in favour of teaching the more complex, advanced topics. Consumer rights are a key part of managing your money as every day people make purchases and invariably some of these do not go to plan meaning that knowing your rights can be incredibly important. In the UK, we are very fortunate to have some of the strongest and most useful consumer protections (such as Section 75 of the Consumer Credit Act 1974), yet a significant proportion of the population do not know they exist or believe some of the prevalent consumer rights myths – something financial education would improve. In my survey of secondary school students, I asked a question about consumer rights which respondents to identify the incorrect consumer rights statement and 52% answered the question incorrectly showing that there is considerable room for improvement in young people’s consumer rights knowledge. Knowledge that will be incredibly useful now and all throughout their financial life as there is rather high chance they will need to effectively complain about a good or service they purchase.

Financial Education throughout school life

Financial Education should be an integral part of our non-examined, life skills education as personal finances will touch every point in our lives and is something that if people fail to understand will have drastic consequences. Managing your personal finances not only affects your wealth but also your health in that not being in control of your finances can contribute to poor mental well-being and adversely impact those with mental health conditions. In addition, understanding your personal finances can boost people’s confidence with money and as a result can empower them to make better financial decisions which is likely to lead to people having savings which is something the government wants to encourage as it shows better financial resilience. Financial education in secondary schools can improve this as giving people the knowledge of how to better manage their finances will benefit them in the long run. However, teaching purely financial knowledge will only go so far as to improving people’s financial skills. For that, we need to educate on not only the practicalities of money but also the psychological side and rationale behind this in order to allow young people to continue to be financially literate even when the information they were originally taught invariably becomes outdated.

This should go right through the education system to primary school level as research from Cambridge University shows that your money mindset is developed between the ages of zero and seven and that from that point (especially in older children) it is increasingly difficult to change habits and perceptions that are engrained into people’s financial psyche. Therefore, it is imperative that we teach financial education all through the education system in order to ensure that the next generation have a higher level of financial literacy. Of course, the financial education at different levels of schooling should differ as it is borderline pointless teaching primary school children about the intricacies of credit card management (although I will attest that 9 year-old me did attempt to enlighten my peers) but we must bring financial fundamentals into primary school. The evidence shows that our money mindset is formed by the age of seven therefore in the years before that we must improve children's relationship with money through understanding basic concepts such as budgeting, the difference between needs and wants and the idea that money is something that is earnt and scarce therefore should be spent wisely and with care. If we want to create a financially literate next generation then we must start from primary schools in order to lay the strongest foundations for building better financial understanding and skills.

Another point to consider is how we deliver the information to schoolchildren, with the best will in the world, some elements of personal finance are not particularly thrilling therefore we should think about how to teach financial education in a way that is memorable and engaging so that they retain the information for later on in life. Of course, the primary means of teaching financial education will be through lessons in classrooms however we need to consider other means of teaching. I recently delivered an assembly for the rest of my sixth form cohort on debt which included a Martin Lewis-esque Good Debt vs Bad Debt game and even a month later I still have people quoting it back to me and asking questions off the back thus showing that adding some fun into financial education is likely to make it more memorable for students as they apply the information to their own lives.

I will leave this report on one final key thought, it is not just governments, teachers and those who are passionate about financial education who want it to be taught – the students do too. As a sixth form student myself, throughout my time at school I have heard countless students ask when they will be taught ‘how to do taxes and mortgages and useful stuff’ and genuinely question why personal finance is not routinely being taught in their schools. 77% of those I asked in my survey rated the importance of financial education as 5/5 showing that students really do want to learn about money and that should be as good a reason as any to improve the provision of financial education in the UK.

Appendix

Sources

Financial Capability Survey (2018)

Citizens Advice

Young Persons' Money Index (2022-23)

Cambridge University Study

Questionnaire Questions

Financial Education Questionnaire – 25/03/2023

1. What is your name?
2. What year are you in?
3. Which part of the UK are you in?
4. On a scale of 1 to 5, how much do you feel you know about personal finance?
5. On a scale of 1 to 5, how important do you think good financial education is?
6. Do you think schools should provide financial education (and why)?
7. From where do you feel you have learnt the most about personal finance?
8. How often is financial education mentioned/taught at your school?
9. On a scale of 1 to 5, how would you rate the financial education at your school?
10. What resources does your school use for financial education?
11. What is the best thing about the financial education provision at your school?
12. What would you change about Financial Education at your school?
13. Do you think the Financial Education provision at your school will set you up well for life?

Financial Literacy Questionnaire – 21/05/2023

1. How old are you?
2. What is your gender?
3. On a scale of 1-5, how good do you think you are with money?
4. From where do you feel you have learnt the most about personal finance?
5. On a scale of 1-5, how much do you understand the financial products you sign up for?
6. On a scale of 1 to 5, how important do you think good financial education is?
7. If you left £100 in a savings account for 6 years at 3% interest, how much would you have at the end of the 6 years?
8. Which of these isn't a legal consumer protection?
9. Should you give out banking passcodes over the phone?
10. Which of these is the better deal (to buy 16 cans of beans in total)?
11. Which of these statements about ISAs are false?
12. How much of their earnings above the student loans repayment threshold do UK graduates pay?
13. Should your bank fail, how much does the Financial Services Compensation Scheme (FSCS) cover you for?
14. Is home insurance compulsory in the UK?
15. Which of these statements about credit cards and debit cards are true? (select all that apply)
16. What is on your credit report?

January 2024