She had fame, success and a lot of money. Now she can’t pay her debts. She’s handed her money and property over to the official receiver. She lives on a basic income without luxuries.
Why mention her? Because she, and a fair number of other celebs who acquire fortunes and lose them, are an object lesson for young people. They illustrate the stark, perhaps surprising, truth that you can never have so much money that you don’t have to bother about it.
Some teenagers scorn the idea of money management. Phrases like, “I’m going to be famous” or “When the band gets its break, I won’t need to worry about money” are quite common. Fair enough, you can reply. But fame and success don’t reduce the need to understand and manage money. They increase it.
Here are two bonkers arguments for financial education in schools. The first is from Mark Garnier MP, vice-chair of the all-party parliamentary group for financial education for young people. He told the Financial Times earlier this month, “We need to make sure the next generation are financially literate. Compulsory financial education could avert the next financial crisis.”
Almost as ridiculous is the view of Andrew Percy MP, who chaired an eight-month inquiry for that same parliamentary group. He told the Daily Telegraph that financial education would be a long-term solution to irresponsible borrowing and personal insolvency.
To get a glimpse of how absurd these views are, think first about the general numeracy levels across the UK. A report last year suggested that 17 million adults, virtually half the working population, have numeracy skills that you would expect from primary school children. Mmm.
Then think about teenagers in general, and what they tend to know about, say, different financial products, their purpose and relative advantages. What’s their take on packaged bank accounts as opposed to no-frills current accounts, for instance? What do they see as the main advantages and flaws of permanent health insurance? Are they up to speed on the difference between defined benefit and defined contribution pension schemes and do they have a view about the level of equity and overseas growth funds they might want in their mix? Thought not.
Bearing in mind young people’s baseline capabilities, and those of the older generation, imagine what transformation of knowledge, skills and attitudes would be needed to equip them to “avert the next financial crisis”. I know some financially astute people who took out an Equitable Life pension. Many local authority accountants deposited money in Icelandic banks that went bust. Numerate and well-educated people took out endowment mortgages that failed. Would they all have fared better if they’d had financial education at school? Or take Libor fixing. How might the future cohorts of financially-capable school leavers have averted that? Would concerned citizens have so loudly expressed their hunch that manipulation of the interbank lending rate was going on that MPs would have forced the authorities into action? Really?
Then there are the financial products that caused the credit crunch and our current woes. Those are the collateral debt obligations, credit default swaps and structured investment vehicles that were scarcely understood even by the people who created and sold them. The credit ratings agencies gave triple-A ratings to worthless mortgage-backed securities. Regulators didn’t see anything amiss worth taking action on. Are the MPs imagining that financial education in schools will somehow bring the population to a level of financial acumen and integrity that exceeds that of the best minds in our financial institutions, ratings agencies and regulatory bodies? What kind of fantasies are these?
In the case of personal insolvency, the fantasies seem rather sick. Picture someone who’s lost everything because their partner ran off, or they developed cancer or their business failed – or all three. Suggesting that their problems lie in their inadequate education is insulting and ignorant.
So why are the MPs saying this stuff? They may be so carried away with their enthusiasm for financial education that they lose perspective and make giddy remarks. Or they may have an ideological belief in a free and unfettered market of financial products whose principal safeguard is empowered and educated consumers. Either way, their arguments are daft and dangerous.
An economist who has analysed gift-giving isn’t impressed. “An orgy of value destruction and misallocated resources,” is what Prof Joel Waldfogel, author of Scroogenomics, calls it.
The problem is that when we buy for ourselves we have, or ought to have, a reasonably good notion of what the value is to us compared with the price. If something costs £30 we buy it only if we consider that it has at least £30 worth of satisfaction to us, preferably more.
That breaks down when it comes to buying for others. We don’t really know what other people like or what they already have. So there’s a risk that the recipient of our gift wouldn’t value it as high as the asking price. Of course, we could be lucky and get it right. But more likely we won’t. We could use our hard-earned cash to buy something that the recipient would not have spent a penny on.
That’s the problem that Waldfogel identifies. He’s costed it as a waste of $25 billion a year.
So what do you do instead? Gift cards is one answer. But given that only 90 per cent of them get redeemed, that’s an awful lot of waste too. And when retailers collapse, as Comet did recently, they can become worthless.
So is it back to unromantic cash? Perhaps. But Waldfogel does give an element of hope. Buying presents for people you know well is much more likely not to be a waste. The real problem comes when buying for people who you see seldom and don’t know very well. So then the advice boils down to making sure you ask your Gran or distant relatives for cash. But you’d probably figured that out anyway.
Money management training works. It can sound dull. It can be hard to persuade people onto training courses and programmes. But once they’ve had a taste of it, they’re often converted. Here are two videos that capture some of the enthusiasm from participants who’ve grown in skills and confidence.
The first is from a one-day simulation run in schools by an education company, Ambitious Minds. Called Keep the Cash!, it challenges students to discuss their aspirations, agree a lifestyle, then make it sustainable, while juggling home and jobs, income, debt and cash flow. Just like adult life.
“Sorry mate, I’ve only got a £20 note.” No problem, I’ve got change. Marc the Big Issue seller was happy to sell a magazine to a friendly-seeming stranger. He wasn’t happy when he tried to spend the note. It was a forgery, worth nothing. That was his day’s earnings gone.
Young people are great users of cash. Even so, they are not very likely to come across a forged note. They are relatively rare and don’t circulate for long. Just under 250,000 counterfeit £20 notes were taken out of circulation last year. Which sounds a lot, but not as a proportion of the 1.6 billion genuine £20 notes in circulation. Perhaps Marc was targeted as a vulnerable person, assumed to lack the confidence or knowledge to check a note.
Key things worth knowing about bank notes
What are you supposed to do, legally, if someone tries to give you a forged note, in change or for payment? Similarly, what is likely to happen to you if you try using one in a shop?
What are the security features signs of genuine £5, £10, £20 and £50 notes? How can you quickly identify one?
Answers to these are supplied in the Bank of England’s rather old-fashioned public information video, Take a closer look. It’s 15 minutes long and not very zappy. A good activity for groups of young people might be to distil the key information into a faster, slicker and more memorable format – a rap, a poster or whatever suits.
See a quick summary of the key points, below the video.
Summary of key points
It is a criminal offence to pass on or even hold onto a counterfeit note. If you have one, hand it to the police as soon as possible. You’ll get a receipt. If someone tries to give you one, explain that you think it is counterfeit, give the person a receipt and pass it to the police.
Each value note is slightly different but all have raised print that you can feel, a metallic thread, a watermark. precise print quality, a hologram, microlettering visible under a magnifying glass and a number that appears under ultra-violet light. The £20 and £50 notes also have a see-through register forming a £ symbol and the £50 has a motion thread woven into the paper.
At school and disappointed by the personal finance education on offer? Campaign for it, using a toolkit produced by other young people. Focused on the skills and approaches to campaigning, Our Money, Our Future has a lot of good sense about building a team, starting from strengths, co-opting an adult champion and setting objectives.
Why are the young people on the right celebrating? Because their money skills have just been recognised.
The team of Paige Sparrow, Ryan Gardener, Alex Mayhew and Shannon Mears from ACT in Bridgend in Wales ran a project on practical ways to cut spending, particularly on food, for themselves and other 16-18 year olds at their training centre. Using their slogan, Don’t Buy Posh, Save your Dosh, they set up a value cafe (a three-course meal cost £1.66 per person), cooked a meal for a local community group Mental Health Matters, ran blind tastings, and actively spread the word about shopping and preparing meals on a tight budget.
Their efforts were recognised in April this year when they won the grand final of Money for Life Challenge, a project run by Toynbee Hall in London and other partners around the UK. It is supported by a high-street banking group. As well as developing, practising and sharing life-long money skills, the team also found levels of confidence, teamwork and leadership skills they never knew they had.
This year’s Money for Life challenge is now accepting entries from young people in some form of further education, training or adult or community education. The deal is that a team of learners aged 16 to 24 can apply for a £500 grant to devise novel ways to teach others how to manage money. The young people will have £200 to spend on their money management projects. Their organisation takes the rest as a no-strings grant. Since organisations can have up to ten teams, that suggests a grant of up to £3,000 is theoretically on offer.
How do you write a cheque? If you are a bit hazy, how easy is it find out?
I just tried to discover what help there is online, starting with the website of the Personal Finance Education Group or pfeg. It says it is the UK’s leading finance education charity. “We provide resources and lesson plans, help and advice to anyone teaching children and young people about money.”
Sounds good. So I put “how to write a cheque” (without the quote marks) into pfeg’s search engine. “Your search yielded no results”. Hmmm. Perhaps they’re a bit unsure too.
I tried searching with the single word cheque. Success – one result. That linked to The Banking Game. “Skills such as writing out a cheque, paying with a debit card or crediting their account are all included. …”
Great. Except when you follow the link what you get is:
I’m not likely to pay £35 to learn how to write a cheque. Nor are young people. So that’s a dead end. (Apologies to pfeg if I’ve missed anything on their site. If they let me know, I’ll link to what they have.)
The most useful online resource I found on a quick search for how to write a cheque is from the project Money matters to me created by adult educators NIACE. It isn’t cutting-edge design. It isn’t branded as a youth resource. But it has good, sound information. Free. On this cheques page, users can roll over the cheque and see the different elements described. They can then try entering the key information themselves on some examples provided – scroll towards the end of the page and click next.
Percentage of the population who report that they are finding it quite or very difficult to get by financially
Percentage of the population who are satisfied with their household income
Data on these will presumably be published sometime in the future. Meanwhile the ONS says it is still looking for a measure of financial security. And it welcomes further comment on this and on the financial measures above.
What goods and services do you need to take part in society? And how much would they cost if you added them all up?
The latest report on minimum income standards from the Joseph Rowntree Foundation led to headlines about overall costs – a single person needs an income of £16,400 a year before tax. But it is the process and thinking behind the report that are most of interest to financial educators.
The survey is based on a simple exercise. Put people in a room and get them to agree what is the minimum needed to take part in society.
Then cost it.
This means people debating and trying to come to agreement about such questions as:
Do you need a car? Does it depend on where you live and what bus services are like? What impact might it have on going out, meeting friends? Or getting a better job, or a job at all?
How often do you need a haircut? The mayor of London manages without. Can anyone?
Do you need to buy friends birthday cards and presents? How does it affect life if you don’t, or can’t?
What about a holiday? If you cannot afford one, does that mean you are missing out on something that society takes for granted? If everyone needs one, how long, how often and where?
The exercise is about society and attitudes. Getting an understanding of that can help prioritise. It focuses on the need to plan for lumpy spending items. It is also helpful for young people to see the sheer number of things that have to be considered in order to live independently and take a full part in society.
For a bit of perspective, it’s also worth knowing that the JRF calculate that a single person needs a net income, after tax and rent, of £193 a week. Benefit, including council tax benefit, would provide £85 a week. That’s £108 a week short of what most people agree they would need.