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.