Today’s post is by Julia Kukiewicz, Editor and Lyndsey Burton, Founder of Choose, a consumer information site that’s been covering personal finance in the UK since 2003.
As world leaders traded notes on the financial services that will shape consumers’ lives at the G20 in September, OECD head Angel Gurría had a few thoughts for the consumers themselves. “Individuals are increasingly responsible for taking key financial decisions in a complex and volatile environment,” he told reporters. In most developed countries, public welfare is shrinking and the products growing up to replace it are complicated, Gurría added.
The speech underlined the OECD’s continuing support for financial education, even as critics of government and private consumer education projects grow louder. Such criticisms threaten to derail the project of widespread financial education before it even gets off the ground in countries like the UK. But OECD support can and should help. In this post, we’ll look at the challenges the UK project is facing and how policymakers could overcome them.
First, some background: the UK will bring financial education into the school curriculum for all children between the ages of 11 and 16 from September 2014. As in other developed countries, the UK always had a financial education movement but it has grown in response to the financial crisis. Financial education’s inclusion in the national curriculum (the guide for all lessons in the state schools that are the majority in the UK school system) has been seen as a grassroots victory. Consumer groups pushed for the measure with considerable public support.
As the UK prepares to roll out financial education, however, it faces a number of problems:
- High expectations among those that supported the measure and who expect to see results.
- Increasing concern that financial education will be co-opted by banks pursuing their own interests and, in particular, choosing to push financial education as a replacement for greater regulation.
Managing high expectations
High expectations might not seem like such a big problem and, in some ways, they aren’t: it’s great that people are excited about financial education. If those expectations are going to be fulfilled in a way that we can see, however, it’s going to mean a real commitment to big ideas in the classroom and to measuring the real effects of those classes on consumer behaviour.
For example, at a recent Treasury hearing into financial education, consumer group representatives said they believed that financial education in schools will be ”crucial” to avoid mis-selling scandals and other problems, like high levels of debt, in the future. They also argued that children’s education could flow back to their parents. “Prevention is better than cure, being both cheaper, effective and potentially less damaging,” the UK’s leading financial education charity – PFEG – summed up. That’s quite a claim however, and one that needs to be measured.
From 2015, the UK – alongside some other countries – will start to monitor pupil’s financial literacy through PISA testing, perhaps the world’s largest comparison of education levels between countries. This type of monitoring is vital if we’re going to foster effective policies that can help children grow up into informed consumers.
Where do banks fit in?
Similarly, many don’t see any problem with banks being involved in financial education: after all, they have a lot of money to spend on it. In the UK, groups like PFEG, who provide resources to schools that want to offer lessons in personal finance, include resources provided by the UK’s big six banks and also help bank employees to come into the classroom to deliver their messages. The charity says that teachers and pupils are happy with the results but, critics say, allowing banks to lead education will inevitably lead to lessons that could encourage very young consumers to take on debt for example, and will privilege learning about products over learning mathematics skills that may make them more financially capable in the future (pdf).
Currently UK MPs are debating what role the Money Advice Service, a general consumer interest and information group which primarily offers basic money advice face-to-face and online, should take in school based financial education. It has been suggested that it should be up to the Money Advice Service, as the Government’s primary consumer help service, to take a much more active role, and reduce the influence of the banks. The OECD has strongly supported levies on the financial industry to pay for consumer protection measures and, in the UK, a statutory levy is what pays for the Money Advice Service. As it stands however, the Money Advice Service wants to take just a supervisory role in school based financial education, setting up standards and codes of practice for the UK’s many charity and non-profit financial education groups to follow.
With respect to concerns about banks’ involvement in educational resources and delivery then, UK policymakers could do well to look overseas and see how other countries have dealt with these competing interests.
At a much higher level, the UK could also seek out the experiences of other countries as it attempts to balance education with regulation of the banking sector.
Many have argued for example, that the roots of the financial crisis can be found in policies that failed to protect consumers, not in a lack of consumer education; regulators allowed the subprime mortgage market to thrive in the US, for example, that consumers chose to take out those loans was just part of the problem. As in other countries, the UK Government was already inclined to implement measures that could increase consumer protection as a result of global pressures. However, measurement of the effectiveness of regulation, as well as financial education by bodies such as the OECD is needed to help ensure that Governments don’t sidestep their responsibilities to protect consumers by favoring just one approach.
How the OECD can help
The OECD International Network for Financial Education (INFE) has been attempting to monitor these financial education policies and identify best practices since 2010. As it sets up its classes, the UK desperately needs to see what types of financial education have been effective in actually changing behavior in other countries.
The work of INFE as well as the results of PISA research into financial education could be a useful resource as the UK Government looks for a realistic view of what education can do.
The independent judgment of the OECD, in the form of PISA testing, for example, will also be a key resource for the UK as it looks to monitor the results of the financial education it does choose to implement in schools.
Finally, the OECD can encourage governments, in the UK and elsewhere, to strengthen their commitment to protect consumers from harmful products and harmful practices at the point of sale. This commitment is not incompatible with the drive for greater financial education: the two should go hand in hand.
Public consultation: Guidelines for private and not-for-profit stakeholders in financial education. INFE is developing guidelines intended to address the involvement of private and not-for profit stakeholders in the development and implementation of national strategies for financial education. The draft text of the guidelines is now available for public comment. Comments received will be taken into account when preparing the final version of the guidelines. Submission deadline is 10 January 2014