2 CONTEXT
Introduction
2.1 The purpose of this chapter is to identify and review existing research and survey evidence on the effectiveness, and where evidence exists on the cost-effectiveness, of different forms of financial education in schools in Scotland and the rest of the UK.
Financial Education
2.2 In July 2008 HM Treasury and the FSA published its joint action plan for financial capability in which it states:
"Personal finance teaching in schools has been shown to be infrequent and inconsistent. To meet the long term aspiration for a planned and coherent programme of personal finance education for every child, it is important that personal finance has a secure place in the curriculum, and that schools and teachers are supportive to deliver it." ( HM Treasury and FSA, 2008, page 11)
2.3 Therefore, all children and young people should have access to a planned coherent programme of finance education, so that they leave school able to manage their money well ( HM Treasury, 2007).
2.4 O'Connell (2007) sees financial education as a term commonly used to refer to various methods to increase an individual's financial knowledge. The result of this education is intended to be improved financial literacy or capability.
2.5 On the 18 th December 2007, the European Commission adopted a Communication on Financial Education. This Communication underlines the Commission's support for the provision of financial education delivered as close as possible to the citizens that need it, namely through Member State, national and regional authorities, non-governmental agencies and the financial services sector. The Commission's perspective is that the role of financial education is to help inform young people as consumers - now and in the future:
"Financial education enables individuals to improve their understanding of financial products and concepts, and develop the skills necessary to improve their financial literacy; i.e. to be aware of financial risks and opportunities and to make informed decisions in their choice of financial services. It is a life-long issue. Financial education is a complement to measures aiming to ensure the appropriate provision of information, protection and advice to consumers" ( COM (2007) 808 page1).
2.6 The Communication goes on to argue that as international surveys have demonstrated consumers' low levels of understanding of financial matters, financial education is all the more important at a time of increasing complexity and globalisation of financial services on offer, and at a time of increasing market turmoil and lack of consumer confidence due to the global credit crunch. It is therefore important that individual Member States should play a central role with assistance from the EU in promoting financial education within schools so that all pupils have the knowledge, skills, awareness and confidence to fully engage with and benefit from financial products and services i.
The Need for Financial Education
"Financial understanding is a key life skill. Children need to understand the value of money and how to interact with financial service providers to provide for their own futures. The skills they will learn in class, combined with the experience of having their own savings product, will better equip them to avoid financial problems in later life."(Treasury Minister Kitty User, HM Treasury 7 th September 2007)
2.7 Why is financial education so necessary? Part of the answer lies with the complexity and the pace of change associated with the global market for financial products and services, thus making it all the more difficult for all of us, not just young people, to understand what is going on and what choices we have. Data presented at the Financial Inclusion Partnership seminar in June 2007 illustrates the point (Scottish Government, 2008):
- 98% of people hold at least one type of financial product;
- 79% of people do not shop around or talk to a financial adviser before buying a product - relying on product information or non-independent advice;
- UK financial services industry spend £1.5 billion/year on advertising;
- Receiving financial education as a child can result in people being up to £32,000 better off between the ages of 35-49;
- 81% of people under retirement age think the state pension will be inadequate, but more than a third have not made any additional provision.
2.8 An evaluation of the current market conditions now estimates that up to four million consumers are vulnerable to changes in their financial circumstances, placing even greater focus on the need for financial education to help young people ready themselves when they leave school, but financial education is important in the context that children learn and absorb what is going on in their own household and that understanding what is going on in terms of family household finances is just as important. The report identified key financial trigger points (McAteer & O'Reilly, 2008):
- Record debt levels: personal debt stands at £1.4 trillion, with £1.2 trillion of that secured on property;
- An end to special mortgage rates; an estimated three million fixed-rate and discounted mortgage deals will end in 2008 and 2009, leading to payment increases of 20-50% each month for many people;
- The credit crunch: lenders are tightening lending conditions, restricting the availability of affordable credit and increasing interest rates;
- Rising prices: bills for essentials, including food and utilities are rising fast;
- Limited savings: half UK households have little or no savings to help them weather a financial storm;
- Falling house prices: house prices fell by 2.5% in March 2008 and 1.3 % in April, with some predicting falls of up to 15% by 2010.
2.9 Not only are there immediate benefits to children from financial education but as Jones (2007) argues, there are several policy benefits to be gained from advancing financial literacy and numeracy among young people. These include:
- to lighten the social burdens of debt and poverty in society;
- to make people more self-reliant and financially secure; and
- to contribute to a more self confident nation.
2.10 Research undertaken by the Scottish Council Foundation found that 59% of Scots did not feel that their own education prepared them for dealing with personal finances (Scottish Council Foundation, 2005). The lack of financial education in schools is now considered to have been a gap in the education of many of today's adults.
2.11 Research from the Association of Investment Companies ( AIC) among parents and teachers has revealed that nine out of ten parents and teachers (93% of both groups) think that finance education should be taught at school and that over half of parents (51%) believe that finance education is vital, because they believe they would be in a healthier financial situation now if they had been taught about money matters at school. The vast majority of parents (90%) had no financial education when they were at school, and two thirds (65%) of parents would now like some sort of personal finance training as an adult, either to pass onto their children, or to sort out their own financial affairs ii.
Financial Education Provision
2.12 A recent study of financial literacy/education schemes across the EU (Evers and Jung, 2007) shows that this is a policy area of growing priority. Key findings from the study indicate that:
- The distribution of financial literacy schemes varies greatly throughout the EU;
- The current main target groups are children and young adults;
- Two out of three schemes provide their service through intermediaries, every second uses multiple instruments and channels - the internet being a particularly important one;
- Every sixth scheme is operated by private financial service providers which target customers as well as non-customers and their content predominantly remains impartial.
2.13 In 2005 the FSA undertook a study into the provision of financial education across UK schools ( FSA, 2006). The key findings of this study were:
- 48% of all UK primary schools and 91% of all UK secondary schools were delivering some form of financial education;
- In over 70% of cases it was in the form of occasional lessons, usually happening once or twice a term or less.
2.14 In terms of Scotland, Jones (2007) analysed the FSA data and found that:
- In Scotland 61% of primary schools and 86% of secondary schools were delivering some form of financial education;
- In Scottish primary schools, 34% of schools delivered regular lessons in financial education;
- In Scottish secondary schools, 59% delivered regular lessons in financial education;
- In 2005, a fifth of Scottish primary schools and a half of secondary schools were offering regular financial education lessons.
2.15 Key reasons identified in the FSA baseline survey for not teaching financial education in schools across the UK is lack of space and lack of time in the curriculum.
Best Practice
"Providing personal finance education in schools can have a significant and lasting impact on pupils' future prosperity and help them to successfully navigate the financial markets - from mortgages and pensions, to whom to bank with - when they leave education" Director of Education Ofsted, Ofsted 12 th March 2008)
2.16 A survey by Ofsted of good practice in finance education for 11-18 year olds in schools and colleges concluded that to ensure a coherent and well planned programme of personal financial education the following issues are important (Ofsted, 2008):
- Allocation of curriculum time for financial education;
- Effective leadership and co-ordination from policy makers and within schools;
- Teachers being confident in their knowledge and being equipped with the right skill sets to deliver financial education;
- Financial education has to be engaging for students;
- Teachers need to make effective use of the materials and resources available to them;
- Appropriate systems need to be developed to monitor pupil progress - attainment of key learning outcomes.
2.17 The report went on to state that, despite the good practice identified, provision of financial education remains variable, a similar finding of a previous report undertaken by the Department for Work and Pensions ( DWP, 2005). The Ofsted report identified four main factors that inhibit the development of successful provision as being:
- Lack of sufficient curriculum time;
- Teachers' lack of confidence;
- Low awareness of available resources and support;
- The varied nature of post 16 education.
The Cost Effectiveness of Financial Education Programmes
2.18 Very little information is available about the costs of financial education programmes. What information exists tends to relate to the direct funding of particular aspects of a programme ( OECD, 2008). Across several countries financial education programmes are still very much in their infancy and the work to date has focused on development and start up. As a recent report undertaken by the FSA (2008b) points out:
" it is not just in the UK where there is relatively little evidence about the impact of financial education in schools. Despite the widespread acceptance of the importance of introducing financial capability skills in schools, and the proliferation of schemes, there is remarkably little evaluation of the impact of such schemes" ( FSAb, 2008, page 17)
2.19 This makes any attempt to evaluate the cost effectiveness of any individual financial education programme difficult to achieve as there are no benchmarks to adopt or comparative data or information to scrutinise.
2.20 Research on the impact and the outcomes from financial education programmes, although problematic, is essential in the long term if decisions are to be made about effectiveness, value for money and future funding.
2.21 There exists little in the way of analysis and information regarding indirect funding of financial education programmes, for example, a proportion of the costs of teacher time, where financial education is delivered in the context of another subject; or the notional costs of the time of financial services staff who provide support to schools on a voluntary basis ( OECD, 2008).
2.22 Evaluations tend to focus on input measures such as:
- the number of hours offered per year;
- the number of schools covered;
- the number of teachers trained, their confidence and skills in delivery, the range and depth of education materials used, comparisons of take-up between schools and local authorities over time.
2.23 These are some distance away from the evidence on impact and outcomes needed to tell us how effective individual approaches and programmes are in terms of understanding and application, and how long the benefits are felt by young people.
Summary
2.24 In summary:
- It is recognised that the provision of financial education in schools is important to prepare young people to deal with the complexities of today's financial world.
- There is growing policy awareness not only in Scotland but across the UK and internationally of the importance of financial education to promote financial capability and active citizens.
- Evaluations of best practice in the provision of financial education identify the following critical factors:
- Allocation of curriculum time for financial education;
- Effective leadership and co-ordination from policy makers and within schools;
- Teachers being confident in their knowledge and being equipped with the right skill sets to deliver financial education;
- Financial education has to be engaging for students;
- Teachers need to make effective use of the materials and resources available to them;
- Appropriate systems need to be developed to monitor pupil progress - attainment of key learning outcomes;
- Key factors that inhibit the development of successful provision of financial education in schools include:
- Lack of sufficient curriculum time;
- Teachers lack of confidence;
- Low awareness of available resources and support;
- The varied nature of post 16 education;
- To date there is little information on the costs associated with the delivery of financial education programmes and their effectiveness.