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Justin Tomlinson MP with Martin Lewis and Carol Vorderman at the launch
of the APPG Financial Education Report
It's one year since an e-petition signed by more than 118,000 forced parliament to debate putting financial education on the national curriculum - and with no change yet, an authoritative new study shows this is a massive drain on taxpayer resources.
The e-petition, submitted by MoneySavingExpert.com founder Martin Lewis, supported work carried out by the All Party Parliamentary Group on Financial Education for Young People. During the debate, Schools Minister Nick Gibb agreed to consider financial education during the still-unpublished curriculum review - expected for implementation in September 2014.
The massive cost of financial illiteracy:
The study, carried out for MoneySavingExpert.com by the Centre for Economics and Business Research, suggests poor financial education costs the UK government £3.4bn a year - even excluding wider economic benefits.
• Mis-selling - £244 million a year. Consumer detriment (a cost to the individual from dealing with a provider, including issues such as mis-selling) in the professional and financial services industry is estimated at £1.2bn a year. Improved financial knowledge would have a direct impact on this, reducing the cost by £244m a year.
• Retirement - £1.8 billion a year. Financial education could also help reduce the cost of retirement to the taxpayer by a third. People who don't save enough for retirement cost the Government £6.2bn in income subsidies. Financial education, especially in the time of pension auto-enrolment, could cut this cost by £1.8 billion a year.
• Debt - £716 million a year. Financial illiteracy contributes to the country's massive personal debt problem. This excessive debt could have been used more productively elsewhere in the economy, such as financing small and medium enterprises, which could have generated £716m of economic activity a year in Government tax revenues.
• Unemployment - £600 million a year. Financial education can reduce the risk of unemployment by 10%. Unemployed households cost the Government £6bn a year in additional benefits on top of what the average working household receives. Therefore, overall, better education can help reduce the unemployment subsidy by £600 million a year.
The research looked at the four key areas above. It excludes other issues such as scams, fraud and the health-related effects of low financial capability, including child poverty and mental health problems. So even these figures could be conservative estimates.
Martin Lewis, creator of MoneySavingExpert.com, comments:
"It's a national disgrace that for over 20 years we've educated our youth into 'debt' when they go to university, but never about debt. The cost of not equipping young people to become responsible consumers is huge compared to the trivial price of adding financial numeracy to the maths curriculum and money awareness to PHSE. Never mind the added boon that talking money in maths actually helps boost numeracy.
"The support for compulsory financial education in schools is a huge 97%. The population, teachers' unions and many heads agree. Even MPs are onside, the APPG on Financial Education for Young People has 236 members, the biggest of its type. Sometimes, I feel the only people who aren't lined up are those sitting round the Cabinet table.
"So a year on from the huge e-petition, while the curriculum review is being undertaken, I want to remind the political top table of the people power behind this. Be prepared for huge disappointment and more than a bit of rabble-rousing if you leave financial education sitting in detention like a naughty school child."
Justin Tomlinson MP, chair of the All Party Parliamentary Group on Financial Education for Young People, comments:
"Young people are entering an increasingly complex financial world of store cards, mobile phone tariffs, credit agreements and financial marketing. It is vital that we equip them with the skills they need to be savvy consumers.
"If they can leave school financially skilled, it will help them make informed financial decisions. These skills are then with them for a lifetime, helping them avoid unmanageable debt, helping them through their working lives and encouraging them to save for their future."
Tracey Bleakley, chief executive of financial education charity pfeg (Personal Finance Education Group), comments:
"This research confirms the enormous benefit of financial education – not just to individuals, but to the economy as a whole. We urgently need financial education to be taught in every school in the UK, so that every young person gains the skills, knowledge and confidence they need to be able to manage their money well.
“A more financially capable person knows where and how to get financial help if they need it, how to protect themselves against the unexpected through savings and insurance and how to plan for the future, such as retirement or having their own family. Financial education is crucial in providing long-term financial security for families, and increased economic wellbeing."
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