Lessons in finance pay for themselves

Would the credit crunch have happened if people had understood what they were getting themselves into when they took out a subprime mortgage?

Or was it the fault of the bankers who sliced and diced those mortgage loans into collateralised debt obligations that spread risk throughout the system?

Of course, both sides are to blame. But while regulators are still grappling with how to ensure the bankers don't do it again, less attention is being paid to how to prevent consumers from repeating the behaviour that led to such a mess.

The answer, some say, is simple: provide financial education in schools. That way, school leavers will know what an annual percentage rate on their credit card means; they will know how to shop around for the best mortgage rate; they will understand how important it is to make regular savings into a pension plan with low fees — basically, they will understand risk.

It is a nice idea, and it has long been ignored. Until now. Last week, an all-party parliamentary group was formed to campaign for financial education in schools. Founder Justin Tomlinson MP tells me they now have 187 MPs signed up across all parties, which means most of the backbenchers think it's a good idea.

What will this group actually do? One dubious idea, aimed at addressing the lack of personal finance expertise among teachers, is to have banks and building societies come into schools to help out. This runs the risk of creating a marketing opportunity aimed at 10-year-olds.

But, in general, they will argue that personal finance needs to be better defined and taught properly in schools — at the moment, it makes up just an hour of the Personal, Social, Health and Economic education curriculum.

There is support for this across the board. Pretty much every fund manager or adviser I've met recently has said that personal finance education is a no-brainer.

The Consumer Financial Education Body in the UK this past week released a report that found that "low financial capability" has a significant impact on lifestyle in later years. "Improving people's current financial management skills", it says, "will not only have immediate effects on their psychological wellbeing, but also longer lasting effects on their mental health, living standards, savings behaviour and household income."

The Financial Services Authority's move to ban financial advisers from taking commission from 2013 could create an advice gap for consumers, who will not be able to afford to pay fees for advice.

—