Wednesday, April 18, 2007

Debt lessons

"I am sure that no one in the House would dispute that people need to be better educated financially, or that that education should start in our schools and colleges," said Phil Willis (Liberal Democrat MP for Harrogate & Knaresborough,) yesterday in Parliament. He proceeded to make a good case for compulsory personal finance lessons in schools, ending with:
"Finally, I make a simple plea to the Minister. Will he look again at the evidence that supports making financial education a compulsory part of the national curriculum? Will he talk to the FSA, the Institute of Financial Services, the Institute of Chartered Accountants, the Finance and Leasing Association and the Council of Mortgage Lenders? Look at the evidence, Minister, and make new plans."

The minister in question, Jim Knight, Minister of State (Schools and 14-19 Learners), Department for Education and Skills, gave a lengthy reply, explaining that no, compulsory lessons in personal financial management would not be on the agenda, but rest assured the government believes the subject to be very important and "that schools and colleges have an important role to play in ensuring that young people go out into the workplace with the skills they need to plan and manage their finances."

I disagree. Schools and colleges have no role to play in this respect. Abstract, theoretical lessons on personal finance delivered by strangers in a classroom will make very little difference to a young person's personal financial management skills or decisions.

Here's how my children have learned about personal financial management:

  • When we want to buy something, we sit together and work out whether, and how, we can afford it.

  • They're here when the postman arrives with the regular bundle of snazzy mailshots from the credit card companies. In their turn, they've asked what those letters are about and I've explained that these companies want to give us money, so that they can have twice as much of our money back in return.

  • In answer to further questions, I've pulled out pens, paper and calculators to explain how interest rates work until the children were satisfied they understood.

  • When my bank statement arrives, it's available for us all to study, so that we can all see where our family money goes.

  • This gives rise to questions like: "Why are the mortgage payments so high?", "For how long will we have to pay them?" and "Do we really use so much electricity? How?" - and the resulting replies and discussions.

  • They all see debt - any kind of debt, for any reason, as being a very bad thing. The boys have just explained to me how they think our whole economy runs on personal debt, and how different our county's financial position would be without it. Student loans, said Ali, deliberately trigger a 'mindset of debt' which often persists throughout adulthood, enslaving people by keeping them trapped in the inescapable loop of wages and debt repayments.

    By separating children from family and home, does the education system prevent this natural, vital learning process and inadvertantly (or otherwise) fuel the debt culture which is necessary for the continued success of our national economy in its current state?

    My parents did not borrow money except for a prudent mortgage which was repaid with interest in its 25-year term. In common with the Liberal Democrat MP for Harrogate & Knaresborough, I had a parent who regularly quoted Dickens' Mr. Micawber:
    "Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery,"
    enough for it to become entrenched in my mind. It was in my stepfather's interests to keep me out of debt, so I suppose I was lucky to receive my lessons in personal finances from him instead of from the state.

    Last year 107,000 people in the UK became insolvent. 5,300 people a day went to Citizens Advice for debt advice and our combined consumer debt reached £1.3 trillion, which was more than our GDP. I guess the numbers of parents preaching Micawber to their children must be dwindling.


    Blogger Ruth said...

    I agree HE is a fantastic way to understand about managing money, debt and the consequences of it. Those ads make me want to laugh when the man Says "We've got more going out than we have coming in." as if he just worked it out. I mean if he is spending why didn't he realise he was? LOLOL. Money was a secret when I was child but we have always been open about it with our children and it has worked well as they all understand if we can buy something, if not why and why some things are not a good idea - like credit cards e.t.c

    7:48 pm, April 18, 2007  
    Blogger Tech said...

    I blame the government ;-) Seriously though, I do. I think that the student loans farce is coming back to bite them on the bum. Years ago bankruptcy was a terrible stigma and had a longterm negative impact on your life. Nowadays people don't feel that stigma and are quite happy to go for insolvency to get out of these massive debts, and tbh al power to their elbows - particularly students who have been put in a very difficult situation. I know that's not a terribly responsible attitude btw ;-)

    8:11 pm, April 18, 2007  
    Blogger Sarah said...

    Great post, Gill.

    Steve nearly hit the roof here the other day when Anna came home from school with a maths homework question something like this: Jim wants to buy a shirt which costs £13.99. He has £8.00, how much will he have to borrow in order to buy the shirt?

    She answered the question, but then Steve (who had just about finished spluttering about what schools were teaching about money management, never mind the maths) scrawled over it in capital letters THIS SHOULD SAY 'SAVE UP'!!

    Just goes to show how pervasive the borrowing attitude is, I think. No-one else even noticed, according to her.

    It feels very hard sometimes to go against society's flow when it comes to debt though. And Steve has lost sales telling people not to tie themselves up in knots with car finance - don't even get me started on that industry, the whole thing stinks.

    10:34 pm, April 18, 2007  
    Anonymous Hypothetical Parent said...

    Why is personal debt even a goverment issue? Or is this relating to goverment loans?

    What is the alternative to student loans? Poor kids being happy in not getting superior education?

    7:33 am, April 19, 2007  
    Blogger Gill said...

    LOL Ruth, yes that's funny!

    Tech, interesting point. Hmmm.. is my Micawber stance outdated then? Maybe I should rethink it. Then again, T, A & Z see things and use their own brains, so they'll have worked it out, I guess..!

    Sarah, yes! That's exactly what I mean! It's insidious, and the intention is surely to keep people stuck in jobs with huge debts to facilitate, paying £££ in interest and charges.

    HP, in my view it's a government issue because of the link with schools, as illustrated in my post. And while you're on the subject of student loans - do degree courses provide a superior education nowadays, on the whole? Is the govt target of 50% of all young people going to university not even just a little bit fishy, to you?

    If one of my children wanted to go then of course I'd support their decision, but as they don't seem to, there's no way I'll be encouraging them to get a place. I know several uni students just now, none of whom have the slightest interest in their course or subject and all of whom just want to run up as much debt as possible 'getting hammered'.

    It's an option, I guess, if you want to start your adult life that way. I can think of better ones though, but luckily it's not my decision.

    And yes, there will be some uni students who disprove my point, I'm relieved to add.

    8:51 am, April 19, 2007  
    Blogger Allie said...

    When I was an undergard student it was in the last days of the student grant. No-one I knew had a credit card, to get an overdraft you had to make an appointment with the bank manager, and most of us struggled hard to live within our means. I worked in a paid job through the vacations, but not in the terms, and I managed to finish my degree debt free.

    Now the government insists that young people get into massive debt from the outset. I see the result. Lots of students decide that if they are going to be ten grand in debt then it might as well be twenty - or thirty. They run cars, have flash clothes, holidays abroad, the latest phones and other gadgets. So I think they really are setting themselves up for a life-time of debt. It is a mindset.

    12:58 pm, April 19, 2007  

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