Lack of financial education costs UK £3.4 billion a year
It's one year since an e-petition signed by more than 118,000 people 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 to the tune of £3.4 billion each year.
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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During the debate, Schools Minister Nick Gibb agreed to consider financial education during the still-unpublished curriculum review — expected at some point in the new year and due for implementation in September 2014.
Massive cost of financial illiteracy
The study, carried out for MoneySavingExpert.com by the Centre for Economics and Business Research, details the massive drain on the UK's resources caused by the lack of financial knowledge.
- 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.
- 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 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 providing finance for small and medium-sized businesses. These firms could have generated £716m of economic activity a year to Government tax revenues.
- 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. Financial education could help to reduce this figure by £244m a year.
The research looked at the four key areas above. It excluded other issues such as scams, fraud and the health-related effects of low financial capability, including child poverty and mental health problems. So its figures could be conservative estimates.
Last year's petition supported the work of the All-Party Parliamentary Group on Financial Education for Young People, which called for the Government to put financial education back onto the curriculum.
Martin Lewis says: "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 with the skills and knowledge needed to become intelligent, responsible consumers is huge compared to the trivial cost of adding financial numeracy to the maths curriculum and money awareness to personal, health and social education.
"The support for compulsory financial education is schools is a huge 97%. The population, teachers' unions and many heads agree. Even MPs are onside, the All-Party Group 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 them people want this to happen. 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, says: "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, help them through their working lives and encourage them to save for their future."
'Urgently need financial education'
Tracey Bleakley, chief executive of the Personal Finance Education Group, adds: "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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