What we can learn from financial education

2 March 2013   By Lyndsey Burton

Subject to final approval by Government, the new financial education curriculum will be taught in classrooms from September 2014.

financial education
Credit: Mohd KhairilX/Shutterstock.com

The amendment to the curriculum comes after campaigning by MPs and charities including the APPG and Personal Finance Education Group (Pfeg), as well as consumer champion Martin Lewis.

Research carried out for the campaign revealed that the lack of financial education currently costs the UK £3.4 billion every year, including costs due to debt, unemployment, lack of retirement savings and mis-selling.

Further, a study by Learndirect from 2011 found that "two-thirds of people in the UK feel too confused to make the right choices about their money, and more than a third say they don't have the right skills to properly manage their cash".

Considered to be a very positive long-term solution to a national problem, the new curriculum will see financial literacy skills taught within mathematics and citizenship classes.

The focus will be on financial mathematics, such as working out the cost of interest, and financial capability, such as making risk based decisions and the perception of money, as well as understanding different financial products and services.

A good time to learn

When we teach children we can create an effect on the way that child grows up to respond and deal with situations, their intellectual and emotional reactions.

Teaching children therefore about uses of money, budgeting and debt is a way to positively affect how they'll respond to money when faced with difficult situations and decisions later in life.

That could be knowing how money could be used positively within their lives, to knowing when to ask for help and that it's ok to do so.

Lessons for us

As adults, our brains are too hard wired to easily retrain our knee jerk emotional responses to situations, but we do have a greater capacity to take away concepts and apply them to our actions.

So what we can learn from the new financial education curriculum that can help to positively affect our lives?

Where should we as adults be focusing our attention in order to learn these same important skills and to address our own perceptions and emotional responses to money?

Let's take a conceptual look at the new financial education curriculum and what we can learn from it.

Note that the example questions we've used are taken from the APPG's 2011 report [pdf] into Financial Education & the Curriculum.

Perceptions of money

The perception of money is about the function and uses of money: what you can do with it not just what you can buy with it.

The Lesson

Is a student loan value for money?

You are unemployed and are offered a job in the next town with poor transport connections, do you buy a new car on loan package and take the job or turn it down?

The Take Away

Both of these example financial capability questions contain hidden lessons about the perception of money.

Whether a student loan is good value for money is in part about the product itself; as we look at here student loans are a far cry from commercial borrowing.

But there is second lesson within the context of this question: the value of something money can buy. In this case it's a University education: a career and the opportunity to earn more money later in life.

For adults that lesson could be saving for a family holiday instead of buying too many gifts at Christmas.

The question about weighing up the risk on whether to accept a job that would require money to be borrowed is clearly that: a lesson in making financial decisions based on weighing up risk.

But there is also an element of the perception of money here too: the value in being employed and earning a wage even with a 'good debt', than being unemployed.

Emotional responses to money

Emotional responses to money run deep and can be a cause of stress and even relationship difficulties and mental health problems.

Much of this stems from the way we think about debt and money. For example, how debt is often seen as something that's shameful, or how we can too easily over spend or over borrow for an emotional fix to make ourselves feel better.

As many a psychologist would suggest emotional responses are often learned in childhood, which is a strong reason why it's important to teach money lessons at a development appropriate young age.

As adults though, we may not be able to rewire our emotional responses in this way, but that doesn't mean we can't consciously take control and apply these lessons to our own judgements and actions.

The Lesson

How does money, or the lack of it, affect my relationships and self-esteem?

What impact will my choice of career have on my future spending and lifestyle?

The Take Away

The first question here is clear, it's teaching young people to recognise their emotions before they're confronted by difficult financial situations as adults.

Being prepared in this way can help us to control and evaluate our emotional responses when they arise. Which means we'll be more likely to seek help and to communicate with our partners and family, because it will be something we've premeditated.

The second question has hidden depths of self control within it. It makes it clear that a desired lifestyle is achieved by working hard within a career, not by borrowing and becoming over indebted.

It clearly aims to instil an early lesson to give people enough time to consider that the choices they make and the money they earn will be the deciding factor in their lifestyle and what they can spend.

It presents a choice, which whether it can be taken with as much control as we might like, still allows people the chance to consider as they're growing and to more fully understand that they can't overspend and may have to live within their means.

It's kind of humbling to see a child realise these things and make better decisions; and it's perhaps a good lesson to take on board to accept our means and remember that happiness doesn't have to come at a price.

Financial decision making

The financial decision making lessons are seen both within the financial mathematics skills and the financial capability of understanding how different products work.

Some of the lessons being taught that we should probably take away at least the highlighted importance of are:

  • When to seek independent financial advice
  • Knowing to look and to ask for cheaper or better financial products
  • Being able to work out the long term risk and effects of financial decisions, such as borrowing
  • Understanding financial terms and interest rates as an important factor in being able to make informed decisions on the financial products we choose
  • Knowing how to work out the potential savings and costs of the products and services we're paying for, including energy bills, saving accounts and loans
  • Learning and improving our budgeting skills

A survey carried out for Pfeg found that a rise of just £50 in costs would be enough to make 1 in 3 households unable to meet their monthly expenditure.

Pfeg chief executive Tracey Bleakley commented "The importance of learning how to set, monitor and stick to a realistic monthly budget cannot be overestimated, especially when times are as tough as they are currently for millions of households across the UK."

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