A lot more needs to be done to educate the UK population about finance and investment, according to a panel of leading financial professionals, which thinks the next government should place this higher up its list of priorities. 
In a roundtable debate on the looming general election and how it will affect the financial industry, Steel Asset Management’s Alan Steel, Chelsea’s Darius McDermott and M&G’s Steven Andrew argued that the current education system is not giving people the tools to control their financial futures.
McDermott (pictured) believes that simply not enough financial education is being offered by schools and this automatically sets pupils up for a fall later in life.
“My wife is a teacher. I’ve discussed this with her for 20 years and she says there’s no room on the national curriculum [for financial education]. But when learning percentages in maths, rather than the percentage of rocket fuel it would take to get you to the moon and back, surely an APR on a mortgage as a percentage would be better or learning what the APR means for borrowing?” he said.
“It’s a more appropriate way of learning percentages while trying to tune people into this whole jargon: financial stuff that we all understand and yet a decent portion of the population doesn’t.”
“We’ve seen some evidence [of this] talking to clients. They’ve said ‘my credit card is paying me 30 per cent’ … when that’s what they’re being charged.”
“The level of illiteracy in this country is staggering. It’s easy for us in the industry to know [about finance] because it’s our job, but there is a huge demand and, given longevity, there’s a huge opportunity for our industry to make progress here.”
McDermott says that financial knowledge, such as what an ISA is and what APR means, should be taught alongside other extra-curricular subjects such as drug awareness and first aid.
“What are people likely to aspire to? They’re likely to aspire to own their own home. What the hell does that mean to them? How do I borrow money? What should I borrow? What is a tracker mortgage? These fairly simple issues just aren’t simple for a vast majority of Great Britain,” he said.
“It would give the industry a decent opportunity, if we get things right at the beginning, to progress that to a greater savings culture.”
Andrew, who runs the M&G Episode Income fund, struggles to see how the government would be able to implement this policy directly.
However, he believes that leaving room to promote engagement with finance as opposed to being “doctrinaire” in terms of the curriculum would help.
“[We need] not just financial education or a separate topic out of a boring textbook that looks like financial education, but some degree of engagement with finance,” he explained.
“Some degree of engagement with the whole decision-making process that goes along with borrowing money [is needed].”
“The decision-making process that just goes along with running your budget, for instance, and maybe not just your budget but the budget of a small business or an aspiring entrepreneur. Anything that increases exposure to dialogue – those words which can sound sodaunting but are actually terribly simple.”
Andrew (pictured) acknowledges that investment professionals also have a part to play in making finance accessible and that everybody in the industry, himself included, should simplify how they interact with clients.
“We feel very vulnerable when we make things sound as simple as they genuinely are,” the manager explained. “Delivering our talks and our written pieces in simple English language is a good start.”
While Steel agrees, he thinks the government itself also need to simplify the structures it imposes.
Steel points out that 10 state changes were made to pensions between 1961 and March 1987, while between March 1987 and the end of 1999 74 changes were made.
Shockingly, between 2000 and April 2006 in the run-up to ‘pension simplification’, 350 changes were made and since its implementation 176 changes have been made so far.
“You can see what’s going on. Successive governments are coming in and changing things and so we have a population who are at a complete loss,” he said.
“[The government] hasn’t got a clue what it’s doing. My big fear about the pensions freedom is that we might go the same way, if not more so, than when the pensions freedom was introduced in 1988 by Thatcher. This created an enormous mis-selling situation. People were mis-sold terribly.”
“Have we done enough? Clearly not. The experience from America is that attempts at education have failed miserably.”
Steel refers to a study conducted by US scholar Cass R Sunstein, which concluded that educating people about finance was far less effective than just auto-enrolling people into pension schemes.
It was found that they would utilise their pension and would only opt out if they had researched a better alternative themselves.
“It’s a tragedy that none of this is taught in schools, though,” he continued. “People leave school today and go to university and don’t know anything about money.”
“The other problem is that we have something in our heads that meant we survived thousands of years in the Savannah lands, and that thing is panic. It’s the hypothalamus. It’s the panic button that is tempting people into making the wrong investment decisions when things change.”
“So somehow or another, we need to try to get behavioural changes that say: ‘If it’s uncomfortable, it’s probably a good idea.’ Instead of: ‘It’s comfortable therefore it’s a good idea’, which is the wrong thing to think.”
In response, Andrew argues that panic is a natural emotion that would be difficult to eradicate, in spite of the detrimental effects it can have on investing.
He said: “The decision-making process is an emotional, behavioural thing that we then dress up as a rational, logical thing. But when push comes to shove, we make these decisions from an emotional place. Therefore it is very difficult to see a world in which people don’t panic.”
“It would, however, be a good start to verse [school pupils] in good habits. When I was in primary school we had a weekly savings book. It seemed to be quite a common experience and children were encouraged to bring in small amounts of money each week in exchange for a stamp or a book.”
“Habit-forming behaviours that are actually terribly simple to introduce and to maintain, and pay off over a lifetime of people’s behaviours changing.”
McDermott concluded that there are range of issues equally responsible for the gap in the public’s financial knowledge.
“We need greater education in schools to start with, but that’s not saying that people in their 20s, 30s and 40s shouldn’t have education as well. But if we start it at school, hopefully they can take that with them,” he said.