The junior CFO

With the current state of the economy, perhaps it is high time that educating youngsters about finance became a staple of the school curriculum, reports Christian Doherty

The current generation of accountants would be forgiven for believing 'personal finance education' meant mum and dad withholding pocket money until the lawn was mowed. Up until the last few years, people growing up in the UK were expected to learn about money management via a combination of parental guidance and trial and error. Mistakes made at school or university could usually be remedied by a summer job and getting straight into the workforce upon graduation.

However, things have changed. The growing issue of personal debt (which exceeded UK GDP for the first time last year) has forced educators and policymakers to start thinking about how best to instil a sense of fiscal responsibility and understanding of personal finance in the young. To many in the education establishment, it has now become clear that children as young as five or six should be included in efforts to improve financial understanding, reasoning and management among the young.

Debt to society

The UK's debt mountain has taken on a more ominous aspect since the beginning of the credit crunch last year. To many, it seems a generation of people have left school with seemingly little fear of indebtedness, or much interest in paying large sums back. Gill Ball, ACCA's President, combines her role with that of FD at the University of Birmingham. She has seen at first hand the damaging effects of poor financial education among the young. 'In some cases, students arrive with very little understanding of the issues of debt and soon find themselves in serious trouble when they're exposed to the sharp end of this issue,' says Ball. 'And we feel that people of that age really need to be educated about this.'

Despite the common conception of today's school leavers as feckless borrowers, Ball points out that young people's lack of understanding of these topics can be explained by societal changes. 'I don't think it's a question of people having less understanding of these issues,' she says. 'I think it's more a case in the past of people not really needing to understand debt and borrowing as it wasn't such a feature of life 15 or 20 years ago. People a generation ago would be far more likely to save up rather than borrow now and pay later. That's been the main change and we have to move with the times to reflect that.' Add to this the seismic changes in pension provision for those just entering the workforce, and there is a clear need to step up efforts to educate young people on their financial options and skills.

The problem has already been addressed in Scotland by the Institute of Chartered Accountants of Scotland (ICAS), which recently piloted a DVD-based scheme entitled Debt Can Be Dangerous. 'The DVD features youngsters acting out a series of seven scenes to illustrate the dangers of reckless debt,' says Jonathan Milne, ICAS' director of corporate affairs. 'There's a scene dealing with pre-paid credit on a mobile phone, so it's based on young people's real experiences.'

For ICAS, which is hoping the DVD will find its way into schools in Glasgow and the Borders before a national roll-out, the scheme is a response to the debt problems in both urban and rural areas. 'We firmly believe that personal finance education needs to be embedded in the curriculum, since personal debt is rocketing and a huge number of people simply don't understand money,' says Milne. 'And part of that is about personal responsibility, which is why we concentrate on taking responsible decisions in the DVD.'

Grab them young

The ICAS scheme has not gone unnoticed. Ofsted, the UK's official body for inspecting schools, recently published a report recommending greater attention to financial topics such as debt, borrowing, budgeting, tax and credit cards in schools. This was on the back of the Government promising greater emphasis on finances within the current 'personal social education' syllabus.

Part of the pressure to improve provision has come from the Financial Services Authority (FSA) and other concerned bodies. Wendy van der Hende is the chief executive of the Personal Finance Education Group (PFEG), a body set up in 2000 to promote the practice of teaching financial management in schools. Van der Hende says the group, which is funded by a range of financial services bodies and businesses, is determined to ensure that young people get the teaching they need. 'We're dedicated to making sure children leave school with confidence about how to handle money and have knowledge of financial matters,' she says. 'The idea is to embed financial ability across the school development plans, so that people get the opportunity to learn how to become informed and independent consumers who understand money.' PFEG is now working in 2,000 schools in the UK.

How does it work?

Steve Stillwell, the FSA's educational adviser, says the current situation in the UK's schools isn't ideal, but progress is being made. 'The situation is different across the UK, since education is fully devolved,' he says. 'But if you take the example of Wales, financial literacy is now an integral part of the personal social development curriculum that all schools in Wales must deliver. For the rest of the UK, it's different. In England, personal finance education is a significant part of what is known as personal social health and economic education.'

However, despite the progress that has been made over the last few years, financial literacy is yet to become a fully established part of the curriculum. 'It's what is known as a non-statutory programme of study,' says Stillwell. 'That means it's not compulsory that schools teach it. But the Government, along with Ofsted and the Qualification and Curriculum Authority (QCA), has given a very clear steer to schools that there is an expectation that all pupils benefit from a planned and coherent programme of financial education.'

What should be taught?

Assuming that personal finance education is starting to see inclusion, educators and their advisers have spent the last few years developing a set of teaching strategies in order to introduce children to the concepts of financial responsibility and management. Van der Hende says the key to successfully embedding this with young people is relating to their experience.

'There are certain things you can use for this, like mobile phones,' she says. 'We all know the tariffs are expensive, so you can teach budgeting that way. And most young people want to have a car as soon as possible, so we try to use that to talk about risk and insurance and cost. All of that links into probability and risk analysis.'

Van der Hende is clear that teachers should be looking to influence the children's attitudes and improve skills, rather than solely concentrating on how things work. 'And it's about giving young people what we call “financial acumen”. It's not about understanding all the different types of mortgages available or the difference between an ISA and a PEP.' So what does PFEG suggest teachers incorporate into their lessons? 'It should be much more based around people identifying and questioning their attitude and behaviour towards risk. So they need the ability to challenge and question and knowing where to go for help when they need it. We're trying to instil confidence and skills into kids so they do that later in life.'

Finding space

There are, however, obstacles to the wholesale introduction of personal finance into the curriculum of all the UK's schools. Ofsted points to the need to find 'space in an already overcrowded syllabus' in order to push this further up the agenda. However, despite the Government's agreement to make it a priority, the Department for Children, Schools and Families (DCSF) has yet to allow personal finance education to count towards meeting Ofsted targets. It is something that ACCA has highlighted in its discussion document dealing with financial education in the UK.

While there is a move to introduce children to the issues of personal finance, ACCA believes it is lamentable that 'this will be delivered through Personal Social Health Education (PSHE), enterprise and citizenship education, which will remain optional and non-examinable.' In ACCA's view, the subject needs to attain parity with 'proper' subjects. 'ACCA encourages Government to consider the introduction of a module or a GCSE-level qualification in financial capability.' That view is shared by the education watchdog. Indeed, Ofsted makes some recommendations.

The DCSF and the Department for Innovation, Universities and Skills (DIUS) should:

• provide clear guidance to schools on how adequate curriculum time can be found at Key Stage 3 and Key Stage 4 to teach economic well-being and financial capability
• support the professional development and training of teachers in schools and colleges to improve personal finance education.

Ofsted also recommends the QCA:

• builds accreditation for aspects of personal finance education into subjects and learning programmes where appropriate
• identifies the detailed learning outcomes expected at the ages of 14, 16 and 19.

While schools and colleges should:

• ensure sufficient priority is given to developing a coherent programme of personal finance education in the curriculum
• ensure teachers involved in personal finance education are confident in their knowledge and have the appropriate classroom skills to teach it, and
• improve the teaching of personal finance education so that young people from all backgrounds can access financial services and manage their money effectively.

Ofsted is obviously taking this seriously. But until the above recommendations are adopted, then the enthusiasm among schools to find a place for teaching financial literacy will likely remain marginal at best. For its part, the DCSF told accounting & business: 'It is vital that all young people leave school with the skills and confidence to manage their money well. That is why we are investing £11.5m to support good financial education in schools. This investment will support revised guidance for financial capability, innovative resources and more training and support for teachers.

'Moreover, we have just announced an additional £30m for enterprise education at all ages, from primary schools to further education colleges, which supplements £180m over the next three years to promote business acumen and innovation. We are confident that these measures will address the issues raised in the Ofsted report and achieve a step-change in the quality of personal finance education in schools.'

Whether this is enough to turn a generation on to the benefits of sound financial planning and thoughtful money management remains to be seen. But unless something is done, then the current credit crunch might end up looking like a stroll in the park.

Christian Doherty is a freelance journalist.