Money Mensch: Children must have finance lessons
It is time to break the cycle of debt in the UK. It is time for compulsory financial education in schools.
Twenty years ago, student loans were introduced and now we are about to massively increase the cost of studying.
Disgracefully, we still educate our youth into debt but never about debt. This is something I have vowed to change.
Last week I stood next to Justin Tomlinson MP and the head of the Personal Finance Education Group as we launched the first ever All-Party Parliamentary Group on Finance Education. It is a way for MPs of all political hues to team up to make sure children are taught about finance.
This isn't just about debt, it is about savings and being a consumer in a super-competitive modern economy. Get it right, and there will be less mis-selling, fewer debt problems and a more efficient economy.
Children need training to counter the might of modern marketing
● Your help is needed
This is one of the defining financial issues of our generation and we need as many people as possible to get involved. Over 100 MPs have signed up. The best way to help is to write or email your MP (http://findyourmp.parliament.uk/) and ask them to join the group. There is help and a template letter at www.mse.me/MPfe
While some schools have voluntarily introduced financial education, even then, head teachers struggle to give it time as it is not in the curriculum.
● It must not become an exercise in bank branding
Parents often tell me that a bank went to their child's school to help them set up an account. Of course, any information is good, but we need to assess whether this is the bank touting for trade disguised as generosity.
People are more likely to get divorced than change bank accounts. A befriended ten-year-old may well mean half a century's custom and thousands of pounds of profit.
Not every bank is up to no good but surely the right lesson is not just "open a bank account and save." It must be "choose the right account, open it and if it doesn't treat you well, leave." Would banks tell pupils that?
● Teach your children yourself - and now
A few years ago I taught a class of twelve 15-year-olds how to be "money-saving experts" in a day. It was for an ITV programme. We then sent them home and between them they saved their parents £5,000.
Hopefully, teaching the younger generation will help break the cycle. Here are my three key lessons …
Lesson 1: A company's job is to make money
It does not make them bad but it does mean they are not your friend.
I would start by taking an eight-year-old to the supermarket and pointing out sweets near the till. Explain that the supermarket is a company - its job is to make money and it puts the sweets there to try and get you to buy them, so it makes more cash.
Companies spend billions on advertising, marketing and teaching staff to sell. Our children need buyers training to counter the power of modern marketing.
Lesson 2. Debt is not bad, bad debt is bad
Once children get older, you need to tackle the debt issue. The lesson is to differentiate between good and bad debt.
In fact, those told to "never borrow" often get in worse trouble.
Once they realise they do need to, they don't deliberate between different debt types, thinking all of it is "bad", which can get them into nasty places.
Take student borrowing. Official student loans are the cheapest long-term debt possible. You only repay nine per cent of what you earn over £15,000 (soon to be £21,000). Lose your job or drop your income and you don't repay. No one will chase you and it isn't on your credit file. Overall, a "good" debt.
Contrast this to a bank's 0 per cent overdraft, which after graduation, charge around 18 per cent. They sort out short-term cash flow, but are not for long-term borrowing. This is "OK" debt.
Then there are credit cards, loans or any other type of commercial loan that students should not touch. It is "bad" debt. Avoid, avoid, avoid.
Lesson 3. Loyalty doesn't pay
When it comes to dealing with mobile phone companies, insurers, banks, shops and more, loyalty is for losers.
Ask a class of 15-year-olds "who will get the best deal, a loyal customer or a new one?" and the majority wrongly think it is the long-standing one. Children need to know that the best deals often come to new customers. They should make companies fight for their business.
Further resources to teach your kids