Every parent will know the feeling. The kids are doing their homework and start asking you about something you’ve completely forgotten about. The finer points of trigonometry or the precise order of the Plantagenet monarchs perhaps. The kind of thing everyone forgets as soon as they get out of school. Quite soon we may have to add compound interest and pension contributions to the list of things we can’t really help them with.
A campaign is growing to make basic financial education a compulsory part of the national curriculum. The argument is not hard to grasp – people who don’t know much about money are easy prey for predatory banks. But in truth we don’t need to fill up children’s heads with a lot of stuff that may be both boring and useless; what we need is a more competitive financial system so that companies can’t get away with routinely mis-selling products.
More than 225 MPs have already backed the campaign by the Personal Finance Education Group to add a few basic lessons about money to the compulsory subjects that schools are required to teach. It came very close to being included the last time the national curriculum was reviewed. This time it may well make its way into the classroom.
It is easy to sympathise with the arguments put forward by the campaigners. There have been a whole string of major mis-selling scandals. Endowment mortgages, payment protection insurance (PPI), extended warranties, pensions and many more ropey financial products have been hard-sold to unsophisticated consumers by an industry that has few scruples about ripping off its customers. In many cases the banks have had to pay out billions in compensation for selling products that nobody needed, and would have been exceptionally poor value even if they did.
It is true that if customers were a bit more clued-up they would not be such easy marks. I make no great claims to financial expertise for myself but, when a decade ago a mortgage company tried to flog me a PPI policy, it only took a few minutes of reading the small print to see there were practically no circumstances in which they would actually pay out.
I recently spent a tedious ten minutes on the phone with my bank while they tried to persuade me to spend £10 a month on a packaged account (the latest example of mis-selling) that was about as useful as a one-wheeled bicycle. If people knew a bit more about money, and felt a bit more confident about it, they would not be so easily caught out.
But should children be forced to learn about finance to stop them being taken for a ride by the industry? Where would it stop? After all, there are lots of products that the same logic might be applied to. A car is potentially a lot more dangerous than an endowment mortgage, but we don’t find anyone arguing that everyone should be taught basic automotive engineering in case Volkswagen or Toyota sells them a hazardous car. Food will kill us if it is rotten or poisoned – but we don’t need to learn basic agriculture or food hygiene so that Tesco or Sainsbury’s don’t make us sick.
Why? In a properly functioning, competitive market, companies work very hard to make sure the products they sell are safe and offer reasonable value for money. Otherwise they know they will be out of business very quickly. If any other type of company sold a product as poor as PPI insurance, for example, they would be out of business in an instant.
Yet the banks get away with it because finance is not a properly competitive market in the same way as cars or food. All of the main banks engage in the same kind of heavy-handed mis-selling. If it costs them money, they simply pay up – and if they can’t afford it, they will get bailed out by the government.
There is very little genuine competition in the market and, even though a couple of new banks have started up, it is going to be a long time before they are genuinely able to offer an alternative to the big four. So, for as long as they can get away with it, the profits from mis-selling products are very good for the banks.
However, the answer isn’t to make children learn about finance. Many will find it duller than geography, harder than algebra and as about as relevant as Latin. If anything, we should be equipping our children with the skills they need to revive an increasingly moribund economy – learning how to write apps or speak Mandarin would be far more useful to the world they will be living in than knowing whether a mortgage is a good deal or not.
Instead of making children learn about money, what we need is a properly competitive financial system – so that banks can’t get away with abusing their customers. It would be far simpler to break up the existing banks – splitting NatWest from the state-owned Royal Bank of Scotland Group would be a good start – and allow more new entrants to come into the market.
That way we wouldn’t have to worry about whether financial products were being mis-sold any more than we do about whether computers or mobile phones are – because the market will do the job perfectly well. And it would save parents from being caught out by their kids asking them to explain compound interest or the APR on a pay-day loan.