“By the time a student leaves school they will have seen hundreds, if not thousands, of adverts encouraging people to borrow. They will have walked along high streets full of shops pushing pay day loans and other sub-prime forms of credit. And, thanks to the student loans system, they are told that getting heavily into debt is the key to all future advancement. To cap it all, millions of young people emerge from twelve or fourteen years of state-funded education with an inadequate understanding of personal finance.“
So we wrote in the ConservativeHome Manifesto, urging that school pupils learn financial literacy. The Government has ensured that it is in the National Curriculum for the first time. We want it to be taught in a collaborative, graphic, and hands-on way: by schools being endowed with sponsorship money with seed money for an investment portfolio.
It is perhaps counter-intuitive that one must sometimes borrow in order to set up an enterprise which will make a profit which will in turn fund savings: in other words, that these can emerge from borrowing. But that it how the world works, and we hope that our plan will help pupils to grasp the point – even if the original money for the portfolio comes from a business rather than a bank.
Today, it is reported that David Cameron has told the Institute of Directors magazine that “children need to know how money is made, about turning over a profit, about job working in a team. The future Richard Bransons and Karren Bradys are out there. We need to bring alive their ambition by showing them what they can do – and our top business people will do just that by sharing their own stories and passing on their hard-won knowledge”.
The Prime Minister will not have meant that students should be taught profit-making in isolation from the culture which makes it possible – that of borrowing for investment, saving for a rainy day, making innovation happen, creating jobs, building prosperity. Certainly, it can be inspiring to hear all about how profits are made. But it is just as useful to learn how to make a profit oneself.
Under our plan –
- Pupils would study the progress of the portfolio, and contribute to investment decisions as part of their financial education.
- National and local prizes would be awarded for the best-performing school funds.
- Dividends would be paid out to every pupil – under two conditions: firstly, the passing of a financial literacy test and secondly, that the money is paid into a personal saving account to be opened as part of the test.
- The syllabus would include debt education lessons to enable pupils to evaluate the claims of lenders for themselves.
Separately, we want to see nudge measures applied to the tax and benefits system – so that a small percentage of all benefit and tax credit payments would be automatically paid into a savings account as a default option, which the recipient would have to deliberately opt-out of if they wanted it to stop. We also propose the abolition of the student loans system and its replacement with a commission system on earnings.
Who would put up the seed money? One bright spark in the Government told ConservativeHome that some banks have already expressed an interest in funding financial education – and no wonder, since they have an, ahem, public relations problem. The scheme’s framework would have to bar involvement by the banks in the pupils’ decision-making – just as it would also have to ensure that the money wasn’t splashed on fact-finding expeditions to, say, Las Vegas (or Raqqa, for that matter). It could be rolled out experimentally in more deprived areas first, on the pupil premium principle.
So if Cameron wants profit-making taught not in isolation, but as part of wider financial and debt education (which will be the case), he knows what to do.