The first weeks of the year are viewed by many as some of the toughest. People across the UK are tightening their belts — literally as they embark on health kicks, but also financially. The year-end holidays are special. But, in the cold light of day, their immense costs are laid bare.
Bank of England figures show households spend an additional £740 in December on average, 29 per cent more than in a typical month. Faced with the pressures of the festive season, a third of us borrow to help cover the expense — and thousands take on debt that proves unmanageable in the long wait for the post-Christmas paydays.
But this year, things are even worse. Rubbing shoulders with the annual debt spike is an emerging cost-of-living crisis, driven by a combination of sky-high bills and inflation. I have called on the prime minister to address this urgently, in part by using the Brexit freedoms he secured to cut VAT on energy below 5 per cent and introduce a downward escalator of costs for those hardest hit.
Yet this crisis should also give pause to consider long-term solutions for families’ financial instability — that is, not just ensuring people have enough money in their pockets, but making sure people have the skills to manage their income to maximum benefit. Reforming financial education is at the heart of this.
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A poll of 4,000 adults published by the Centre for Social Justice (CSJ) and Lowell last month revealed that almost half of individuals — 46 per cent — who suffered financial problems said low money management skills contributed to these headaches.
Of course, many people find themselves in debt for reasons well beyond their control. But it is striking how many consider boosting skills as the way out: the same poll found that 44 per cent of all adults, and two-thirds of those aged 18 to 34, believe their situation would improve with more financial education. The appetite for greater control and empowerment is resounding, and it should be the government’s aim to deliver this.
Yet we must be honest about the scale of the challenge. Despite considerable progress made under recent governments, including the introduction of financial education to the secondary school curriculum in 2014, there is still much to do.
Too many adults continue to lack the basic skills which underpin financial capability. Around 9mn working-age adults in England have low literacy or numeracy, with 5mn lacking both. One in two was found to be unable to pass a financial literacy test ran by the OECD, which put the UK well below France, Norway and Canada — and directly below Thailand and Albania — in the global standings.
One of the chancellor’s less widely reported announcements at last year’s Budget was the £560mn adult numeracy programme, Multiply. This has the potential to be truly life changing and I hope that funding from this pot is made available for programmes integrating financial education with the adult skills agenda the government is rightly pursuing.
But the truth is we have to start earlier. Research by the Money and Pensions Service shows that children’s money habits are formed from as early as age seven. Those leaving school without an effective financial education are at high risk of financial abuse, fraud and debt. Around 55,000 children aged 11-16 are estimated to be problem gamblers and recent reports warn of increasing numbers of young people being turned into “money mules” for criminal gangs. Yet today only one in three children currently receives any form of financial education at primary school.
Young adults today must navigate a financial marketplace evolving at an electrifying pace. As the CSJ found, most young adults attribute their financial problems to low money management skills.
But such people are among many who have become regular consumers of buy now pay later schemes. Do they understand the agreements they are entering? Like all forms of debt, there can be serious consequences when treated with insufficient caution. Financial education today must recognise that the TikTok generation faces altogether different challenges to those armed with a cheque book in years gone by.
Schools and skills must be the two most important words in the government’s vocabulary as we build back better. Preparing our young people for a world and workplace with high demands of them means taking skills seriously. And money management is no exception. While we await the full recommendations of the CSJ’s inquiry into this matter, it is clear to me that we must be bolder in our approach to financial education — including, critically, at primary school, where money management remains absent from the curriculum in England.
Above all, a new financial education offer is needed to build the resilience in our society and our economy that buffers against cost-of-living crises when they appear — whether that is avoiding a personal debt emergency post-Christmas or an unexpectedly large bill. The “soft” skills which we too often denigrate in fact aren’t soft at all. For when people are empowered, they have more control over their lives. And what better mission exists for the government than that.
Robert Halfon is Member of Parliament for Harlow and chair of the House of Commons education select committee
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