Money problems and inequalities have grown in the pandemic, but financial education still has a low profile. Debt, online fraud and challenges for the young have shown the need for people to navigate the world of money safely. Even being an informed and critical citizen, means grasping some key economic concepts. Greater focus on financial literacy can help address some of the inequalities, and empower people to get the best from the financial system.
Schools face competing challenges on the curriculum, and it seems an easy choice to leave much of financial education to outside agencies and learning through experience. But, the digital age, with banks moving from the high street, means a lack of trusted advice. This change also makes it harder for parents to pass on skills when children face a different world, much invisibly conducted online.
The UK strategy for financial wellbeing, has devolved some of its delivery. But much responsibility has been transferred to an independent body, the Money and Pension Service (MaPS). Its goals are ambitious, but long term, with little sign of early progress. Few would disagree with the targets, but is 2030 too far away to be meaningful now? As yet, the plan lacks shorter term metrics to assess progress. It aims to encourage other organisations to support its work, but the challenge is growing as new problems get added to its in-tray; debt advice, the impact on mental health, and pensions.
MaPS has clearly identified that poor financial wellbeing - affecting tens of millions of people - is holding the UK back. This includes the millions with insufficient information to plan for their retirement and more than five million children estimated not to get a meaningful financial education on these measures. The Organisation for Economic Cooperation and Development (OECD) places the UK well down the rankings of G20 countries. Some other nations appear to be taking the challenge more seriously.
MaPS has been in existence for less than three years, and has primarily so far been in listening mode. But it needs to quickly move into a phase beyond colourful charts and grand plans, into some measured outcomes. It is not even clear what is possible within its resources. While there are levers to help to create ethical firms and a helpful regulatory framework, building a nation of empowered and capable consumers will take much longer. It is tempting to force banks and investment managers to lead some of this work and pay for it, but that might only meet one aspect of financial literacy. A broader view is needed of the skills that must be embedded in the population. It is too important to be left to the financial services sector.
While government and regulators put pressure on banks and investment firms to address financial inclusion and protect the vulnerable in transactions, this is inevitably product focused rather than embedding key concepts. The emphasis is on product design, sales methods and access – maintaining an ability to use cheques, for example. Much of what the finance industry is doing seems to be tinkering at the edges of what the consumers really need.
However, change is underway as many financial firms redirect purpose towards broader goals serving society. Corporate purpose and culture should address individual financial wellbeing rather than just product sales. Increasingly, younger employees in these firms want to see their work as serving a purpose for society - not just a job.
MaPS has insufficient funding to deliver on its ambitions and to date seems to be lagging in producing new solutions and collaborations between organisations. And, there is little sign that the targets will help consumers deal with fraud and digital challenges. Much of the questionable promotion on Bitcoin, dubious investment schemes and risky trading lies beyond the day-to-day regulation of established financial firms. There will always be unregulated areas that target the public. There is a case for integrating education about money with teaching skills to stay safe online and spot fraud.
The pandemic has transformed the financial services landscape and relationship with customers. Productivity has fallen in many organisations, not least in financial services. Customers now face the additional challenge of digital deflection, with inaccessible service or long waits in call queues, as they attempt to manage their finances. Lockdown moved services rapidly online, with many consumers not clearly understanding how these work. Many are struggling to cope with this change, with the new barriers to good service simply having been imposed by providers. It points to an urgency in improving financial education more broadly - particularly in those now out of the education system. There is no clear champion to lead that training.
Some progress has been made. Auto-enrolment for pensions and initiatives like payroll savings establish good behaviour in a low cost and well regulated way. This helps those in well paid secure employment, but many younger people continue to work in the gig economy - without the same employment continuity or provision for savings. There is a need for financial education to recognise the insecurity of some employment, and the greater onus it leaves on the individual to manage finances.
The OECD believes financial literacy is a core life skill for participating in modern society. Children are growing up in a complex world, involving daily financial choices. Poor financial decisions can have a long lasting impact. And, lack of confidence in finance may be deterring some from work in the financial sector, a key part of the Scottish economy.
The aim of changing the national conversation to make saving seen as valuable and attractive, still seems a long way off. And, while an element of saving can help the more than two-thirds of adults who are hit by unexpected bills every year, possibly tilting them into a debt crisis, it is not clear that financial literacy should be about creating a nation of savers. The broader goal of economically empowered citizens may be more worthwhile.
A version of this article was published in The Herald on 02.12.2021.