Is financial education pointless?

Sometimes I have wondered why I bother – especially when there has been points failure just outside of London and I do not get home until the early hours (one trip back from visiting a Norwich School sticks in the craw – London’s Liverpool Street at four o’clock in the morning is not a welcoming place, I can assure you). But invariably the hassle has always been worthwhile.

Watching school children getting to grips with key money issues – everything from how a bank account works through to the value of saving – is always an uplifting experience. Watching employees from some of the country’s biggest financial brands (some of them very well paid) give a little bit back in the form of personal finance education is also rewarding.

As far as I can see, it is a no-brainer. It is absolutely vital that kids understand basic personal finance matters long before they go through university and start searching for a job. So any initiative designed to help achieve that goal should be applauded.

By way of example, most recently, I made the short journey from my temporary home in London’s Docklands to Mulberry School for Girls in Shadwell, Tower Hamlets. It was a special morning. The school, as headteacher Vanessa Ogden is keen to point out, is a high achieving, over-subscribed and very successful girls’ comprehensive school for pupils aged 11 to 18. In her own words, the school’s aim “is to develop confidence, creativity, leadership and a love of learning with our young women as we believe this enables our pupils to lead successful, happy and fulfilled lives, making a contribution to their own community and wider society.”

As part of that objective of fuelling confidence and creativity, Mulberry School works closely with Bank of America Merrill Lynch. For the past nine years, the bank has been involved in the Tower Hamlets Education Business Partnership which supports the education of local children by bringing schools and local businesses together.

So I sat back and watched employees from the bank (most of them working for the bank in nearby Canary Wharf) teach girls aged between 12 and 13 about the value of saving and goal setting. It was a tremendous morning for both me and Tracey Bleakley, boss of the splendid Personal Finance Education Group who also observed from the sidelines. It seemed the girls relished the work and I left convinced that the government’s decision to embrace personal finance education within the national curriculum is the right one.

Unfortunately, for all my commitment to, and love of, personal finance education, I do sometimes wonder what the point of it all is. Why bother if as a nation we are quite happy to allow kids to graduate from university with debts that they have little chance of ever paying off? What is the point of learning about the value of savings when the millstone of university debt will hang around the neck for most of your working life? Why indeed.

This point was vividly brought home to me last week when I was introduced to a splendid individual called Mike Clugston. In among lessons teaching boys chemistry at Tonbridge School in Kent, Mr Clugston has been closely examining the impact of student loan debt on tomorrow’s adults, fathers and mothers. The conclusions that can be drawn from his analysis, based on a watertight algorithm he has painstakingly designed, are frightening.

In a nutshell, his work concludes that 85 per cent of students in England will never repay their loans for tuition fees and maintenance, making it virtually impossible for them to become future property owners or to save. This is essentially because of changes introduced last autumn to the way loan fees are charged – and in particular the interest charges that are applied to outstanding debt.

Students who started in college or university prior to last autumn currently pay an annual interest rate of 1.5 per cent. But for those who started last autumn their bigger loans – totalling a maximum of £9,000 a year for tuition fees as well as a maximum £5,500 a year for maintenance – attract a higher rate of interest. This is calculated at the retail prices index plus three per cent.

Mr Clugston’s algorithm confirms that because of the devastating impact of the compounding of interest only 15 per cent of students are ever likely to be able to repay their debts from income alone. The repayments students are required to make once they start working will do little to stop their debts escalating over their working lives. After 30 years, they are written off.

John McCabe, a rector at St Marys Church in Byfleet, Surrey, is a friend of Mr Clugston’s and describes student loans as “another time bomb” to sit alongside the timebomb that is interest-only mortgages. He says they are helping create “a culture of living with un-repayable debt, and wasn’t it that culture which has caused so much damage to the economic strength of the country?”

I think he may have a point. A very good point. What is the point of personal finance education (that I love) if debt is the future?

What is the point of personal finance education (that I love) if debt is the future?

Jeff Prestridge is personal finance editor of the Mail on Sunday

Norse: In response to Tony Hazell’s column on annuities

People accept a poor level annuity because the indexed option seems far worse. They spend 30 years in a ModAdventurous personal pension and then buy a really poor annuity. They do not seek advice, so tough.

All I hear from the media and regulator is: improve customer access to OMO’s. A large percentage are completely incompatible with the guaranteed annuity that they buy.A large percentage will have quite Balanced or ModAdventurous attitudes to risk, far better suited to other methods. Many have staged retirement needs and over-pay on tax from their inflexible annuities.

There are hundreds of first rate retirement planners. I have little sympathy with media sponsored DIYers. Yes they get a poor deal and I am not sure I care. Good advice pays for itself 100 times over. Actually even mediocre advice would be a step forward.