Foolish Special

[ May 31, 2000 ]

Rt. Hon. David Blunkett
Secretary of State
Dept. of Education & Employment
Sanctuary Buildings
Great Smith Street
London
SW1P 3BT

30th May 2000

Dear Mr Blunkett,

We propose improvements in the teaching of personal finance in our schools. An exciting project involving Sunderland High School students shows just how capable they are of understanding a great deal more than many have previously thought. In a 'mini' financial adviser's exam, organised by The Motley Fool, all eleven students scored over 80%.

The Motley Fool firmly believes that it is within the power of individuals to provide for their own long term financial security, and that most people are easily capable of understanding the ideas necessary for achieving that end. Personal Finance and Investment is, after all, a much easier subject to comprehend than most people who have encountered the Financial Services Industry would believe.

For too long, individuals have been at the mercy of the professionals in the industry, who have steered them away from paths that would best provide for their own long term security and have instead encouraged people to invest their savings in products that provide them, the salespeople, with the largest commissions.

The problem, and the reason that people fall for poor quality selling of financial products, is that they just don't know any better. It is a sad fact that most people are far more knowledgeable when it comes to buying a second hand car than they are when providing for their future through long term investments.

But is finance a difficult subject to understand? No, it clearly isn't, as the Motley Fool's recent research shows. But it has been sadly neglected in our schools for generations.

We fully support the Government's latest initiative in introducing finance to the National Curriculum from September this year, as part of the new national guidelines for Personal, Social and Health Education (PSHE). We do, however, believe the subject of personal finance should be included as a statutory element of the National Curriculum, rather than simply as guidelines. We are also convinced that the subject guidelines, listed below, that have so far been issued to teachers are not extensive enough and do not do justice to what our children are really capable of.

• 5-7 year olds to be taught that money comes from different sources and can be used for different purposes.
  
• 7-11 year olds to be taught to look after their money and realise that future wants and needs may be met through saving;
  
• 11-14 year olds to be taught what influences how we spend or save money, and how to become competent at managing personal money;
  
• 14-16 year olds to be taught to use a range of financial tools and services, including budgeting and saving, in managing personal money.

Specifically, we would like to see our children being taught about the creation of real wealth that underlies economic growth, and learning how they can share directly in the generation of that wealth through the long term ownership of shares in public companies.

We also realise that the Government is planning to introduce the subject of Citizenship to the statutory curriculum in 2002, and that this is designed to give pupils a variety of life skills. As Citizenship is aimed at preparing children for adult life, we would expect that to include a firm understanding of personal finance and the need for long term investment, and we would urge the Government to include such statutory requirements.

But must our children really wait so long, when we already understand how vital it is for individuals to manage their finances successfully? Considering how the subject has been neglected for so long by successive Governments, we feel that it would be a lasting achievement of the current Government if personal finance were to be made a firm cornerstone of the current curriculum as soon as possible.

The two biggest financial mistakes that most people make are borrowing too much money at too high a rate of interest, and not saving and investing enough money for their later years. Both of these mistakes are made through ignorance of the real power of compounding of interest (or investment returns).

Children, we feel, should leave school aware that the stock market has proven to be by far the best place for long term investments this century, and should be able to appreciate that a sum of as little as £25 per month, invested at the average stock market rate of return since 1918 (of 12.2%), would grow into a fortune exceeding £800,000 after 50 years. Young people should also be aware of the long term effect of small differences in the rate of return -- a building society account, offering 6% per year for example, would provide only around a tenth of that amount over the same 50 years.

If such awareness were also applied to credit card borrowings, where rates often exceed 20% per year, children would realise just how much they would be paying back by using these devices over the many decades in front of them, and a lot of the debt problems to be faced by future generations could be avoided before they happen.

We propose, therefore, that the current proposed additions to the PSHE guidelines be made statutory requirements, and that they be expanded to cover the benefits of long term investment and the effect of compounding returns, ideally starting in September this year.

There are many who would tell us that school children cannot hope to understand the complexities of such an apparently difficult subject, but we have found differently.

In a recent practical project in collaboration with Sunderland High School, eleven pupils sat, and passed with flying colours, a 'mini' financial adviser's exam. The results, just published, prove that children are more than capable of understanding personal finance and investing.

Following three hours of lectures focusing on investment and savings the eleven pupils, aged 16 and 17, all scored over 80%. More than half gained 100% in the exam made up of questions selected from the savings and investment section of the IFA Financial Planning Certificate.

Peter Hogan, Deputy Headmaster of Sunderland High School gave the group of 11 a total of 3 hours of lectures over the course of a week culminating in a half-hour multiple-choice exam.

On completion, the pupils were expected to understand the circumstances in which there is a need for financial savings and investment advice, the factors on which an individual's savings and investment requirements depend, and the principles of National Savings products, bank and building society accounts, shares, gilts and investment trusts. This they did with apparent ease. And they enjoyed their experience too.

The children surpassed our expectations and showed that they were easily capable of understanding personal finance. These particular children are far from unique, and we would love to see all of the nation's children being placed firmly on the path to a long term secure future.

We hope you agree that the current proposed additions to the PSHE guidelines be made statutory requirements and expanded as proposed.

We are copying this letter to The Chancellor of the Exchequer.

Yours

DAVID BERGER

Editor-in-Chief
Co-founder