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Consumer Advice: Money-Saving Expert Martin Lewis's advice on teaching the kids about money
Martin Lewis
Martin Lewis on compulsory financial education
3 February 2011
It’s time to break the cycle of debt in the
Twenty years ago student loans were introduced and now we’re about to massively increase the cost of studying.
Disgracefully, we still educate our youth into debt but never about debt. This is something I’ve vowed to change.
Last week I stood next to Justin Tomlinson MP and the head of the Personal Finance Education Group as we launched the first ever All-Party Parliamentary Group on Finance Education. It's a way for MPs of all political hues to gang together to get kids taught about finance.
This isn’t just about debt, it's about savings and being a consumer in a super-competitive modern economy. Get it right, and they'll be less mis-selling, fewer debt problems and a more efficient economy.
Your help is needed
This is one of the defining financial issues of our generation and we need as many people as possible to get involved. Over 100 MPs have signed up. The best way to help is to write or email your MP (http://findyourmp.parliament.uk/) and ask them to join the group (help and a template letter at www.mse.me/MPfe).
While some schools have voluntarily introduced financial education, even then head teachers struggle to give it resources, as it's not in the curriculum.
It mustn’t become an exercise in bank branding
Parents often tell me a bank went to their child’s school to help them set up an account. Of course, any info's good, but we need to assess whether this is touting for trade disguised as generosity.
People are more likely to get divorced than change bank accounts. A befriended ten-year-old may well mean half a century's custom and thousands of pounds of profit.
Not every bank's up to no good. But surely the right lesson isn’t just “open a bank account and save”. It must be “choose the right account, open it and if it doesn’t treat you well, leave”. Would banks tell kids that?
Teach your kids yourself now
A few years ago for ITV I taught a class of twelve 15-year-olds to be “Money Saving Experts” in a day. We sent them home and between them they saved their parents £5,000.
Hopefully, by teaching the younger generation will help break the cycle. Here are my three key lessons:
Lesson 1: A company’s job's to make money
It doesn’t make them bad. It does mean they’re not your friend. I'd start by taking an eight-year-old to the supermarket and pointing out sweeties near the till. Explain the supermarket's a company, it's job is to make money and it puts the sweets there to try and get you to ask mummy or daddy to buy them, so it makes more cash.
Companies spend billions on advertising, marketing and teaching staff to sell. Our kids need buyers' training to counter modern marketing's might.
Lesson 2: Debt isn’t bad, bad debt is bad
Once they get older, you need to tackle the debt issue. Grandparental “neither a borrower nor lender be” logic is outdated. These days if you want to buy a house or go to university, the system forces you to borrow. The lesson's to differentiate between good and bad debt.
In fact, those told to “never borrow” often get in worse trouble. Once they realise they do need to, they don’t deliberate between different debt types, thinking it's all “bad”, getting them into nasty places.
Take student borrowing. Official student loans are the cheapest long term debt possible. You only repay 9% of what you earn over £15,000 (soon to be £21,000). Lose your job or drop your income and you don’t repay. No one will chase you and it isn’t on your credit file. Overall, a “good” debt.
Contrast this to banks' 0% overdrafts, which after graduation charge 18%-ish. They sort out short term cash flow OK, but aren’t for long-term borrowing. This is “OK debt”.
Then there are credit cards, loans or any other type of commercial loan students shouldn’t touch. It's bad debt. Avoid, avoid, avoid!
Lesson 3: Loyalty doesn’t pay
While it’s a boon with boyfriends and family, when it comes to dealing with mobile phone companies, insurers, banks, shops and more, loyalty's for losers.
Ask a class of 15-year-olds “who’ll get the best deal, a loyal customer or a new one?” and the majority wrongly think it’s the long-stander. Kids need to know the best deals often come to new customers. They should make companies fight for their business.
Further resources to teach your kids
Teen Cash Class: www.mse.me/teencash My free 40-page booklet
PFEG: www.pfeg.org Masses of teaching guides and help for all ages
Online money game: http://www.mymoneyonline.org/fortunity Great way to get the basics
FSA kids site: http://www.whataboutmoney.info/ Lots of impartial info
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TV money guru Martin Lewis runs the consumer revenge website MoneySavingExpert.com; ensure you get his weekly e-mail so you’re constantly saving money.
