History of financial education in the UK - WSBI-ESBG · History of financial education in the UK...
Transcript of History of financial education in the UK - WSBI-ESBG · History of financial education in the UK...
History of financial education in the UK
Professor Janette Rutterford
True Potential Centre for the Public Understanding of Finance
The Open University
Wsbi-esbg workshop, 5 October 2017
The importance of saving• Victorians treated thrift as ‘a matter of national survival’
(Garon)• Smiles ‘Self Help’ (250,000 copies 1859- 1904), extolling
the virtues of industry and thrift• Were the poor their own worst enemy? ‘Improvidence,
like intemperance, is a characteristic of the English Nation’
• Conservatives, under Disraeli, proposed giving men with £60+ in a savings bank the vote. ‘Saving men are safe men’. Liberal Gladstone promoted POSB and savings in general.
• Two key rationales for saving, poor could become prosperous and could also save for retirement
• Savings clubs in schools, popular stories extolling benefits of thrift, employers encouraging domestic servants to save.
• Concern throughout the century that poor not saving.
Savings institutions• Friendly societies (18th)
• Small, local membership of workers• Objective to pool money to provide insurance against illness/accident• Set up for and by members, mixed socialising with business, linked to trade
unions, disliked by elite as possible social disruptors
• Savings banks (early nineteenth)• Limits on amounts deposited, speed of withdrawal slowed with amount of
withdrawal• Run by local, volunteer ‘worthies’, anxious to reduce parish maintenance• Limited opening hours, random coverage, 661 by 1859• Interest paid at government rate less margin for expenses• Penny banks in schools sponsored by savings banks, 1/- smallest deposit.
• Post office savings banks (mid 19th)• Open longer hours, more local presence, a national bank, same interest as
savings banks• Neither SBs nor POSBs offered other financial products e.g. loans, insurance
against death (annuity, funeral costs), accident, illness, etc.
Savings bank account
Simplicity of product
Offered a service to married women before MWPAs
Failure of banks to reach target market a constant worry during 19th century (only 64% working class, BOT survey of POSB 1896)
Emphasis on saving rather than borrowing or insurance
Building societies (end 19th) and credit unions (1960s)
Local, could borrow as well as lend
COS as pay day lender
Charity Organisation Society as lender/investor
An advocate of the COS (Anon,
1871) described it as:
Your almsbroker: Like as ye consult him of the
Stock Exchange, touching the best
investments to be made in stocks and shares,
even consult the committee of thy district as
to where, when and how to give thy bounties.
They will find ye safe and profitable
investments and openings.
Concept of the ‘deserving poor’
Duties of a COS worker: conditions of support
Octavia Hill, philanthropy and financial education
By 1877, Octavia Hill was responsible for some 3,500 tenants in property worth £30,000-£40,000, a value rising by 1882 to £60,000. She earned 5% for her investors, had very low rent arrears, and encouraged thrift and provided financial education such as on budgeting through the visits of her rent collectors.
A liberal allowance has been made for repairs; and here I may speak of the means adopted for making the tenants careful about breakage and waste. The sum allowed yearly for repairs is fixed for each house, and if it has not all been spent in restoring and replacing, the surplus is used for providing such additional appliances as the tenants themselves desire. It is therefore to their interest to keep the expenditure for repairs as low as possible.
Alternatives to savings bank accounts
Savings bank rate of 2.5% ceased to be attractive
Rise of alternatives over 19th century:
Consols
Corporate bonds
Preference shares
Overseas government and corporate securities
Diversification as a risk reduction tool
Democratisation of investment:
Liptons Tea had 74,000 shareholders in 1888
Investment education
Emma Sophia Galton’s 1862 Guide to the Unprotected in Every-Day Matters Relating to Property and Income
Beeton’s 1870 Guide to Investing with Safety and Profit
Cotton’s 1898 Everyone’s Guide to Investment
Lowenfeld’s All about Investment, and Investment an Exact Science.
Role of friends and family as advisers
Emphasis on local investments, brand names
Need to understand prospectuses, accounts
Importance of yield and tax calculations
Debate on school arithmetic
Committee
Reasons for not saving - today
Supply barriers to formal saving
• Geographical and physical access
• Account opening process
• Marketing
• Information
• Product features and delivery mechanisms
• Lack of simplicity, transparency
Demand barriers
• Low financial capability
• Mistrust of the industry
• Money management needs the same
• Simple, safe, easy access versus not too easy to withdraw
• Earmark for specific needs, mental accounting
• Risk and return vs lump sums
• Means-tested benefits conflict
• Problems of tax (relief)
• Role of government
Lessons for the future?War savings certificates
• Simple, know what will get• Hard to access, but could access if need be• Tangible certificate, savings stamps• Time horizon, medium term• For a good cause• Social activity (tank weeks, school clubs)• Marketing important• Same terms as the well off• Aimed at all (lower income) groups, women &
children• Tax free but middle class benefit
Help to save/Lifetime ISA
• Lessons learnt• Easy to understand• Cash incentives• Short to medium term• Lump sums rather than interest rates• Access allowed, but at a cost• Tax free
• Other issues• Will be exploited by better off?• Marketing strategy?• Link to benefits, changes in legislation?• Inculcating savings habit for “middle aged”!• Competition from auto enrolled pensions
Conclusions
The emphasis on thrift and self-help from the 19th century
The failure in the UK to provide a link between saving and credit for the poor
Financial education as a condition of provision of philanthropy
Investment education helped thousands of would-be investors in corporate and foreign investments, the ‘unguided’ a specific target
WWI highlighted need for savings products which met certain criteria to attract the ‘poor’
Recent government issues follow the same path
Tax relief, ease of access, conflict with other product still are issues
Open University and Financial Education
True Potential Centre for the Public Understanding of Finance founded 2013 (PUFin)
We have produced three online courses: Managing My Money, Managing My Investments, Managing My Financial Journey
So far, 300,000+ have engaged with these courses
Currently working on four major research projects:
Money Advice Service funded project exploring the impact of financial education on debt management, using a variety of cohorts and media
Chartered Accountants Livery Company funded project to produce financial education module for 16-20 year olds and evaluate its impact
Development of investment simulation to explore behavioural biases in investment decision making
Using anonymised client data of a financial advisory firm, currently working on impact of socio economic characteristics on investment behaviour
http://www.open.ac.uk/business-school-research/pufin/