Hammond is not the only one who can’t budget well

FE student loans are scant help if two-thirds of college learners can’t manage their money effectively, says financial capability expert Alison Pask
7th April 2017, 1:00am
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Hammond is not the only one who can’t budget well


The decision of chancellor Philip Hammond to raise the National Insurance contributions of self-employed workers might have grabbed the headlines following last month’s Budget. But for those of us working in the education sector, the most interesting detail was surely the reported additional £500 million investment that is to be provided each year to expand the training opportunities available to 16- to 19-year-olds.

Labelled as a “vote of confidence” in the UK’s FE sector by the Association of Colleges, the extra funding for these “technical” education pathways is welcome. It’s also recognition of the need to improve the employability skills of every student. Ensuring they are “work ready” when leaving full-time education is, of course, of the utmost importance.

As an organisation whose goal is to improve financial education for teenagers, we at the London Institute of Banking and Finance have for more than a decade worked with FE colleges to raise standards of financial literacy through our dedicated personal finance qualifications. We know from our work in this space that the ability to manage money is one of the most crucial life skills teenagers can learn - and one that is valued highly by employers.

So we noted with great interest that underpinning these new training opportunities was the introduction of a new system of maintenance loans. These will be made available to support students studying courses at levels 4-6 at national colleges and institutes of technology. Similar to student loans in the university sector, finance will be offered on the proviso that it will be paid back once a student enters the workplace and is earning above a certain amount.

Currently, there are a number of options for students with regards to financing their education. For those that want to go to university, student loans are available to fund both tuition and, to an extent, living costs, once they obtain their A-level results. But these are only available to be paid once a student reaches their 18th birthday. For those who don’t want to go down the university route, advanced learner loans are available, but only for those aged 19 and over. These are used to pay for their tuition and course fees through Student Finance England and are paid back when the student has completed their course and is earning more than £21,000 per year.

Maintenance loans in FE therefore represent a significant addition to the offering currently on the table for 16- to 18-year-olds.

But this, for us, presents a problem. As we have seen with the introduction of student loans, by offering students the opportunity to borrow money, we are, essentially, forcing them to make long-term financial decisions they are not yet equipped to make.

Confused by finances

Earlier this year, as part of our lobbying work, we released the latest version of our annual research project, the Young Persons’ Money Index. Carried out among 2,000 full-time learners aged 15 to 18 in 2016, the report found that the majority (58 per cent) had not received any form of financial education. For those at the post-16 level, it was even worse: 65 per cent had not experienced any dedicated help to understand money management.

It’s no great surprise, then, that many students taking out a student loan largely do not understand the terms and conditions they have agreed to. Neither do they know, on a day-to-day basis, how to plan and manage a sudden injection of cash into their bank account when the loan is received. Without effective financial education in colleges, we run the risk of exacerbating this problem with the provision of maintenance loans to a whole new group of students whose lack of financial capability has been overlooked.

As educators, we have a responsibility to ensure that students that are given every chance to succeed. We know from experience that students’ studies in the higher education space are often negatively affected by worries about money and the day-to-day cost of living. We cannot allow this problem to be repeated with technical education.

Recently, an all-party parliamentary group specifically examining the effectiveness of financial education in schools put together a wide-ranging report that - among the recommendations - suggested empowering teachers with knowledge and resources to raise standards of literacy. We all want technical education to succeed at post-16 level; for it to do so, we should be looking to do the same in FE.

Alison Pask is managing director for financial capability and community outreach at the London Institute of Banking and Finance

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