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/