What was the most memorable lesson that you remember from school? For pupils of the Caroline Chisholm School in Northampton, it could be discussing the wedding budget spreadsheet of financial studies teacher Helen Westwood.
Ms Westwood says: “In my classroom, there is not a question about money that I will not answer. They all know how much I earn, the maximum I have ever earned and how much I could have earned had I stayed in my previous job as a tax consultant with PwC. Students love analysing my payslips, debating my income lifecycle and the changes I have made and why.”
With personal finance education remaining on the periphery of the national curriculum, provision is often patchy and makeshift, and it remains unusual for lessons to extend to investment education.
Perhaps this is because we still don’t think of children as “needing” to know about the stock market or pensions. Ms Westwood’s efforts to challenge this view were recognised recently at the Moneywise Personal Finance Teacher of the Year awards, where she scooped the prize for a secondary school teacher.
Most entries to the awards, sponsored by Interactive Investor, tackled debt and money education but omitted lessons about investing. Ms Westwood was among the dedicated few to teach investment concepts, including how our attitudes to risk change through life.
In lessons, her pupils debate: “Is it worth saving when the inflation rate is higher than savings interest rates?” and “You have the choice of receiving a £550,000 lump sum or £570 a week for life. Which one would you choose and why?”
What makes pupils get excited about investing? Russell Wareing, head of business and economics at Lancaster Royal Grammar School and winner of the judges’ award, said: “Making money is a key motive. Unfortunately, I see the pupils make the same mistakes I have made. This involves looking for the share that will skyrocket in value or the next ‘hot tip’.”
Though he extols the power of compounding and investing for the long term, he says this approach fails to set young pulses racing. “They often see this as boring. They like the challenge and the competition. For instance, we recently watched a video on Tesla. The debate between the Tesla bears and the bulls in the class was intense. The pupils like to see their investing ideas and rationale be proved correct.”
Jennifer Whelan, a runner-up in the 2018 competition, teaches financial literacy education at St James Catholic High School, Colindale. She has started an investing club in which children are told to invest in something that they know a little about, choose a company that will be around in 10 years and buy quality rather than quantity.
One student chose Diageo because “Dad is not going to stop drinking Guinness”, while another selected Merlin because “the UK would not be the same without its theme parks, plus you get discounted annual passes as shareholder perks”.
Meanwhile, Mr Wareing’s pupils have made a charming video explaining stock market investing to “Rowland Moneybags”, a billionaire with a mansion and a yacht who wants to learn how to make more.
History is riddled with examples of billionaire investors who started early. Warren Buffett bought his first stock when he was 11 years old. Ray Dalio, head of the world’s largest hedge fund, Bridgewater Associates, bought his first stock at the age of 12. They were both investing money from odd jobs that they did as children: Mr Dalio just wanted somewhere to invest the money he’d earned caddying on a golf course.
Yes, these are privileged examples, but ordinary kids also need to understand the stock markets — and this is even more important as the Child Trust Fund generation gets its investing wings. Every baby born in the UK between September 2002 and January 2011 received at least £250 in the form of a voucher from the government. As this generation reaches the age of 16, they can take control of their fund savings and investments.
As they prepare to enter the world of work, this generation needs to understand the importance of retirement saving through auto-enrolment. If you are under the age of 22 you won’t be automatically enrolled into your employer’s workplace pension scheme. But provided you earn £6,136 or more a year (in the 2019-20 tax year), you have the right to opt in to the scheme. If you do, your employer will have to contribute to your pension in the same way as for anyone who’s been automatically enrolled.
Why teach investments and pensions in school? Much of the population still doesn’t understand that a pension is invested in the stock market, so kids are unlikely to get this knowledge from their parents. And UK financial literacy — the ability to answer relatively straightforward financial questions — is lower than in other advanced economies, according to the OECD.
Some of these lessons can be taught not just in “financial studies” or maths. Literature is a great source of money lessons too. Shakespeare’s Merchant of Venice teaches the benefits of diversification, when Antonio says:
“Believe me, no. I thank my fortune for it —
My ventures are not in one bottom trusted,
Nor to one place, nor is my whole estate
Upon the fortune of this present year.”
It’s crucial for children to understand the huge cost of delaying investing. Jill starts investing £200 per month when she’s 25. By age 65, her portfolio is worth more than £520,000. Jack doesn’t start investing until age 35. He also contributes £200 per month, but by 65, his portfolio is only worth £245,000. By waiting 10 years to start, Jack ends up with less than half what Jill accumulates.
I’d also include micro-investing — the act of saving very small amounts of money regularly. Skip your daily Starbucks and your “coffee fund” could grow to £10,000 in five years.
The CTF generation also needs to grasp the impact of percentage-based fees. Interactive Investor’s research found that without a calculator, only half of Brits were able to correctly work out that a 0.5 per cent fee on an investment of £50,000 would amount to £250 in the first year.
Like Mr Wareing, I may run the risk of leaving young people cold, but top of my lesson list is compound interest and the Rule of 72, a simple way to determine how long an investment will take to double given a fixed annual rate of interest. The overriding message is: invest early and see the rewards multiply.
Moira O’Neill is the head of personal finance at Interactive Investor. The views expressed are personal. Twitter: @moiraoneill