We’ve already mentioned the problem of payday loans this week, so it was heartening to see in this morning’s news that, following today’s expected publication of the Office of Fair Trading’s year-long review of these lenders, there are likely to be greater restrictions on payday loan advertising and closer supervision of the practices of the companies offering these services.
Such measures tackle one side of the problem, that of the providers of payday loans. The introduction of better financial education into schools will start to address the other side of the problem – equipping people with the skills to make informed decisions.
Helping someone to become financially literate isn’t about advising them on which financial products they should choose, it’s about giving them the knowledge and the information that enables them to manage their lifestyle and make decisions that best suit them. For many, a credit card may be a necessary and useful part of their money management, while for others it may be more of a danger than an asset.
When we teach financial education in schools, we find that many young people have very little understanding of the differences between basic financial services, such as loans, overdrafts and credit cards. That lack of awareness is entirely understandable among school pupils – after all, many of them won’t have bank accounts as yet – but it is somewhat alarming to hear so many of the adults that we talk to displaying an equally limited understanding.
While financial education will help many to avoid the trap of payday loans, particularly younger people with less experience of financial products, more needs to be done to ensure that the most vulnerable in society are not being targeted. It can only be hoped that the OFT recommendations will be the first step in that direction.