William Kay: How to handle money is one of life's most important lessons

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The Independent Online

We have started driving the car down the road but we are still in fog.

We have started driving the car down the road but we are still in fog. That is how John Tiner, chief executive of the Financial Services Authority (FSA), this week characterised the state of financial education in Britain today. He was speaking after a gathering in Downing Street of the 70 or so people, including myself, who are charged with developing a financial education strategy.

As Stephen Timms, the new financial secretary to the Treasury, put it, the aim is to create confident people who can make informed financial choices throughout their lives. And he should know: his East Ham constituency, in the shadow of Canary Wharf's fat-cat bankers and the FSA, is pock-marked with loan sharks and often extortionate cheque-cashing shops.

Although Mr Timms made no new policy commitments, he did hint that more pressure is likely to be applied to the Department for Education and Skills, which has so far been content to let the Treasury take the lead on spreading the word about financial skills. He said: "There is scope for more work still to develop personal finance as a robust subject in schools."

At the moment, it is purely voluntary on the part of both pupils and teachers, and inevitably standards vary around the country. The postcode lottery that decides which school many children go to may also decide their financial nous in the adult world.

The frustrating thing, as Mr Tiner pointed out, is that children have no trouble understanding the intricacies of mobile phones and their complex charging systems. Home-buyers can be very nerdish about mortgages, once they get their teeth into the subject and realise how much difference it can make. And the finance industry has long sneered at the rate tarts, those savers who dare to shop around for the best interest rate on their money.

These are all energies which need to be channelled and tapped, and the really knotty task is to find out how. Financial products are still too often sold rather than bought, which usually means a well-informed seller persuading a less knowledge- able buyer.

Perhaps the most disappointing contribution to this talking shop was made by Barry Cox, deputy chairman of Channel Four, who flatly ruled out the idea of television being harnessed to broadcast financial wisdom. Hard to believe, given that TV is widely regarded as the world's most powerful medium.

And then there is the question of money. Seven working parties are feeding ideas into the overall strategy which will naturally involve spending money. The question is: who pays?

There is a good business case for financial service providers coughing up, because they should end up gaining from a better-informed and more confident consumer audience. But it was fitting that we were meeting at 11 Downing Street, because eventually a Chancellor is going to have to write chunky cheques if the mass of people are going to acquire the right level of financial skills. That battle, though, has hardly begun.

As I left No 11 in the gathering gloom, I could not resist holding my briefcase up to the empty street. It is black, not red like the famous despatch box brandished on Budget Day, but it is the closest I am going to get to becoming Chancellor.

* It is entirely understandable to sympathise with the National Consumer Council's wish to overcome the problems of poor people paying more for goods and services and getting less for their money.

But setting up an independent commission, agreeing consistent standards of access, affordability and appropriateness sounds like an elaborate dance round a simple problem.

It is a fact of physics as much as commercial reality that goods and credit will always be cheaper in bulk. Transport is already subsidised for older people to reach supermarkets.

If we are to help the poor, rather than patronise them why not simply give them more money?

Flat rate 15% for capital gains and income tax

Out of the blue, but doubtless with an eye on the upcoming party conference season, the Investment Management Association (IMA) has come up with a blindingly simple idea to encourage savings: tax it all, capital gains and income, at a flat 15 per cent.

Unfortunately the IMA promptly mars this simplicity with talk of four options to mitigate "distributional impacts". Quite. That's what the present system tries to do.

The IMA suggests an exempt allowance before savers enter the tax net, as with personal income allowances. I prefer the present, though horribly complex, system of tapering relief on capital gains tax, to reward the length of time an asset is held.

And there are going to be problems of tax arbitrage if savings pay 15 per cent and income tax is 40 per cent. Plenty of income would be magically redefined as savings income.

The biggest problem is the practical one. The IMA plan is said to be tax-neutral, but it is up against a Treasury which has said it does not believe tax relief works. So what is the point of reforming, as opposed to dismantling, the present system?

I have not seen many signs that Gordon Brown, the Chancellor, is losing much sleep over giving savers a better deal. He appears to be much more concerned about the people who have no savings in the first place. However, if Mr Brown should take a shine to a 15 per cent savings tax, you can bet he would rewrite it and pinch it for himself.

w.kay@independent.co.uk

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