William Kay: Impetus for finance classes must come from the top

John Tiner, chief executive of the Financial Services Authority, this week held the inaugural meeting of his financial capability steering group, in which the great, the good and the Government will try to develop a national strategy for personal finance education. Don't hold your breath.

This is not to say the committee is not redolent with oodles of goodwill, and a common desire to see a public better-educated in matters financial. But while Ruth Kelly, financial secretary to the Treasury, has shrewdly decided this steering group is a club she had better join, the bottom line is that government money for financial education is not going to happen for years.

I suspect that at least one more general election will have to come and go, probably also one that involves a change of government. In saying that, I am not making a party political point. I simply feel the present crop of ministers has accepted the traditional civil service line that it can't be done, and therefore nothing will be done until a new administration takes office determined to make financial education a priority. This, despite a Royal London survey this week showing that 86 per cent of the people want children educated about savings and debt at a much younger age.

My mole under the boardroom table tells me the initial meeting of the steering group spent much of the time dreaming up bright ideas for spreading the word about personal finance that do not involve spending much money. One possibility is to hand out generic advice when people have expressed interest in a particular topic, such as a mortgage, taking out a credit card, writing a will and so on. Even here, it is hard to avoid the ugly question of who will pay for such non-product literature.

Companies will jib at shelling out for something with no obvious return, and there is a limit to how much the FSA can levy its constituency. It sounds just the ticket for a philanthropic body such as the Rowntree Trust or some amply endowed individual such as Ramon Abramovich, Chelsea football club's enthusiastic new owner. What better way to earn the undying gratitude of the British public?

The need for action on the education front has been made more urgent because the Government has become bogged down over its plans to implement Ron Sandler's recommendation for a set of simple savings products charging no more than 1 per cent commission.

Mr Tiner, and the FSA chairman, Callum McCarthy, both stressed this week that equity-based products require advice. Mr Tiner said the Treasury cannot fix the price cap until the FSA has finally decided how much regulation will be needed to police these simple products.

We have come a long way from the Treasury's position a year ago that such products could be bought without advice. And the financial services industry is almost unanimous in arguing that a 1 per cent cap is too tight.

Such floundering around would be rendered redundant by an educated public. Everyone agrees that is not going to happen overnight, in a country where a quarter of the population struggle to understand what a percentage is. And no amount of well-meaning committees are going to solve the problem unless the will to do so comes from the very top.

The Government was up to its usual tricks again this week, putting pensions proposals in the Queen's Speech which have been floating around for months, ring-fencing occupational final-salary pension schemes and bribing people to work longer. But such tinkering has been comprehensively overshadowed by the Royal London survey I mentioned above. Its main finding is that more than half the populace wants money spent on arts and culture to be reduced to boost state pensions.

Most people probably do not realise that the arts' high profile wildly exaggerates the amount of taxpayers' money spent on it. State pensions cost about £45bn a year, while the arts collect £6bn of public money each year. So even if public support of the arts was totally wiped out, that would increase pensions by 11 per cent, taking the single person's £77 a week up to £85.50: useful, but hardly the answer to every pensioner's prayer. Mind you, the people Royal London spoke to were also in favour of higher national insurance contributions and compulsory saving for retirement, so maybe the Government needs to be bolder.

As we are nearing the prediction season, I will get in first with my tip for the first financial scandal of 2004. In an effort to make up for the dearth of Isa sales in the past couple of years, there will be shameless selling of corporate bond funds as a safety-first investment and to take advantage of next April's Isa tax changes. Lazy sales staffs have already been pushing these funds to investors who are still wary of the equity market, despite its recovery from the low point reached last March. The Isa pressure, running up to the end of the tax year in April, will add to the frenzy.

Corporate bonds are, effectively, IOUs issued by companies in return for borrowing money. The interest rate is usually fixed, so changes in interest rates are reflected in higher or lower prices for the bonds themselves. If interest rates rise, bond prices fall and vice versa.

But, as my colleague Jonathan Davis pointed out two weeks ago, well-managed bond funds can sidestep the trend by reshuffling the mix of bonds they hold. Corporate bonds are affected by the fortunes of the companies which issue them, so they have an equity element which can offset the impact of higher interest rates.

So, do not put more than half your money in bonds unless you are about to retire and need the income. Be as careful as picking a bond fund as you would an equity fund. Ask questions, of advisers as well as fund managers. And don't fall for the seductive sales pitches which are likely to be all too common in the new year.

w.kay@independent.co.uk

William Kay is Personal Finance Editor of 'The Independent'