7. Memorandum submitted by
the Association of Investment Trust Companies
REFORM OF THE NATIONAL LOTTERY
The Association of Investment Trust Companies
(AITC) is pleased to submit views to the Culture Media Sport Select
Committee's inquiry into reform of the National Lottery. Our focus
is on the allocation of resources for good causes. In particular,
we believe that schemes intended to enhance financial education
and financial capability among the general public should be a
priority area to receive Lottery funding. Our comments have been
limited to this topic.
The AITC is the trade association that represents
the interests of the investment trust industry. Investment trusts
are public companies, listed on the London Stock Exchange, whose
primary business is investing in the shares and securities of
other companies on behalf of investors. The AITC has over 250
member investment trusts and the industry has total assets of
approximately £55 billion.
PROBLEMS OF
POOR FINANCIAL
UNDERSTANDING
Understanding of financial issues is low in
the UK. All too many individuals are faced with questions about
managing their finances that they are not adequately equipped
to deal with. This causes problems for individuals, their families
and the public interest.
The high levels of personal debt in the UK is
an important example. Many individuals fail to understand the
implications of taking on high amounts of credit. They may be
further disadvantaged because they borrow too expensively, perhaps
due to a lack of understanding of the different products available.
Individuals on lower incomes, and their families, are particularly
at risk because they have taken on too much debt. Forewarning
potentially vulnerable individuals of the dangers of overstretching
their borrowing and teaching them about how to budget and manage
their money more effectively would be a significant help in tackling
debt related problems.
Personal finance education is key to developing
an informed savings culture in the UK. Low levels of financial
understanding have caused all too many people to make poor decisions
when purchasing financial products. This can happen when a person
tries to address a correctly identified need (such as saving for
retirement) but buys an expensive product that does not suit their
needs. Alternatively, they might identify an issue that is not
a priority and as a consequence buy one product when they would
have been better served buying something completely different.
As recent episodes, such as pension mis-selling, have shown, making
poor choices of this nature can be devastating for people's standard
of living and can create real hardship. These problems could be
alleviated if people had a greater general awareness about financial
issues.
Low levels of financial education and understanding
also have a significant public policy impact. The UK has low levels
of savings which makes individuals less able to deal with uncertainties
and life changing events—having children, retirement etc—they
then have to fall back on the state. While some level of state
support will always be necessary it is also reasonable to want
to limit as far as possible the numbers of people forced to rely
on a state safety net. Enhancing financial awareness, for both
children and adults, is a great first step to achieving this wider
societal benefit.
Why is Lottery Funding Suitable?
Any number of organisations believe that the
good cause they favour is one that deserves lottery support. The
AITC believes that financial education has a better claim than
most:
— While all income groups would benefit,
those perhaps most able to secure advantages will be lower income
groups. We envisage that there would also be a strong correlation
between potential beneficiaries and those who currently play the
Lottery. While many play for fun and to benefit good causes it
is the case that some may play with unrealistic expectations of
the potential financial benefits. It would therefore be fitting
if the Lottery itself contributed to greater financial understanding
so that people recognised that there are realistic solutions to
personal finance issues.
— Financial education has the potential
to touch all parts of the community. All age groups, income ranges
and ethnic communities have specific financial awareness needs.
Funding could be well matched to the Lottery's ambitions of providing
equitable benefits across society. It also fits with the goal
of providing support for small and larger projects, at a variety
of levels (local, regional and national).
— Despite the significant potential
of financial awareness programmes there is currently a severe
lack of any significant funding. The Financial Services Authority
has a duty to provide services in this area but, at the moment,
has little resource to pursue this. Some financial services organisations—the
AITC included—and consumer orientated charities make significant
efforts to develop this area, but without a substantial boost
these efforts are unlikely to have the step-change impact that
is required.
— Long term investment in financial
education would be an investment for the future. It would help
current and future generations and have broader benefits for society.
The general public recognises that this is an area that deserves
more support. In a survey conducted on behalf of the AITC by BMRB
in July 2003 of 1,939 adults and 556 15-19 year olds, some 78%
of parents and grandparents wanted their children to have access
to personal finance education. Of 15-19 year olds, 85% said they
would like access to personal finance education.
Supporting financial education through the National
Lottery's assistance to good causes is in keeping with the general
ambitions of Lottery funding. The reward for success is immeasurable,
both for the quality of life of individuals and for the economic
success of the UK.
KEY RECOMMENDATION
The ideal means for the National Lottery to
support financial awareness and education would be for a dedicated
funding stream to be established. At the current time we envisage
that this would be administered as a ring fenced fund by the Financial
Services Authority (FSA).
The FSA is currently considering options for
developing UK financial capability and has established a steering
group for this purpose. The AITC has recommended that over the
long-term this should evolve into a permanent structure (probably
within the FSA but it is possible that it might be a separate
organisation). This permanent structure would be responsible for
allocating lottery funding to appropriate projects.
Lottery grants would provide an invaluable means
of funding the development of teaching and information resources
or any other suitable project proposed by participating organisations.
This could include means to deliver messages to parts of the community
not currently engaged with the debate, such as "mobile financial
awareness clinics" on a local scale to national projects
focussed on schools. There would be a huge scope for a diverse
range of initiatives that would help the development of best practice
and the ongoing enhancement of a strategic financial capability
project.
One of particular note is (pfeg) the Personal
Finance Education Group, a charity whose objective is to ensure
young people leave school with the confidence, skills and knowledge
they need in financial matters so that they can manage their financial
affairs in adult life.
CONCLUSION
The National Lottery should not be the only
source of funding supporting efforts to develop levels of financial
understanding in the UK. The AITC also supports, for example,
an expansion of core government funding as well as a levy on the
regulated financial services sector.
However, developing financial understanding
throughout the UK public is a long-term project that will need
long-term support. Lottery funding would be an invaluable additional
pillar to ensure that this support is provided and that the maximum
possible is achieved.
The AITC is keen that the Committee considers
this option when examining the distribution of Lottery funds to
good causes. We would be pleased to provide more information on
the issues raised in this note if this would be helpful.
12 January 2004
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