Select Committee on Treasury Written Evidence

Memorandum submitted by the Association of Investment Companies

  1. The Association of Investment Companies (AIC) welcomes this opportunity to outline its views on the use of unclaimed assets. The AIC is a trade association representing closed ended investment companies. It has 302 members and the industry has total assets of approximately £86.6 billion. The AIC has a longstanding interest in the distribution of unclaimed assets and has been arguing for a number of years that they could be an important source of funding to support the provision of financial education.


  2.1 An effective financial education programme will help individuals develop their financial capability. This will help potentially vulnerable individuals:

  2.2 Avoid inappropriate financial arrangements: in particular, taking on too much debt. Over-indebtedness is often related to an individual's propensity to borrow as well as their overall financial circumstances.

  2.3 Engage confidently with financial issues: so that individuals can recognise, and deal with, the dangers of poor financial management.

  2.4 Identify suitable opportunities: including understanding the benefits of basic financial services and making "rainy-day" and pensions savings.

  2.5 Critically assess information and advice: helping them make judgements about sales claims, advice and specific product features.

  2.6 Delivering even small enhancements in financial capability as set out above could have significant effects in a wide number of areas. Individuals with little financial understanding may not be able to evaluate credit offers, and so get themselves into expensive debt which they cannot afford. This can lead to serious problems in relation to housing, crime and even suicide. Financial awareness is one means of reducing financial pressures and so can help avoid these problems.

  2.7 Poor financial awareness can also compromise the effectiveness of public policies specifically designed to address social inclusion issues. The take up of the Child Trust Fund (CTF) exemplifies this. The CTF was introduced to give future generations of young adults access to financial resources which will help them develop their life-chances. Enhancing financial capability will help ensure parents take an active role in investing on their child's behalf and so increase the potential of this policy to secure its objectives.


  3.1 A recent survey by the FSA found that while many schools say they are delivering some form of personal finance education, what is actually happening in the classroom is very mixed. There is no consistency in the topics covered or the frequency of lessons. For most schools financial education is likely to involve one or two lessons a term—or even less. Fewer than a third of primary teachers and less than a quarter of secondary teachers feel very confident in delivering this subject.

  3.2 Schools at least provide a basic infrastructure to target young people and mechanisms to coordinate delivery (notably Local Education Authorities). Unfortunately the picture for adult learning is far less optimistic. Opportunities for reaching adults are even more poorly resourced and fragmented. Reaching them is arguably far more challenging than young people who are at school. However, we are confident that suitable initiatives could be developed in workplace, community and social environments. Some FSA workplace pilot schemes, which aim to reach 4 million individuals over 5 years, are being developed but this is just the start. An effective programme should also involve exploiting other trigger points, such as different lifetime events (perhaps the birth of a child, moving job, redundancy or retirement) or crisis points (such as imprisonment or falling into debt) to develop opportunities for engagement.

  3.3 An effective financial education programme must be comprehensive. It should cover all age ranges, ethnic groups and be available across the country. The AIC therefore recommends that the funding criteria for financial education programmes adopted by the Social Investment Bank must consider all relevant target areas, including adult and school based financial education projects. However, the focus of its work is likely to be outreach (rather than schools-based) projects as these are likely to be most cash-starved. (Schools should be better able to secure funding from other budgets).


  4.1 The AIC recognises that there will be many competing claims on assets released through this scheme but believes financial education has a critical role in addressing social and financial exclusion. This area should therefore be a priority in the allocation of these resources. We fully support the creation of a Social Investment Bank (SIB) to administer the distribution of these funds.

  4.2 The SIB should act as a wholesaler of funds to specialist distributors. In the first instance we strongly recommend that the SIB should work with the FSA to channel unclaimed assets to appropriate targets. The FSA would be a suitable specialist distributor because it already has a statutory duty to promote financial understanding. It has also been developing a strategy to enhance financial capability in the UK. Similarly it has extensive contacts with potential providers. We envisage it would be relatively easy for the FSA to adapt and expand its role to be a point of contact for organisations seeking funding and identifying and allocating funds to appropriate projects. If the FSA were not able to take on this role another possible specialist distributor would be the Personal Finance Education Group (pfeg) an educational charity with considerable experience in this area.


  5.1 Resources for dedicated financial education projects are currently very scarce given the size of the educational task. We have previously recommended that a total budget in the region of £50m per year would be required to develop and deliver a comprehensive programme for financial education designed to create a step change in financial capability. (Although funding requirements might decline once schemes are up and running and an overall programme has been developed.)

  5.2 We anticipate that the main type of financing required by providers of financial education will be grants to fund materials, staff and ongoing expenses. Our assumption is that delivery will mainly be in schools and other public spaces (such as libraries and religious and community facilities) and that many resources could be accessed through the internet (which is itself available in schools, libraries etc). Costs would therefore be focussed on training, materials and staff rather than physical infrastructure.

  5.3 Clearly the funds available to the SIB to distribute to financial education will depend on the absolute level of unclaimed assets it receives. Notwithstanding the fact that parties concerned with financial education will have to make a compelling case for funding, based on a clear project plan and impact assessments, we recommend that the SIB should be prepared to deliver a significant amount to securing our proposed level of funding.

February 2007

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