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Learn Money Day 7 – Bankers, Islamic Finance, Save-O-Meter & tax fairness!

 

On our last day of Learn Money Week, we were very lucky to have renowned economist Professor Moorad Choudhry, IPO Treasurer at The Royal Bank of Scotland, help deliver a special session.

The top banker and author joined MyBnk Education Officer James and students from St Martin-in-the-Fields High School for Girls and the School of Hard Knocks to tackle banking, borrowing, saving, interest rates and mortgages…and play some games!

The 11 and 12 year olds didn’t miss the chance to quiz a real life banker. Fielding questions on breakups, bailouts and ethical finance, the MyBnk trustee rolled his sleeves up and dived straight into the nitty gritty, busting jargon and explaining cultural financial concepts like Islamic banking.

Collective “ahhhhhh”

The idea of lending money but not charging interest was a bit confusing for students. Especially after explaining how banks made their money! Pupils had heard of Shariah finance but were not sure a bank could turn a profit on such a basis.

Moorad explained that the Islamic financial model works on the basis of risk sharing. The customer and the bank share the risk of any investment on agreed terms, and divide any profits between them. Some ask for equity in a firm they lend money to.

“Just like the Dragons Den?” Exactly!

“Ahhhhhhh, I get it”.

Save-o-meter

Cutting back on spending and identifying bad financial habits are not the only way to get young people to save – helping them identify a goal and demonstrating how they can reach that goal is just as powerful as any shocking statistic.

The young lady on the left wants to buy a £300 annual subscription to a photography magazine. She’d like to buy it in six months. We divide the cost by 26 (average number of weeks) meaning she would have to squirrel away £11.53 a week or £1.64 a day. She know she spends around half what she needs a week on snacks, even though she doesn’t have to pay for lunch and her mum might match her savings. By mid-August she’ll have reached her goal and if she carried on saving for two years she’d have a whopping £1,200!

“I was impressed with their desire to learn, their energy and their keenness to engage with me, and their general knowledge of the economy” Moorad.

Hard knocks

Moorad and James then sped across London to the School of Hard Knocks, a youth group based in West Ham Rugby Club.

This is a charity that provides an eight week employment course for 17-23 year-olds who have been referred by the job center, generally if they are long-term unemployed or experiencing difficulty passing interviews. There were about 20 young people, some of whom had never had a job since leaving school.

Conversation quickly turned to tax and fairness. It helped participants understand the wider factors at work that effected their day-to-day life, connecting the macro to the micro.

In that session, Moorad had a “revelation”:

“When it came to the section on income tax, we presented some slides illustrating how income tax impacts the net take-home pay for someone on 15,000 per year, 35,000 per year and 150,000 per year. The first two cases pay a marginal rate of 25 percent, excluding payroll taxes, and the third case pays a marginal rate of 50 percent.

Did the group think this was fair? To a man, and woman, they said no. The most common refrain was “that’s not fair”.

The revelation was the impact on their aspiration. They could not see why anyone would want to work hard, and aim for a high salary, if they then simply handed over half of it to the state”.

What do you think?

 

 

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