Facing the financial facts of life

©Rosie Hallam

Behind a desk in west London a new financial product is being developed. The crebit card is a combined credit and debit card which users can use to purchase items with either their own money when they have it, or credit when they don’t. The interest rates paid and charged vary according to its use.

The crebit card’s inventor is ten years old. Along with the rest of his class at Brookside Primary School, Arthur has been learning about money for the past few weeks – where it comes from, how it is used, why lenders charge interest.

One girl sitting at the back of the class thinks she has a better idea. Instead of borrowing money and paying it back, why not lend it out again and again and earn the interest? When asked what she would do if she had to pay the original sum back she shrugs and says: “Start again?”

Personal finance lessons such as this are rare in England.

The subject is not yet on the national curriculum, although it is taught in Wales, Scotland and Northern Ireland. English schools interested in adding it to their timetable must rely on help from businesses and charities such as Personal Finance Education Group (pfeg), MyBnk and DebtCred.

But as fears grow about the scale of the national savings crisis and its repercussions, there is more interest in the potential benefits of financial education.

The Chartered Insurance Institute estimates that, collectively, individuals in the UK are already trillions of pounds short of the savings they need to retire comfortably, and says young workers are least likely to save. The UK savings ratio, a measure of how much income households squirrel away, is about 7 per cent, below countries such as Germany, where households put an average 10 per cent of their salary aside.

Some schemes to tackle endemic under-saving are in place, including the introduction of auto-enrolment workplace pension schemes, and campaigners say that financial education would complement such plans, enabling people to be confident and competent with money from a young age.

By the time a child reaches 16, charities such as pfeg want them to know how money is used, what consumer protection is available to them and how to budget over the long and short term.

The cost of doing this would not be high, they argue, if the UK follows the example of Australia and includes finance within existing subjects such as maths and PSHE (personal, social, health and economic education).

At the John Warner School in Hoddesdon, Hertfordshire, children aged 11 to 19 have been learning about personal finance for the past three years, mixing factual lessons on annual percentage rates and compound interest with discussions about financial responsibility.

Ellen McHugh, the senior teacher responsible for the programme, thinks the lessons help to alleviate the anxiety many students fell about their future, particularly the soaring costs of university and housing. “If schools are going to push young people to improve, they must be taught to manage their finances,” she argues.

The Financial Services Authority believes adults in their twenties, who are often required to made decisions about housing, loans and employment for the first time, are the least financially capable age group. And payday lender Wonga says more than a third of its 1m customers are aged between 25 and 35, suggesting many fail to budget correctly.

Sharon Collard, director of the Personal Finance Research Centre at University of Bristol, thinks that the increasing exposure of young people to commercialism means that financial education is a more pressing issue than ever.

“Good or bad money habits learned young tend to endure in adulthood and the lack of a savings culture in the UK, and the lack of any serious effort to promote one, is an ongoing issue,” she says.

Last summer, the Centre for the Study of Financial Innovation found that out of 440 young people aged 18-25, three-quarters had received no financial education.

Sophie Robson, the 25-year-old author of the report, believes the lack of education also means young people are disengaged from the financial services industry.

“I have had a few consultations with financial advisers, and I’ve felt that they are either going much too fast, or explaining things to me that I already understand very well,” she writes. “I would have really benefited from more practical, hands-on advice when I was younger.”

Lessons from the banks

Royal Bank of Scotland chief Ross McEwan makes the case for banks in the classroom

Some academics argue that government resources would be better spent on regulation that ensure products sold to adults are marketed clearly, instead of material that teaches children what the products are.

Professor Brigitte Madrian, a professor in Harvard University’s John F. Kennedy School of Government, claims that the jury is still out on the effectiveness of financial literacy programmes. “What evidence is there that financial education actually increases financial literacy?” she asks. “The evidence is more limited and not as encouraging as one might expect.”

But Flore-Anne Messy, head of the OECD financial education project, says this argument holds little weight as global financial literacy schemes are still in their infancy. “Regulation and education are both necessary,” she says. “We need both if we are to tackle global financial problems.”