Teaching kids a valuable lesson
Quadratic equations, periodic tables and the fall of the Weimar Republic - there are plenty of things we learn at school that we're unlikely to use again. But, when it comes to learning skills that could be used everyday in adult life, such as personal finance, there can be huge gaps in our education. This is why Moneywise is petitioning the government to include personal finance on the National Curriculum.
"It's perfectly possible to go through school without any personal financial education at all," says Wendy van den Hende, chief executive of the Personal Finance Education Group (pfeg). "There is room for it within the curriculum but it's not compulsory."
At the moment, personal finance education can fall into a number of different subject areas including maths, citizenship or personal, social and health education. Unfortunately, though, as it's not a compulsory part of the curriculum, whether your child studies it is largely up to their school.
This lack of financial education is leading to problems. For instance, in research conducted among 14 to 18-year-olds, pfeg found that more than half of them had been in debt by the time they were 17, and although 90% worried about money, they saw overdrafts and credit cards as easy ways to buy things they couldn't afford.
"We find there are some real problems with basic numeracy," adds Graham Durgan, who is leading a financial literacy initiative on behalf of the Institute of Chartered Accountants in England and Wales. "Fifty per cent of school leavers don't understand what 50% means."
Record levels of debt
With debt already reaching record levels and more people failing to save for the future, this lack of financial capability has serious ramifications for society. Unsurprisingly, therefore, there has been much discussion about how the government can help. In January, Ed Balls - the then economic secretary to the Treasury - introduced the Government's long-term approach to financial capability.
With a primary objective of ensuring that everyone gets access to good quality financial advice, it also aims to promote better financial education and develop a savings culture among children and young people.
This is something Balls is pursuing in his new position of minister for children, schools and families. In September next year, secondary schools will be able to teach a new programme of study, covering economic wellbeing and financial capability as part of personal, social and health education. Until now, no such programme has existed.
Even though there is demand, from parents and schools, experts are cynical as to whether the Government will deliver. "There's a lot of noise about teaching personal finance in schools, especially since the Government proposed using the child trust fund as part of their education," says Miles Bingham, marketing director at Family Investments.
"Unfortunately, though, there's already so much pressure on the curriculum that it won't be possible to include it on anything other than an optional basis."
The Government's commitment to personal finance education may appear half-hearted. However, there are initiatives available for schools. Leading the way is pfeg, through its work with the FSA. Over the next five years, it's aiming to roll-out its Learning Money Matters programme to around two-thirds of the UK's secondary schools.
This will provide teachers with all the support and advice they need to teach personal finance effectively. It is also planning a project to bring financial education into primary schools.
GCSE, AS and A-level equivalent qualifications run by the ifs School of Finance are now offered in more than 200 schools around the country. "They cover topics such as budgeting, opening and accessing accounts and understanding different methods of payment," explains Rod McKee, head of financial capability at the ifs School of Finance.
"They are relevant to everyday life, covering things such as understanding a payslip and differentiating between mobile phone tariffs."
More informal initiatives have also been set up. Earlier this year Britannia Building Society set up a financial education programme for 14 to 16-year-olds in Staffordshire, Derbyshire and Cheshire and now plans to roll it out to other parts of the country.
The Institute of Chartered Accountants is also developing a financial literacy initiative. This involves its members either teaching finance in schools or providing support to enable teachers to deliver the classes. However, while personal finance education is progressing, it's still very much down to parents to teach their kids about money.
Financial education at home
With many schools unable to provide the financial education you would like your child to receive, it's worth ensuring they learn good money habits at home. "Children are influenced by their families, and there are so many things you can do to help them learn about money," says Wendy van den Hende, chief executive of the Personal Finance Education Group (pfeg).
Here are some ideas to get you started:
Infant school (age five to seven)
At this stage, learning about money should be fun and include games such as playing shop. Piggy banks are another useful way to help children develop good financial habits. Van den Hende suggests explaining the decisions you make when you go to the supermarket.
"Explain why you've picked a particular product and about the different offers that supermarkets run. You can also talk to them about the transaction at the checkout, explaining where the money comes from and why you get change."
Primary school (age seven to 11)
Pocket money is a useful tool to teach a variety of financial lessons. "We give our 11-year-old daughter £3 a week plus a performance-related bonus of £2 if she has done well in her weekly spelling and maths tests," says David Gwyer, media relations manager at Halifax. "This makes her more willing to knuckle down to her homework."
Nicholas O'Shea, a director of Canterbury-based independent financial adviser Pharon, also recommends being firm with children about money. He has two children, Daniel, 10, and Rebecca, seven, both of whom receive weekly pocket money.
"Once the money's gone, it's gone and they don't get any extras," he says, adding that this has helped them to understand the value of money and to learn to budget and save for more expensive things.
A savings account can also be useful for encouraging good financial habits. This can be used to teach your child how to find the best deal and to save regularly, as well as more advanced concepts such as how compound interest works.
Secondary school (age 11 to 18)
Switching from weekly pocket money to a monthly allowance can be worth considering with older children. "Pay for the essentials, but let them manage their budget over the month," says van den Hende. "If they make a mistake, don't bail them out. It's a lot easier to survive and learn from a budgeting mistake at 16 than at 26."
She also recommends involving them more in the household finances. "People do tend to shield children from this, but it's a good way to introduce them to financial products that they will use when they are older," she explains.
Support the Moneywise campaign to get personal finance on the National Curriculum by signing our petition on the Prime Minister's website. It's free, easy and could make all the difference to the next generation of school children.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.