Conal Gregory: Children need to learn that every penny counts

More than ever before, young people need the skills to cope in an increasingly difficult economic climate. In a recent survey by

online credit information provider Equifax, 94 per cent of parents think financial education should be taught in schools and a further 35 per cent did not feel their children had a good understanding of the value of money.

To counter so much ignorance, the Personal Finance Education Group (Pfeg) was established a decade ago. It helps schools to develop the appropriate skills to teach personal finance. Quite rightly, in June it was named Education and Training Charity of the Year.

Of course, one of the mandatory subjects, mathematics, helps children to understand money problems but this is not an alternative to making personal finance a compulsory subject in its own right.

There are almost countless qualifications that have been developed for schools and colleges to use from the entry level "award in financial literacy" upwards. Many have been accredited by the new Office of the Qualifications and Examinations Regulator (Ofqual) and form part of the National Qualifications Framework.

Such groundwork is to be praised. However, most teachers, parents and youngsters have their eyes fixed on the requirements for the next tier of education. It appears that few academic bodies take such formal personal finance certification into account when offering places.

At every age, schools need to teach personal finance and it needs to

be formally recognised in the curriculum and by educational bodies at all levels.

Thousands of adults will remember Yorkshire Bank's helpful school banks which enabled children to appreciate basic money transactions. Sadly, they closed some years ago, probably because they did not fit into the image of its international owner, National Australia Group.

To partly fill the gap, Yorkshire and Clydesdale Banks offer a series of community programmes aimed at children which focuses on numeracy. Called "Count Me In", it is a partnership with 19 local authorities through library networks across England and Scotland.

Using a book with games and activities related to a story, children are encouraged to improve their counting skills. The scheme runs from pre-school through primary and on to a web version for children aged 11 to 14.

Such foundations are invaluable but it should not lose momentum at the secondary level. The lack of understanding can be worrying. The difference between comprehensive and third party for vehicle insurance when youngsters want to ride a motorbike is crucial.

How many, too, understand interest rates and the associated acronyms? Such an appreciation will not only give meaning to their savings but possibly in future life when they consider a mortgage.

All youngsters – even the high fliers – should appreciate the difference between AER (annual equivalent rate) and APR (annual percentage rate). The former relates to the interest rate paid on savings and the latter on borrowing. For comprehension, they should know if interest paid monthly is better or worse than annually. The simple answer is monthly as interest paid compounds over the year.

When seeking a loan or credit card, everyone should learn to ask what is excluded from the APR, such as payment protection insurance. When seeking even a first investment, youngsters should understand they need to ask for the TER (total expense ratio) to see how much will be

deducted in charges. This partly explains the dramatic difference in performance between an investment trust and a unit trust with the same holdings.

Even the working of a current account and the difference between gross and net interest will help those going into work. Similarly, the correct use of credit and its risks should be compulsory pre-college including credit ratings.

The role that tax plays in society is also crucial. Those in school need to know about anything from tax allowances and alternative rates to tax-exempt savings. If they – and their parents – did, more would be signed up to the excellent value long-term tax-exempt plans offered by friendly societies, particularly those in Yorkshire.

For those who want to learn about the stock market, take part in the Shares4Schools competition run by The Share Centre, a leading retail stockbroker. This is not fantasy money but actual pound notes as each team raises an investment pot of 1,500. The aim is to achieve the greatest profit over the period from October to June.

The scheme gives real world experience of how the stock market works, the opportunity to win monthly cash prizes and raise cash for new school resources but also a chance to develop relationships with local businesses.

Finally, such role-playing will help to understand risk. Can we as a society risk that the next generation is not financially literate?

n Your Money: Advice from Conal Gregory in Saturday's Yorkshire Post.

Conal Gregory is the Yorkshire Post's personal fiance correspondent.