Financial education key to wealth – UK study

Making better financial decisions throughout your life can bring dramatic benefits to personal wealth, a new study by a UK think tank has found.

The Institute for Public Policy Research in London has found a couple aged between 35 and 49, with two children aged five and 11, could be better of by $79,500 (£32,000) as a result of undertaking financial literacy classes.

Institute senior research fellow Miranda Lewis said financial literacy lessons for young people pay off in the long term.

“Lessons that teach young people the basics of personal finance, like how to calculate interest, household budgeting and understanding mortgages, can help them make the right financial decisions later in life and avoid debt problems,” Lewis said.

“The evidence from America shows that financial education can pay real dividends, with some people being better off by up $79,500.”

In the US children in 28 states are taught compulsory financial education and some states have been running these lessons since 1957.

The legislation in 14 of these states require teachers to cover topics such as budgeting, credit management, balancing chequebooks, compound interest and other investment principles.

Research by the institute shows that if these types of lessons were applied in the UK, in addition to the couple with two children, a couple with no children could be better off by about $54,600 (£22,000), and a single person with no children could be better off by about $32,250 (£13,000).

The findings come as UK education authorities move to introduce work units next month that will cover looking after money, saving and spending.

The new units will be part of the personal, social and health education curriculums in schools. From September, 2010, basic finance skills will be taught as part of the functional maths certificate in secondary schools.

The framework for the new units being introduced in September is in four stages.

In the first stage, five to seven-year-olds are taught that money comes from different sources and can be used for different purposes.

The next stage for seven to 11-year-olds will see them learn about looking after their money and realise that future wants and needs may be met through saving.

The third stage for 11-14 year olds will see students taught about what influences how people spend or save money and how to become competent at managing personal money.

The last stage for 14-16 year old children will involve lessons on using a range of financial tools and services, including budgeting and saving, to manage personal money.